8.

Income Statements under Absorption and Variable Costing

Shawnee Motors Inc. assembles and sells snowmobile engines. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for August:

Sales (2,000 units)				$600,000
Production costs (2,400 units):
Direct materials		$300,000
Direct labor		115,200
Variable factory overhead		43,200
Fixed factory overhead		21,600		480,000
Selling and administrative expenses:
Variable selling and administrative expenses		$50,000
Fixed selling and administrative expenses		22,000		72,000

a. Prepare an income statement according to the absorption costing concept.

Shawnee Motors Inc.
Absorption Costing Income Statement
For the Month Ended August 31
Sales	$
Cost of goods sold
Gross profit	$
Selling and administrative expenses
Income from operations	$

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b. Prepare an income statement according to the variable costing concept.

Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
Sales		$
Variable cost of goods sold
Manufacturing margin		$
Variable selling and administrative expenses
Contribution margin		$
Fixed costs:
Fixed factory overhead	$
Fixed selling and administrative expenses
Total fixed costs
Income from operations		$