Determine financial statement components (Learning Objective 7) (Appendix)

MaggieB, a budding professional tennis player, was unsatisfied with the tennis racquets currently available at sports stores and pro shops. She decided to produce and sell her own line of high-grade tennis racquets to be sold strictly through pro shops, where she could effectively communicate the advantages of her racquets and use her name as a marketing tool. MaggieB produced 200 racquets in her first month of operations. At month-end, 60 finished racquets remained unsold. There was no inventory in work in process. Racquets were sold for $150 each at pro shops throughout the Southeast (her test market). Total costs from the month are as follows:

MaggieB needs to prepare absorption income statements for her bankers. She would also like to prepare contribution margin income statements for her own management use. Compute the following amounts that would be shown on these income statements:
1. Gross Profit 2. Contribution Margin 3. Total Expenses shown below the Gross Profit line 4. Total Expenses shown below the Contribution Margin line 5. Dollar value of ending inventory under absorption costing 6. Dollar value of ending inventory under variable costing Which income statement will have a higher operating income? By how much? Explain.

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Direct materials used................ Direct labor....... Variable manufacturing overhead. Fixed manufacturing overhead............... Variable selling and administrative expenses.... Fixed selling and administrative expenses......... $ 7,000 5,000 3,000 4,200 6,000 13,000