Ask Question
16 November, 21:57

Rey Company's single product sells at a price of $216 per unit. Data for its single product for its first year of operations follow. Direct materials $ 20 per unit Direct labor $ 28 per unit Overhead costs Variable overhead $ 6 per unit Fixed overhead per year $ 160,000 per year Selling and administrative expenses Variable $ 18 per unit Fixed $ 200,000 per year Units produced and sold 20,000 units 1. Prepare an income statement for the year using absorption costing 2. Prepare an income statement for the year using variable costing.

+4
Answers (1)
  1. 16 November, 22:37
    0
    1. Using Absorption Costing

    Income Statement

    Sales 20,000 X $216 = $4,320,000

    Less: Cost of Goods Sold (Note 1) = ($1,240,000)

    Gross Margin = $3,080,000

    Less: Operating Expenses

    Selling and Administrative Expense = ($560,000)

    (Note 2)

    Net Income = $2,520,000

    Note:

    Cost of goods Sold = All the direct variable cost + direct fixed cost = Direct materials + Direct Labor + Direct Overhead = $20 + $28 + $6 = $54 per unit, Total = $54 X 20,000 units = $1,080,000 + Fixed cost = $160,000 = $1,240,000 Selling And Administrative Expense = Variable + Fixed, Variable = $18 X 20,000 units = $360,000, Fixed Expenses = $200,000, Total = $560,000

    2. Using Variable Statement

    Sales 20,000 X $216 = $4,320,000

    Less: Variable Costs

    Direct Material $20 X 20,000 = ($400,000)

    Direct Labor $28 X 20,000 = ($560,000)

    Variable Overhead $6 X 20,000 = ($120,000)

    Variable Selling Expense $18 X 20,000 = ($360,000)

    Contribution Margin = $2,880,000

    Less: Fixed Costs

    Fixed Overhead = ($160,000)

    Fixed Selling & Administrative = ($200,000)

    Net Income = $2,520,000

    Note: Under Variable Statement first variable expenses are deducted to get the value of contribution, and then fixed expenses are deducted to get net income, whereas in absorption costing firstly manufacturing expenses are deducted to get gross margin and then operating expenses like selling and administrative expenses are deducted to get the net income.

    But Net income is same in both cases.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Rey Company's single product sells at a price of $216 per unit. Data for its single product for its first year of operations follow. Direct ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers