Variable Costing Income Statement

On July 31, the end of the first month of operations, Rhys Company prepared the following income statement, based on the absorption costing concept:

Sales (96,000 units)				$4,440,000
Cost of goods sold:
	Cost of goods manufactured	$3,120,000
	Less ending inventory (24,000 units)	624,000
	Cost of goods sold		2,496,000
Gross profit		$1,944,000
Selling and administrative expenses		288,000
Income from operations		$1,656,000

a. Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $132,000 and the variable selling and administrative expenses were $115,200. In your computations, round unit costs to two decimal places and round final answers to the nearest dollar.

Sales		4,440000
Variable cost of goods sold:
Variable cost of goods manufactured
Less ending inventory
Variable cost of goods sold
Manufacturing margin
Variable selling and administrative expenses		115,200
Contribution margin		1,934,400
Fixed costs:
Fixed manufacturing costs	132,000
Fixed selling and administrative expenses
Income from operations

b. Reconcile the absorption costing income from operations of $1,656,000 with the variable costing income from operations determined in (a).

Absorption costing income from operations	1,656,000
Variable costing income from operations
Difference	$