Question

Question: Preparing variable costing income statements, production less than sales

Refer to your answers to Exercise E21-16. In May 2018, ReVitalAde produced 22,000 cases of powdered drink mix and sold 23,000 cases, of which 1,000 were produced in April. The sales price was \(29, variable costs were \)12 per case (\(9 manufacturing and \)3 selling and administrative), and total fixed costs were \(100,000 (\)91,000 manufacturing and $9,000 selling and administrative).

Requirements

1. Prepare the May income statement using variable costing.
2. Determine the balance in the Finished Goods Inventory as of May 31.

Short answer

Answer

1. Operating income is $291,000
2. Finished goods inventory as of May 31 is 0.

Step-by-step solution

Income statement using variable costing

Particulars	Amount
Net sales revenue ($29x23,000)	$667,000
Less: Variable costs ($12x23,000)	$276,000
Contribution margin	$391,000
Less: Fixed costs
Fixed costs of goods sold	$91,000
Fixed selling and administrative cost	$9,000
Operating Income	$291,000

Balance of finished goods inventory as of May 31.

Ending balance in Finished Goods Inventory = Beginning balance + Units Produced − Units sold

= 1,000 units + 22,000 units - 23,000 units

= 0 units