Income statements under absorption costing and varioble costing Fresno Industries Inc, manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (146,000 units) during the first month, creating an ending inventory of 21,000 units. During February, the company produced 125,000 unles during the month but sold 146,000 units at $550 per unit. The February manufacturing costs and selling and administrative expenses were as follows: Number of Unit Total Units Cost Cost Manufacturing costs in February 1 beginning inventory: Variable 21,000 $275.00 $5,775,000 Fixed 21,000 24.00 504,000 Total $299.00 $6,279,000 Manufacturing costs in February Variable 125,000 $275.00 $34,375,000 Fixed 125,000 27.70 3,462,500 Total $302.70 $37,837,500 Selling and administrative expenses in February: Variable 146,000 18.50 $2,701,000 Fixed 146,000 3.00 438,000 Total 21.50 $3,139,000 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below a. Prepare an income statement according to the absorption costing concept for February, Enter all amounts as DUSILIVU TIDIS. Fresno Industries Inc. Absorption Costing Income Statement For the Month Ended February 28 Sales Cost of goods sold: Beginning inventory Cost of goods manufactured Total cost of goods sold Gross profit Selling and administrative expenses Operating income b. Prepare an income statement according to the variable costing concept for February, Enter all amounts as positive numbers. Fresno Industries Inc. Variable Costing Income Statement For the Month Ended February 28 Sales Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses b. Prepare an income statement according to the variable costing concept for February, Enter all amounts as positive numbers, Fresno Industries Inc. Variable Costing Income Statement For the Month Ended February 28 Sales Variable cost of goods sold Manufacturing marin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total Fixed costs Operating income c. What is the reason for the difference in the amount of Operating income reported in (a) and (b)? Under the absorption costing method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under variable costing all of the foxed 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 Operating income
