Preparation of income statement

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Reference no: EM1314425

Preparation of income statement using absorption and marginal costing.

Absorption and Variable Costing
Joan Tyler started a small manufacturing company, JT Enterprises, at the beginning of 2005.
Joan has prepared the following income statement for the first quarter of operations.

JT Enterprises
Income Statement For the Quarter Ended March 31, 2005
Sales revenue (25,000 units)		$1,200,000
Less variable costs:
Variable cost of goods sold	$540,000
Variable selling and administrative expenses	260,000	800,000
Contribution margin	_____________	_____________
Less fixed costs:		$400,000
Fixed manufacturing overhead	$300,000
Fixed selling and administrative expenses	150,000	450,000
	_____________	_____________
Net loss		($50,000)
		___________
		___________

The variable cost of goods sold includes the direct materials, direct labor, and variable manufacturing overhead. The company began the quarter with no inventory; it manufactured 30,000 units over the period. Variable selling and administrative expenses are based on units sold.

Required

a. Calculate the unit product cost using absorption costing.

b. Rework the income statement using absorption costing.

c. Does the loss figure change using absorption costing? If yes, explain why.

d. During the second quarter of operations, JT again manufactured 30,000 units but sold 35,000 units. Prepare income statements for the second quarter using both the variable-and absorption-costing methods.

e. Explain the difference in net income (or loss) in the second quarter between the two statements prepared in requirement (D).

Reference no: EM1314425

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