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Question
Blatt Company, a manufacturer of slippers, began operations on June 1 of the current year. During this time, the company produced 210,000 units and sold 185,000 units at a sales price of $40 per unit. Cost information for this period is shown in the following table:Production costs
Direct materials $5.00 per unit
Direct labor $4.75 per unit
Variable overhead $302,000 in total
Fixed overhead $405,000 in total
Non-production costs
Variable selling and administrative $9,000 in total
Fixed selling and administrative $25,000 in total
a. Prepare Blatt's December 31st income statement for the current year under absorption costing.
b. Prepare Blatt's December 31st income statement for the current year under variable costing.
a.
Blatt COMPANY
Income Statement (Absorption Costing)
For the seven months ended December 31, xx
Sales (185,000 $40) $7,400,000
Cost of goods sold (185,000 $13.12*) 2,427,200
Gross margin 4,972,800
Selling and administrative expenses ($9,000 + $25,000) 34,000
Net income $4,938,800
*$5 + $4.75 + ($302,000/210,000) + ($405,000/210,000) = $13.12
b.
Blatt COMPANY
Income Statement (Variable Costing)
For the seven months ended December 31, xx
Sales (185,000 $40) $7,400,000
Variable expenses
Variable production costs (185,000 $11.19*) 2,070,150
Variable selling and administrative 9,000
Contribution margin 5,320,850
Fixed expenses
Fixed overhead 405,000
Fixed selling and administrative expenses 25,000
Net income $4,890,850
*$5 + $4.75 + ($302,000/210,000) = $11.19
Answer
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