During the first month of operations ended August 31, Kodiak Fridgeration Company manufactured 46,000 mini refrigerators, of which 40,000 were sold. Operating data for the month are summarized as follows:

1 Sales $8,800,000.00
2 Manufacturing costs:
3 Direct materials $3,450,000.00
4 Direct labor 1,196,000.00
5 Variable manufacturing cost 782,000.00
6 Fixed manufacturing cost 598,000.00 6,026,000.00
7 Selling and administrative expenses:
8 Variable $600,000.00
9 Fixed 320,000.00 920,000.00

1. Prepare an income statement based on the absorption costing concept.

Kodiak Fridgeration Company

Income Statement

For the month ended August 31,

Sales                                                                      $8,800,000.00

Less: Manufacturing costs:

Direct materials                       $3,450,000.00

Direct labor                              $1,196,000.00

Variable manufacturing cost  $782,000.00

Fixed manufacturing cost       $598,000.00

                                                                             ($6,026,000.00)

Gross Income                                                       $2,774,000.00

Less: Selling & admin expenses

Variable                                   $600,000.00

Fixed                                        $320,000.00

                                                                             ($920,000.00)

Net Income                                                           $1,854,000.00

Explanation:

Absorption costing consider all the cost incurred in production either variable or fixed as production cost and all the operating costs as the period costs. It calculates the gross profit after deducting the cost of goods sold from the net sales and net income after deduction the operating costs from the gross profit.