Question

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The Marx Company produces a 10-inch chef knife used by commercial chefs. The knives sell for $200 each. In 2020, the company produced 10,400 units and sold 8,300 units. There was no beginning inventory. Following are variable and full costing income statements for 2020 Income Statement Prepared Using Variable Costing Marx Company Income Statement For the Year Ending December 31, 2020 Sales $1,660,000 Less variable costs: Variable cost of goods sold $820,000 Variable selling expense 158,000 978,000 Contribution margin 682,000 Less fixed costs: Fixed manufacturing expense 322,400 Fixed selling expense 100,000 Fixed administrative expense 200,000 622,400 Net income $59,600 Sales Income Statement Prepared Using Full Costing Marx Company Income Statement For the Year Ending December 31, 2020 $1,660,000 Less cost of goods sold 1,077.300 Gross margin 582.700 Less selling and administrative expenses: Selling expense $258,000 Administrative expense 200.000 458.000 Net income $124.700 Reconcile the difference in profit between the two income statements. (Round cost per unit to 2 decimal places, a.s. 15.25 and final answers to 0 decimal places, e.g. 125.) Reconciliation Statement Net income under variable costing $

Answer 1

The difference between the Net Income as Per Full Costing and Net Income as per Variable Costing System is only due to fixed manufacturing costs included in Ending Inventory under Full Costing System Total Units Produced 10400 Total Units Sold 8300 Total Units in Ending Inventory (10400-8300) 2100 Total Fixed Manufacturing Expenses $ 322,400.00 Fixed Manufacturing Cost Per Unit = $322,400/10400 = $31.00 Fixed Manufacturing Costs included in Ending Inventory = 2100 Units x $31.00 = $65,100.00 Reconciliation of Difference in Profit between the two Income Statements: Net Income Under Variable Costing $ 59,600.00 Add: Fixed Manufacturing Costs included in Ending Inventory $65,100.00 Net Income Under Full Costing $ 124,700.00