Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During this time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit. Cost information for this period is shown in the following table:Production costs? Direct materials$2.00 per unit Direct labor$.80 per unit Variable overhead$814,000 in total Fixed overhead$481,000 in totalNon production costs? Variable selling and administrative$78,000 in total Fixed selling and administrative$210,000 in totala. Prepare Wrap-It's December 31st income statement for the current year under absorption costing.b. Prepare Wrap-It's December 31st income statement for the current year under variable costing.
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a.WRAP-IT COMPANY
Income Statement (Absorption Costing)
For the seven months ended December 31, xx
| Sales (310,000 × $50) | $15,500,000 |
| Cost of goods sold (310,000 × $6.30*) | 1,953,000 |
| Gross margin | 13,547,000 |
| Selling and administrative expenses ($78,000 + $210,000) | 288,000 |
| Net income | $13,259,000 |
b.WRAP-IT COMPANY
Income Statement (Variable Costing)
For the seven months ended December 31, xx
| Sales (310,000 × $50) | $15,500,000 |
| Variable expenses | ? |
| Variable production costs (310,000 × $5.00*) | 1,550,000 |
| Variable selling and administrative | 78,000 |
| Contribution margin | 13,872,000 |
| Fixed expenses | ? |
| Fixed overhead | 481,000 |
| Fixed selling and administrative expenses | 210,000 |
| Net income | $13,181,000 |
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