On January 1 of the current year, Townsend Co. commenced operations. It operated its plant at 100% of capacity during January. The following data summarized the results for January: Units Production 50,000 Sales ($18 per unit) (42,000) Inventory, January 31 8,000 Manufacturing costs: Variable $575,000 Fixed 80,000 Total $655,000 Selling and administrative expenses: Variable $35,000 Fixed 10,500 Total $45,500 a. Prepare an income statement using absorption costing. Townsend Co. Absorption Costing Income Statement For the Month Ended January 31 $ Cost of goods sold: $ $ Operating income $ b. Prepare an income statement using variable costing. Townsend Co. Variable Costing Income Statement For the Month Ended January 31 $ Variable cost of goods sold: $ $ $ Fixed costs: $ Operating income $

Answer is explained below:

Explanation:

Solution A:

Townsend Co.

Income Statement - Absorption costing

For the Year ended 31 january

Sales (42000*$18)                                                                $7,56,000

Less: Cost of goods sold:  

Variable manufacturing cost ($575000/50000*42000)$4,83,000  

Fixed Manufacturing Overhead ($80000/50000*42000)$67,200  

Cost of goods sold  $5,50,200

Gross profit  $2,05,800

Less: Selling and admin. Expense:  

Variable Selling and Administrative Expenses$35,000  

Fixed Selling & Administrative Expenses$10,500  

Total selling and admin costs  $45,500

Net Income  $1,60,300

Solution B:

Townsend Co.

Income Statement - variable costing

For the Year ended 31 janaury

Sales (42000*$18)  $7,56,000

Less: Variable Cost:  

Variable manufacturing cost ($575000/50000*42000)$4,83,000  

Variable Selling and Administrative Expenses$35,000  

Total Variable Costs  $5,18,000

Contribution Margin  $2,38,000

Less: Fixed Costs:  

Fixed Manufacturing Overhead$80,000  

Fixed Selling & Administrative Expenses$10,500  

Total Fixed Costs  $90,500

Net Income  $1,47,500

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