During the first month of operations ended July 31, Western Creations Company produced 80,000 designer cowboy hats, of which 72,000 were sold. Operating data for the month are summarized as follows:

During August, Western Creations produced 64,000 designer cowboy hats and sold 72,000 cowboy hats. Operating data for August are summarized as follows:

Instructions
1. Using the absorption costing concept, prepare income statements for (A) July and (B) August.
2. Using the variable costing concept, prepare income statements for (A) July and (B) August.
3. A. Explain the reason for the differences in the amount of income from operations in (1) and (2) for July.
B. Explain the reason for the differences in the amount of income from operations in (1) and (2) for August.
4. Based on your answers to (1) and (2), did Western Creations Company operate more profitably in July or in August? Explain.

Transcribed Image Text:

Sales Manufacturing costs: $4,320,000 240,000 320,000 3,600,000 Selling and administrative expenses 25,000 169,000 Sales Manufacturing costs: $4,320,000 192,000 320,0002,944,000 Seling and administrative expenses 25,000 169,000