Question

Calusa Inc. is a publicly traded company that manufactures retractable water hoses. The

company has asked you to recommend a method of inventory costing. The company will use your recommendation to create the company’s monthly income statements. The following data are for the first two months of 2020.

Jan 2020 Feb 2020

Beginning Inventory (in units) -0- 38,000

Production Volume (in units) 120,000 120,000

Sales Volume (in units) 82,000 155,000

Selling Price per Unit 125 125

Variable Manufacturing Costs per hose manufactured 50 50

Variable Advertising Cost per hose sold 35 35
Fixed Manufacturing Overhead Costs 420,000 420,000
Fixed Advertising Costs 105,000 105,000

The company policies used to prepare internal reports for management are closely aligned with the policies used to prepare statements for external users.

prepare:

a) Contribution Margin Statement for each month under variable costing

Calusa Inc.
Contribution Margin Statement
For the First Two Months in 2020
	January 2020		February 2020

b) Income Statement for each month under absorption costing

Calusa Inc.
Income Statement
For the First Two Months in 2020
	January 2020		February 2020

Answer 1

Answer with working notes is given below

Calusa Inc. Income Statement Variable Costing January 2020 Opening stock Production units Sales Closing stock Selling price per unit 120,000 82,000 38,000 $125 February 2020 38,000 120,000 155,000 3,000 $125 $10,250,000 $19,375,000 $1,900,000 Sales Less : Variable Cost Beginning FG Inventory Variable Cost of Goods manufactured Variable Manufacturing cost Cost of Goods available for sale Less: Closing Stock-Working note below Variable Cost of Goods Sold Variable Advertising expense Contribution Margin $6,000,000 $6,000,000 $1,900,000 $6,000,000 $7,900,000 $150,000 $4,100,000 $2,870,000 $3,280,000 $7,750,000 $5,425,000 $6,200,000 Less: Fixed Cost Fixed Manufacturing Cost Advertising cost (Fixed) $420,000 $105,000 $525,000 $420,000 $105,000 $525,000 Operating profit $2,755,000 $5,675,000 Working notes: Closing stock valuation Variable manufacturing cost Total production units Product cost per unit Closing stock Value of Closing stock January 2020 $6,000,000 120,000 $50.00 38,000 $1,900,000 February 2020 $6,000,000 120,000 $50.00 A 3,000 B $150,000 AXB Calusa Inc. Income Statement Absorption Costing January 2020 Opening stock Production units Sales Closing stock Selling price per unit 120,000 82,000 38,000 $125 February 2020 38,000 120,000 155,000 3,000 $125 $10,250,000 $19,375,000 $2,033,000 Sales Less: Cost of Goods Sold Beginning FG Inventory Cost of Goods manufactured Variable Manufacturing cost Fixed Manufacturing Overheads Cost of Goods available for sale Less: Closing Stock-Working note below Cost of Goods Sold Gross Profit $6,000,000 $420,000 $6,420,000 $2,033,000 $6,000,000 $420,000 $8,453,000 $160,500 $4,387,000 $5,863,000 $8,292,500 $11,082,500 Less :Selling and administration expenses Advertising cost (Variable) Advertising cost (Fixed) $2,870,000 $105,000 $5,425,000 $105,000 $2,975,000 $5,530,000 Operating Profit $2,888,000 $5,552,500 Working notes: Closing stock valuation Variable manufacturing cost Fixed manufacturing cost Total production cost Total production units Product cost per unit Closing stock Value of Closing stock January 2020 $6,000,000 $420,000 $6,420,000 120,000 $53.50 38,000 $2,033,000 February 2020 $6,000,000 $420,000 $6,420,000 120,000 $53.50 A 3,000 B $160,500 AXB