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Gig Harbor Boating is the wholesale distributor of a small recreational catamaran sailboat. Management has prepared the following summary data to use in its annual budgeting process:

Budgeted unit sales 480
Selling price per unit $1,960
Cost per unit $1,350
Variable selling and administrative expenses (per unit) $40
Fixed selling and administrative expenses (per year) $225,000
Interest expense for the year $12,000
Required:
Prepare the company’s budgeted income statement using an absorption income statement format.

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Answer:

income statement using an absorption income statement format.

Sales ( 480 × $1,960)                                                                940,800

Less Cost of Sales ( 480×$1,350)                                           (648,000)

Gross Profit                                                                                292,800

Less Operating Expenses

Variable selling and administrative expenses (480×$40)        (19,200)

Fixed selling and administrative expenses $225,000           (225,000)

Interest Expense                                                                       ($12,000)

Net Income                                                                                 $36,600

Explanation:

Absorption Costing Considers BOTH variable and fixed costs in product cost.Non-Manufacturing are treated as period costs.

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