Whirlpool Corporation had the following abbreviated income statement for a recent year:
|Cost of goods sold||$16,089|
|Selling, administrative, and other expenses||1,621|
|Income from operations||$956|
Assume that there were $4,024 million fixed manufacturing costs and $930 million fixed selling, administrative, and other costs for the year.
The finished goods inventories at the beginning and end of the year from the balance sheet were as follows:
|January 1||$2,792 million|
|December 31||$2,354 million|
Assume that 30% of the beginning and ending inventory consists of fixed costs. Assume work in process and material inventory were unchanged during the period.
Prepare an income statement according to the variable costing concept for Whirlpool Corporation for the recent year.
What Is Variable Costing:
Although Variable Costing is not permitted under GAAP, companies can use this reporting method internally for decision-making. Variable Costing involves expensing the variable costs incurred during the period (i.e. fixed costs are not considered).
Answer and Explanation:
Variable manufacturing costs incurred during the year = (1-30%) * Ending inventory + (Cost of goods sold - fixed portion) - (1-30%) * Beginning inventory
= 0.7*2,354 +(16,089-4,024 ) -0.7*2,792
|Cost of goods sold (see above)||11,758.4|
|Selling, administrative, and other expenses =1,621-930||691|
|Income from operations =18,666-11,758.4-691||6,216.6|
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from Financial Accounting: Help and ReviewChapter 13 / Lesson 5