Question
Gopi and Rashi started a new business manufacturing cooker. They both kept separate set of accounts of their business. However, at the end of the
Gopi and Rashi started a new business manufacturing cooker. They both kept separate set of accounts of their business. However, at the end of the first year of operations their net incomes didnt match. A fight was about to start between the two owing to discrepancy in net incomes. Kokila, their friend, asked them to present their income statements. As such information relating to the businesss the first year of operation follow:
Production in units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26000
Sales in units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21000
Variable manufacturing cost per unit produced. . . . . . . . . . . . . $9
Variable selling and administrative expense per unit sold. . . . . $3
Fixed manufacturing overhead costs (total) . . . . . . . . . . . . . . . $324300
Using the above data, Rashi presented the following income statement:
Sales (21000 units) . . . . . . . . . . . . . . . . . . . . . . . . . . $840000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . $450934.61538461543
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $389065.38461538457
Selling and administrative expenses . . . . . . . . . . . . $251200
Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $137865.38461538457
Gopi, on the other hand, asked for your help to prepare a variable costing income statement. Prepare a variable costing income statement of Gopi and Rashi (5 marks) and explain why the net income between the two methods differs (2 marks).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started