Question - Income statements under absorption costing and variable costing
Rugged Gear Inc. manufactures and sells men's athletic clothes. The company began operations on July 1, 2010, and operated at 100% of capacity (73,700 units) during the first month, creating an ending inventory of 6,700 units. During August, the company produced 67,000 garments during the month but sold 73,700 units at $125 per unit. The August manufacturing costs and selling and administrative expenses were as follows:
|
Number of Units
|
Unit Cost
|
Total Cost
|
|
Manufacturing costs in August beginning inventory:
|
|
|
|
|
Variable
|
6,700
|
$50.00
|
$335,000
|
|
Fixed
|
6,700
|
19.00
|
127,300
|
|
Total
|
|
$69.00
|
$462,300
|
|
August manufacturing costs:
|
|
|
|
|
Variable
|
67,000
|
$50.00
|
$3,350,000
|
|
Fixed
|
67,000
|
$20.90
|
1,400,300
|
|
Total
|
|
$70.90
|
$4,750,300
|
|
Selling and administrative expenses:
|
|
|
|
|
Variable ($ 24.70 per unit sold)
|
|
|
$1,820,390
|
|
Fixed
|
|
|
582,200
|
|
Total
|
|
|
$2,402,590
|
a. Prepare an income statement according to the absorption costing concept for August. Enter all amounts as positive numbers.
b. Prepare an income statement according to the variable costing concept for August. Enter all amounts as positive numbers.