Income Statements under Absorption Costing and Variable Costing Joplin Industries Inc. manufactures

Income Statements under Absorption Costing and Variable Costing

Joplin Industries Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable J-Sports logo. The company began operations on May 1 and operated at 100% of capacity (61,600 units) during the first month, creating an ending inventory of 5,600 units. During June, the company produced 56,000 garments during the month but sold 61,600 units at $115 per unit. The June manufacturing costs and selling and administrative expenses were as follows: Number of Units Unit Cost Total
Cost Manufacturing costs in June 1 beginning inventory: Variable 5,600 $46.00 $257,600 Fixed 5,600 17.00 95,200 Total $63.00 $352,800 Manufacturing costs in June: Variable 56,000 $46.00 $2,576,000 Fixed 56,000 18.70 1,047,200 Total $64.70 $3,623,200 Selling and administrative expenses in June: Variable 61,600 22.10 $1,361,360 Fixed 61,600 7.00 431,200 Total 29.10 $1,792,560

a. Prepare an income statement according to the absorption costing concept for June. Joplin Industries Inc. Absorption Costing Income Statement For the Month Ended June 30 $ Cost of goods sold: $ $ $

b. Prepare an income statement according to the variable costing concept for June. Joplin Industries Inc. Variable Costing Income Statement For the Month Ended June 30 $ $ $ Fixed costs: $ $

c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

Under the   method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under  , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the   income statement will have a lower income from operations.