Question

Tollins Company Data
	July	August	September
Production in units	85,000	80,000	60,000
Sales in units	70,000	75,000	80,000
Inventory at July 1	5000 units at $16 each
Selling price per unit	$                  25
Variable manufacturing costs per unit	$                     9
Variable selling and administrative costs per unit sold	$                     6	6.5882353	$                   47
Fixed manufacturing overhead per month	$        560,000
Fixed selling and adminitrative expenses per month	$        200,000
Other information:
Fixed overhead is allocated to units of production based on a budgeted production volume of 80,000 units per month
Any over or underallocated overhead is written off to cost of goods sold
There are no beginning or ending work in process inventories

Given the inforation prepare income statements for each month under both absorption and variable Costing.

Answer 1

Requirement -(a) The Absorption Costing Income Statement
	Jul	Aug	Sep	tal
No. of Unit Sold	70000	75000	80000	225,000.00
Sales @$25	$1,750,000.00	$1,875,000.00	$2,000,000.00	$5,625,000.00
Less: Cost of Goods sold @$22
Variable manufacturing Cost @ 9 (a)	$630,000.00	$675,000.00	$720,000.00	$2,025,000.00
Fixed Manufacturign Overhead (b) (560000/80000)X sales Unit	$490,000.00	$525,000.00	$560,000.00	$1,575,000.00
Add/ (less): under/ Over applied Overhead	$70,000.00	$35,000.00
Cost og Goods Sold (c=a+b)	$1,190,000.00	$1,235,000.00	$1,280,000.00	$3,705,000.00
Gross Margin	$560,000.00	$640,000.00	$720,000.00	$1,920,000.00
Less: Other Expense
Variable Selling & Admin Expense ($6, 6.5882353, 47)X sales Unit	$420,000.00	$494,117.65	$3,760,000.00	$4,674,117.65
Fixed Selling & Admin Cost	$200,000.00	$200,000.00	$200,000.00	$600,000.00
Net operating income	-$60,000.00	-$54,117.65	-$3,240,000.00	-$3,354,117.65
Requirement: (b): The Variable Costing Income Statement
	Jul	Aug	Sep	tal
No. of Unit Sold	70000	75000	80000	225,000.00
Sales @$25	$1,750,000.00	$1,875,000.00	$2,000,000.00	$5,625,000.00
Less: Variable cost
Variable manufacturing Cost @ 9 (a)	$630,000.00	$675,000.00	$720,000.00	$2,025,000.00
Variable Selling & Admin Expense ($6, 6.5882353, 47)X sales Unit	$420,000.00	$494,117.65	$3,760,000.00	$4,674,117.65
Contribution margin	$700,000.00	$705,882.35	-$2,480,000.00	-$1,074,117.65
Fixed expense:
Fixed Manufacturing cost	$560,000.00	$560,000.00	$560,000.00	$1,680,000.00
Fixed Selling & Admin Cost	$200,000.00	$200,000.00	$200,000.00	$600,000.00
Net operating Income	-$60,000.00	-$54,117.65	-$3,240,000.00	-$3,354,117.65