Walsh Company manufactures 30,000 units during July. There were no units in inventory on July 1. Informatin on costs and expenses for July is as follows:

	Total $	Number of units	Unit $
Manufacturing costs
Variable	660,000	30,000	22
Fixed	300,000	30,000	10
	960,000
Selling and Administrative expenses
Variable	200,000	25,000	8
Fixed	160,000
Total	360,000

Required:

If the company sells 25,000 units at $75 ( units manufactured exceeds units sold), prepar an incme statement for July using:

1. Absorption Costing
2. Varibale Costing

Solution:

Absorption Costing Income Statement	$	$
Sales
Costs of Goods Sold
Costs of Goods Manufactured
Less Ending Inventory
Total Costs of Goods Sold
Gross Profit
less Selling and Administrative expenses
Income from Operation

Variable Costing Income Statement	$	$
Sales
Variable Costs of Goods Sold
Variable Manufacturing costs
less Ending Inventory
Total Variable COGS
Manufacturing Margin
Less Variable Selling and Administrative Expenses
Contribution margin
Less Fixed costs
Fixed manufacturing costs
Fixed Selling and Administrative expenses
Total Fixed costs
Income from Operation

Question 3:

A business operated at 100% of capacity during its first month and incurred the following costs:

Production costs (5,000 units):
Direct materials	$70,000
Direct labor	20,000
Variable factory overhead	10,000
Fixed factory overhead	2,000	$102,000
Operating expenses:
Variable operating expenses	$17,000
Fixed operating expenses	1,000	18,000

1,000 units remain unsold at the end of the month and sales total $150,000 for the month.

Calculate the amount of i) income from operations and ii) ending inventory:

Hints:

• Calculate the production costs per unit under each costing system.
• Under absorption costing: Production costs per unit = DM + DL + VFOH + FFOH
• Under variable costing: Production costs per unit = DM + DL + VFOH
• Use the production costs per unit to calculate income from operation and ending inventory.

1. Under the absorption costing income statement

Income from operation:

Ending Inventory:

2. Under the variable costing income statement

Income from operation:

Ending Inventory: