Cool Sky reports the following costing data on its product for its first year of operations....

Question:

Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 42,000 units and sold 34,000 units at a price of $120 per unit

Manufacturing costs
Direct materials per unit $48
Direct labor per unit $18
Variable overhead per unit $6
Fixed overhead for the year $420,000
Selling and administrative costs
Variable selling and administrative cost per unit $11
Fixed selling and administrative cost per year $105,000

Assume the company uses variable costing. Prepare its income statement for the year under variable costing.

Cost Sheet:

The cost sheet is prepared under two methods mainly. These two methods are the absorption costing method and the variable costing method. The absorption costing method is essential as per US GAAP. The variable costing method is followed for internal use purposes.

Answer and Explanation:

Prepare income statement under the variable costing as follows: -

Income Statement under variable costing
Particulars Amount Amount
Sales ($120 x 34,000) $4,080,000
Less: Manufacturing costs
Direct materials per unit $48
Direct labor per unit $18
Variable overhead per unit $6
Variable selling and administrative cost per unit $11
Per Units Cost of Sales $83
Total Cost of Sales ($83 x 34,000) -$2,822,000
Less: Selling and administrative costs
Fixed overhead for the year $420,000
Fixed selling and administrative cost per year $105,000
Total Fixed Cost -$525,000
Net Profit $733,000


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