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Income Statements under Absorption Costing and Variable Costing Joplin Industries Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable J-Sports logo. The
Income Statements under Absorption Costing and Variable Costing Joplin Industries Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable J-Sports logo. The company began operations on May 1 and operated at 100% of capacity (56,100 units) during the first month, creating an ending inventory of 5,100 units. During June, the company produced 51,000 garments during the month but sold 56,100 units at $115 per unit The June manufacturing costs and selling and administrative expenses were as follows Total Number Unit Cost of Units Cost Manufacturing costs in June 1 beginning inventory Variable 5,100 $46.00 $234,600 Fixed 5,100 17.00 86,700 $63.00 $321,300 Total Manufacturing costs in June 51,000 $46.00 $2,346,000 Variable 0:953,700 $64.70 $3,299,700 51,000 18.70 Fixed Total Selling and administrative expenses in June: 56,100 22.10 $1,239,810 Variable Fixed 56,100 7.00 392,700 29.10 $1,632,510 Total a. Prepare an income statement according to the absorption costing concept for June Joplin Industries Inc. Absorption Costing Income Statement For the Month Ended June 3 Sales Cost of goods sold Beginning inventory Cost of goods manufactured Total cost of goods sold Gross profit Selling and administrative expenses Income from operations b. Prepare an income statement according to the variable costing concept for June. Joplin Industries Inc. Variable Costing Income Statement For the Month Ended June 30 Sales Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Income from operations c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)? Under the absorption costingmethod, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under variable costing all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the absorption costing income statement will have a lower income from operations
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