Asian Windows manufactures a handpainted bamboo window shade

Asian Windows manufactures a hand-painted bamboo window shade for standard-size windows. Production and sales data for 2016 are as follows: Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative expenses Fixed selling and administrative expenses Selling price Units produced Units sold $40 per shade $9 per shade $90 per shade $107,000 $250,500 10,700 shades 8,340 shades Prepare an income statement using absorption costing ASIAN WINDOWS Income Statement For the Year Ended December 31, 2016 Absorption Costing

Solution

Asian Windows

Income statement using absorption costing system:

Asian Windows

Income Statement

for the year ended December 31, 2016

Absorption Costing

Sales

$750,600

Less: Cost of goods sold

$417,000

Gross margin

$333,600

Less: Selling and administrative expenses:

$325,560

variable

$75,060

Fixed

$250,500

$325,560

Net Income

$8,040

Working:

Cost of goods sold:

variable manufacturing cost per share

$40

fixed manufacturing costs

$107,000

number of units produced

10,700

fixed manufacturing cost per unit

107,000/10,700 = $10 per share

cost of goods sold = variable manufacturing cost + fixed manufacturing cost

COGS

$40 + $10

$50

total manufacturing cost

10,700 x $50

$535,000

less: cost of finished goods

2,360

$118,000

Cost of goods sold

$417,000

Variable selling and administrative expenses = $9 x 8,340 = $75,060

Income statement using variable costing method:

Asian Windows

Income Statement

for the year ended December 31, 2016

Variable Costing

Sales

$750,600

Less: Variable costs

manufacturing costs

$333,600

selling and administrative costs

$75,060

Total variable cost

$408,660

Contribution margin

$341,940

Less: Fixed cost

manufacturing costs

$107,000

selling and administrative costs

$250,500

total fixed cost

$357,500

Net Income

($15,560)

Number of units sold = 8,340

Variable manufacturing cost = $40 x 8,340 = $333,600

Variable selling and administrative cost = $9 x 8,340 = $83,400

Reconciliation of net income under variable costing and absorption costing methods:

Net Income as per variable costing method

($15,560)

Add: fixed manufacturing overhead deferred

$23,600

Net Income as per absorption costing method

$8,040

	Asian Windows
	Income Statement
for the year ended December 31, 2016
	Absorption Costing
Sales		$750,600
Less: Cost of goods sold	$417,000
Gross margin	$333,600
Less: Selling and administrative expenses:	$325,560
variable	$75,060
Fixed	$250,500	$325,560
Net Income	$8,040