Absorption and Variable Costing Income Statements for Two Months and Analysis

During the first month of operations ended July 31, Head Gear Inc. manufactured 27,200 hats, of which 25,600 were sold. Operating data for the month are summarized as follows:

Sales $163,840 Manufacturing costs: $97,920 Direct materials Direct labor 27,200 Variable manufacturing cost 10,880 Fixed manufacturing cost 10,880 146,880 Selling and administrative expenses: Variable $7,680 Fixed 5,610 13,290 During August, Head Gear Inc. manufactured 24,000 designer hats and sold 25,600 hats. Operating data for Auqust are rized as follows: summariz Sales $163,840 Manufacturing costs: Direct materials $86,400 24.000 Direct labor Variable manufacturing cost 9,600 Fixed manufacturing cost 10,880 130,880 Selling and administrative expenses: Variable $7,680 Fixed 5,610 13,290 Required: 1a. Prepare an income statement for July using the absorption costing concept. Enter all amounts as positive numbers. Head Gear Inc. Absorption Costing Income Statement For the Month Ended July 31 Cost of goods sold: 1b. Prepare an income statement for August using the absorption costing concept. Enter all amounts as positive numbers. Head Gear Inc. Absorption Costing Income Statement For the Month Ended August 31 Cost of goods sold: 2a. Prepare an income statement for July using the variable costing concept. Enter all amounts as positive numbers. Head Gear Inc. Variable Costing Income Statement For the Month Ended July 31 Variable cost of goods sold: Fixed costs: 2b. Prepare an income statement for August using the variable costing concept. Enter all amounts as positive numbers. Head Gear Inc Variable Costing Income Statement For the Month Ended August 31 Variable cost of goods sold Fixed costs 3a. For July, income from operations reported under costing due to part of manufacturing costs that are expensed. costing is less than misinterpret such increases (or decreases) income from operations as due to changes in: 3b. When large changes in inventory levels occur from one period to the next, it is possible for management a. costs. prices volume. d "sales volume", "prices" and "costs" are correct. e. None of these choices is correct. The correct answer is: r in August? Exxplain. 4. Based on your answers to (1) and (2), did Head Gear Inc. operate more profitably July under the variable costing concept. The difference Head Gear Inc, was income reported under the absorption costing concept is due to allocating to the