Preparation of income statement

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Reference no: EM1314425

Preparation of income statement using absorption and marginal costing.

Absorption and Variable Costing
Joan Tyler started a small manufacturing company, JT Enterprises, at the beginning of 2005.
Joan has prepared the following income statement for the first quarter of operations.

JT Enterprises

Income Statement For the Quarter Ended March 31, 2005

 

 

Sales revenue (25,000 units)  

 

$1,200,000

Less variable costs:

 

 

Variable cost of goods sold

$540,000

 

Variable selling and administrative expenses              

260,000

800,000

Contribution margin

_____________

_____________

Less fixed costs: 

 

$400,000

 Fixed manufacturing overhead

$300,000

 

   Fixed selling and administrative expenses 

150,000

450,000

 

_____________

_____________

Net loss

 

($50,000)

 

 

___________

 

 

___________

The variable cost of goods sold includes the direct materials, direct labor, and variable manufacturing overhead. The company began the quarter with no inventory; it manufactured 30,000 units over the period. Variable selling and administrative expenses are based on units sold.

Required

a. Calculate the unit product cost using absorption costing.

b. Rework the income statement using absorption costing.

c. Does the loss figure change using absorption costing?  If yes, explain why.

d. During the second quarter of operations, JT again manufactured 30,000 units but sold 35,000 units. Prepare income statements for the second quarter using both the variable-and absorption-costing methods.

e. Explain the difference in net income (or loss) in the second quarter between the two statements prepared in requirement (D).

Reference no: EM1314425

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