Question
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 22,800
Absorption and Variable Costing Income Statements for Two Months and Analysis
During the first month of operations ended July 31, Head Gear Inc. manufactured 22,800 hats, of which 21,200 were sold. Operating data for the month are summarized as follows:
| Sales | $156,880 | |||
| Manufacturing costs: | ||||
| Direct materials | $95,760 | |||
| Direct labor | 25,080 | |||
| Variable manufacturing cost | 11,400 | |||
| Fixed manufacturing cost | 9,120 | 141,360 | ||
| Selling and administrative expenses: | ||||
| Variable | $8,480 | |||
| Fixed | 6,190 | 14,670 | ||
During August, Head Gear Inc. manufactured 19,600 hats and sold 21,200 hats. Operating data for August are summarized as follows:
| Sales | $156,880 | |||
| Manufacturing costs: | ||||
| Direct materials | $82,320 | |||
| Direct labor | 21,560 | |||
| Variable manufacturing cost | 9,800 | |||
| Fixed manufacturing cost | 9,120 | 122,800 | ||
| Selling and administrative expenses: | ||||
| Variable | $8,480 | |||
| Fixed | 6,190 | 14,670 | ||
Required:
1a. Prepare income statement for July using the absorption costing concept.
| Head Gear Inc. | ||
| Absorption Costing Income Statement | ||
| For the Month Ended July 31 | ||
| Sales | $ | |
| Cost of goods sold: | ||
| Cost of goods manufactured | $ | |
| Inventory, July 31 | ||
| Total cost of goods sold | ||
| Gross profit | $ | |
| Selling and administrative expenses | ||
| Operating income | $ | |
Feedback
1a. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = operating income *(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)
1b. Prepare income statement for August using the absorption costing concept.
| Head Gear Inc. | ||
| Absorption Costing Income Statement | ||
| For the Month Ended August 31 | ||
| Sales | $ | |
| Cost of goods sold: | ||
| Inventory, August 1 | $ | |
| Cost of goods manufactured | ||
| Total cost of goods sold | ||
| Gross profit | $ | |
| Selling and administrative expenses | ||
| Operating income | $ | |
Feedback
1b. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = operating income *(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)
2a. Prepare income statement for July using the variable costing concept.
| Head Gear Inc. | ||
| Variable Costing Income Statement | ||
| For the Month Ended July 31 | ||
| Sales | $ | |
| Variable cost of goods sold: | ||
| Variable cost of goods manufactured | $ | |
| Inventory, July 31 | ||
| Total variable cost of goods sold | ||
| Manufacturing margin | $ | |
| Variable selling and administrative expenses | ||
| Contribution margin | $ | |
| Fixed costs: | ||
| Fixed manufacturing costs | $ | |
| Fixed selling and administrative expenses | ||
| Total fixed costs | ||
| Operating income | $ | |
Feedback
Partially correct
2b. Prepare income statement for August using the variable costing concept.
| Head Gear Inc. | ||
| Variable Costing Income Statement | ||
| For the Month Ended August 31 | ||
| Sales | $ | |
| Variable cost of goods sold: | ||
| Inventory, August 1 | $ | |
| Variable cost of goods manufactured | ||
| Total variable cost of goods sold | ||
| Manufacturing margin | $ | |
| Variable selling and administrative expenses | ||
| Contribution margin | $ | |
| Fixed costs: | ||
| Fixed manufacturing costs | $ | |
| Fixed selling and administrative expenses | ||
| Total fixed costs | ||
| Operating income | $ | |
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Hospitality Financial Accounting
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Agnes L.
2nd Edition
9780470598092, 470083603, 978-0470083604
