During the first month of operations ended August 31, Kodiak Fridgeration Company manufactured 48,000 mini refrigerators, of which 44,000 were sold. Operating data for the month are summarized as follows: 1. Sales $8,800,000.00
2. Manufacturing costs:
3. Direct materials $3,360,000.00
4 Direct labor 1,344,000.00
5 Variable manufacturing cost 816,000.00
6 Fixed manufacturing cost 528,000.00 6,048,000.00
7 Selling and administrative expenses:
8 Variable $528,000.00
9 Fixed 352,000.00 880,000.00

Required:
Prepare an income statement based on the absorption costing concept.

Income statement based on the absorption costing concept

Sales                                                                              $8,800,000.00

Less Cost of Sales

Opening Stock                                            $0

Add Cost of Goods Manufactured $6,048,000.00

Less Closing Stock                           ($504,000.00)   ($5,544,000.00)

Gross Profit                                                                    $3,256,000.00

Less Expenses :

Selling and administrative expenses:

Variable                                                                           ($528,000.00 )

Fixed                                                                                ($352,000.00)

Net Income / (Loss)                                                             $2,376,000

Explanation:

Absorption Costing Concept

Product Cost = All Manufacturing Cost (Fixed and Variable)

Period Cost (Expense) = All Non - Manufacturing Costs

Production Cost Schedule - To determine Cost of Goods Sold

Direct materials                            $3,360,000.00

Direct labor                                    $1,344,000.00

Variable manufacturing cost           $816,000.00

Fixed manufacturing cost               $528,000.00

Total Manufacturing Cost            $6,048,000.00

Closing Stock = 4,000 units × ($6,048,000.00/48,000)

                        = $504,000.00

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