Question

Given the following data for Western Trucking, Inc. for the month ending July 31, 2019, construct a Contribution Income Statement in both the Variable Costing Format and the Absorption format. Each Unit sells for $900.

Variable Costs per Unit:                                                           

• Direct Materials $100
• Direct Labor $320       
• Variable Manufacturing OH      $ 40   
• Variable SG & A $ 20   

Inventory   

• Units in Beginning Inventory                     0
• Units Produced 250
• Units Sold 225
• Units in Ending Inventory                     25   

Fixed Costs:

• Fixed Manufacturing OH          $60,000
• Fixed SG & A $20,000

Answer 1

Solution

Western Trucking, Inc.
Traditional Format or Absorption format Income Statement
For the month ending July 31, 2019
Sales		$ 202,500
Cost of goods sold		$ 157,500
Gross margin		$ 45,000
Selling and administrative expenses:
Variable selling general and administrative expenses	$ 4,500
Fixed selling general and administrative expenses	$ 20,000
Total selling and administrative expenses		$ 24,500
Net operating income		$ 20,500

Western Trucking, Inc.
Contribution margin Income statement
For the month ending July 31, 2019
Sales		$ 202,500
Less: Variable costs
Variable Cost of goods sold	$ 103,500
Variable selling general and administrative expenses	$ 4,500
Total Variable cost		$ 108,000
Contribution margin		$ 94,500
Less: Fixed Costs
Fixed selling general and administrative expenses	$ 20,000
Fixed Manufacturing overhead	$ 60,000
Total Fixed Costs		$ 80,000
Net Income		$ 14,500

Working for traditional format income statement

Fixed manufacturing OH	$      60,000.00
Units produced	250
Fixed cost per unit	$            240.00
Add: Direct material	$            100.00
Add: Direct labor	$            320.00
Add: Variable manufacturing overhead	$              40.00
Total Unit cost	$            700.00
Multiplied by : Units sold	225
Cost of goods sold	$ 1,57,500.00