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13 January, 12:38

Kenzi Kayaking, a manufacturer of kayaks, began operations this year. During this first year, the company produced 1,075 kayaks and sold 825 at a price of $1,075 each. At this first year-end, the company reported the following income statement information using absorption costing. Sales (825 * $1,075) $ 886,875 Cost of goods sold (825 * $475) 391,875 Gross margin 495,000 Selling and administrative expenses 230,000 Net income $ 265,000 Additional Information Product cost per kayak totals $475, which consists of $375 in variable production cost and $100 in fixed production cost-the latter amount is based on $107,500 of fixed production costs allocated to the 1,075 kayaks produced. The $230,000 in selling and administrative expense consists of $95,000 that is variable and $135,000 that is fixed. Required: 1. Prepare an income statement for the current year under variable costing. 2. Fill in the blanks:

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  1. 13 January, 13:54
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    Net income under absorption costing is $240,000

    Explanation:

    Sales (825*$1075) $886,875

    less variable costs

    Variable production cost ($375*825) (309,375)

    selling and admin. expense ($95,000)

    Contribution margin $482,500

    less fixed costs:

    fixed production cost ($107,500)

    selling and admin. expense ($135,000)

    Net income $240,000

    Net income under absorption was $25,000 more than the net income under the absorption costing, the difference is analyzed below:

    Fixed product costs (1075-825) * $100=$25,000

    That is the fixed production costs added to closing inventory under absorption method which was expensed under variable costing method
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