Wrap-It Company a manufacturer of wrapping paper began operations on June

Question

Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During this time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit. Cost information for this period is shown in the following table:
Production costs
Direct materials $2.00 per unit
Direct labor $.80 per unit
Variable overhead $814,000 in total
Fixed overhead $481,000 in total
Non production costs
Variable selling and administrative $78,000 in total
Fixed selling and administrative $210,000 in total
a. Prepare Wrap-It's December 31^st income statement for the current year under absorption costing.
b. Prepare Wrap-It's December 31^st income statement for the current year under variable costing.
a.
WRAP-IT COMPANY
Income Statement (Absorption Costing)
For the seven months ended December 31, xx
Sales (310,000 $50) $15,500,000
Cost of goods sold (310,000 $6.30*) 1,953,000
Gross margin 13,547,000
Selling and administrative expenses ($78,000 + $210,000) 288,000
Net income $13,259,000
*$2 + $.80 + ($814,000/370,000) + ($481,000/370,000) = $6.30

b.
WRAP-IT COMPANY
Income Statement (Variable Costing)
For the seven months ended December 31, xx
Sales (310,000 $50) $15,500,000
Variable expenses
Variable production costs (310,000 $5.00*) 1,550,000
Variable selling and administrative 78,000
Contribution margin 13,872,000
Fixed expenses
Fixed overhead 481,000
Fixed selling and administrative expenses 210,000
Net income $13,181,000
*$2 + $.80 + ($814,000/370,000) = $5.00

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