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Q21-19E

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 1171

Short Answer

Question: Preparing variable costing income statements, production less than sales

Refer to your answers to Exercise E21-16. In May 2018, ReVitalAde produced 22,000 cases of powdered drink mix and sold 23,000 cases, of which 1,000 were produced in April. The sales price was $29, variable costs were $12 per case ($9 manufacturing and $3 selling and administrative), and total fixed costs were $100,000 ($91,000 manufacturing and $9,000 selling and administrative).

Requirements

  1. Prepare the May income statement using variable costing.
  2. Determine the balance in the Finished Goods Inventory as of May 31.

Answer

  1. Operating income is $291,000
  2. Finished goods inventory as of May 31 is 0.

See the step by step solution

Step by Step Solution

Step 1: Income statement using variable costing

Particulars

Amount

Net sales revenue ($29x23,000)

$667,000

Less: Variable costs ($12x23,000)

$276,000

Contribution margin

$391,000

Less: Fixed costs

Fixed costs of goods sold

$91,000

Fixed selling and administrative cost

$9,000

Operating Income

$291,000

Step 2: Balance of finished goods inventory as of May 31.

Ending balance in Finished Goods Inventory = Beginning balance + Units Produced − Units sold

= 1,000 units + 22,000 units - 23,000 units

= 0 units

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