Preparation of income statement using absorption and marginal costing.
Absorption and Variable Costing
Joan Tyler started a small manufacturing company, JT Enterprises, at the beginning of 2005.
Joan has prepared the following income statement for the first quarter of operations.
|
JT Enterprises
|
|
Income Statement For the Quarter Ended March 31, 2005
|
|
|
|
Sales revenue (25,000 units)
|
|
$1,200,000
|
|
Less variable costs:
|
|
|
|
Variable cost of goods sold
|
$540,000
|
|
|
Variable selling and administrative expenses
|
260,000
|
800,000
|
|
Contribution margin
|
_____________
|
_____________
|
|
Less fixed costs:
|
|
$400,000
|
|
Fixed manufacturing overhead
|
$300,000
|
|
|
Fixed selling and administrative expenses
|
150,000
|
450,000
|
|
|
_____________
|
_____________
|
|
Net loss
|
|
($50,000)
|
|
|
|
___________
|
|
|
|
___________
|
The variable cost of goods sold includes the direct materials, direct labor, and variable manufacturing overhead. The company began the quarter with no inventory; it manufactured 30,000 units over the period. Variable selling and administrative expenses are based on units sold.
Required
a. Calculate the unit product cost using absorption costing.
b. Rework the income statement using absorption costing.
c. Does the loss figure change using absorption costing? If yes, explain why.
d. During the second quarter of operations, JT again manufactured 30,000 units but sold 35,000 units. Prepare income statements for the second quarter using both the variable-and absorption-costing methods.
e. Explain the difference in net income (or loss) in the second quarter between the two statements prepared in requirement (D).