During the first month of operations ended May 31, 2016, Frost Point Fridge Company manufactured 46,000 mini refrigerators, of which 42,000 were sold. Operating data for the month are summarized as follows:

1	Sales		$9,660,000.00
2	Manufacturing costs:
3	Direct materials	$3,220,000.00
4	Direct labor	1,380,000.00
5	Variable manufacturing cost	828,000.00
6	Fixed manufacturing cost	506,000.00	5,934,000.00
7	Selling and administrative expenses:
8	Variable	$756,000.00
9	Fixed	294,000.00	1,050,000.00

Required:

1.

Prepare an income statement based on the absorption costing concept.*

2.

Prepare an income statement based on the variable costing concept.*

3.

Explain the reason for the difference in the amount of income from operations reported in (1) and (2).

* Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign.

Labels and Amount Descriptions

Labels
Fixed costs
For the Month Ended May 31, 2016
May 31, 2016
Amount Descriptions
Contribution margin
Contribution margin ratio
Cost of goods manufactured
Cost of goods sold
Ending inventory
Fixed manufacturing costs
Fixed selling and administrative expenses
Gross profit
Income from operations
Loss from operations
Manufacturing margin
Planned contribution margin
Sales
Sales mix
Selling and administrative expenses
Variable cost of goods manufactured
Variable cost of goods sold
Variable selling and administrative expenses

Absorption Costing Income Statement

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1. Prepare an income statement based on the absorption costing concept. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign.

Score: 6/66

Frost Point Fridge Company

Absorption Costing Income Statement

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2	Cost of goods sold:
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Points:

1.36 / 15

Feedback

Check My Work

Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = income from operations.

* (Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)

Variable Costing Income Statement

Shaded cells have feedback.

2. Prepare an income statement based on the variable costing concept. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign.

Question not attempted.

Score: 0/102

Frost Point Fridge Company

Variable Costing Income Statement

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2	Variable cost of goods sold:
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Points:

0 / 23

Feedback

Check My Work

Sales - variable cost of goods sold* = Manufacturing margin; Manufacturing margin - variable selling and administrative expenses = Contribution margin; Contribution margin - (fixed manufacturing costs + fixed selling and administrative expenses) = income from operations.

*Variable cost of goods sold = Variable cost of goods manufactured - [(Manufactured Units - Sold units) x (variable manufacturing costs/manufactured units)]

Final Question

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3. Explain the reason for the difference in the amount of income from operations reported in (1) and (2).

The income from operations reported under absorption costing exceeds the income from operations reported under variable costing by the difference between the two, due to fixed manufacturing costs that are deferred to a future month under absorption costing.