Income Statement Under Variable Costing

The income statement information under variable costing follows.

Income statement under variable costing. Variable costing income statement. Absorption costing statement assumes that fixed costs attach to products so all the production costs whether fixed or variable should become part of product cost. The direct labor cost is derived according to the rate level of expertise of the labor and the number of hours employed for the production. A variable costing income statement is one in which all variable expenses are deducted from revenue to arrive at a separately stated contribution margin from which all fixed expenses are then subtracted to arrive at the net profit or loss for the period.

The variable costing formula can be calculated in the following five steps. The net operating income under absorption costing is 20 000 more than the net operating income under variable costing. It is a part of the contribution margin. The logic behind this expensing of fixed manufacturing costs is that the company would incur such costs whether a plant was in production or idle.

In variable costing income statements all variable selling and administrative expenses group with variable production cost. When production is more than sales as in this exercise the fixed manufacturing overhead is deferred in inventory that causes a higher net operating income under absorption costing than under variable costing. Sales 240 x 1 775 variable product cost 240 x 625 variable selling and administrative expenses 240 x 60 contribution margin fixed overhead cost fixed selling and administrative expense net income 426 000 150 000 14 400 261 600 72 000 80 000 109 600 1. It is useful to create an income statement in the variable costing format when you want to determine that proportion of expenses that truly.

Explanation of the variable costing formula. The company also reports the following per unit variable costs for the year variable product costs variable selling and administrative expenses 25 90 2 90 prepare an income statement under absorption costing. Absorption costing income statement prev 6 of 11 next 235 pm 6 30 2019 to search chi aces inc. However if the company fails to sell all the inventory manufactured in that year there would be poor matching between revenues and expenses on the income statement.

Marginal cost statement offers an alternative layout to the traditional income statement prepared under absorption costing. In our example above under variable costing we would expense all fixed manufacturing overhead in the period occurred.