Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc manufactured 34,800 hats, of which 32,700 were sold Operating data for the month are summarized as follows Sales $261,600 Manufacturing costs Direct materials $160,080 Direct labor 41,760 Variable manufacturing cost 20,880 Fixed manufacturing cost 17,400 240,120 Selling and administrative expenses Variable $13,080 Fixed 9,550 22,630 During August, Head Gear Inc manufactured 30,600 hats and sold 32,700 hats Operating data for August are summarized as follows Sales $261,600 Manufacturing costs Direct materials $140,760 Direct labor 36,720 Variable manufacturing cost 18,360 Fixed manufacturing cost 17,400 213,240 Selling and administrative expenses Variable $13,080 Fixed 9,550 22,630 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 $ Cost of goods sold $ $ $ 1b Prepare income statement for August using the absorption costing concept Head Gear Inc Absorption Costing Income Statement For the Month Ended August 31 $ Cost of goods sold $ $ $ 2a Prepare income statement for July using the variable costing concept Head Gear Inc Variable Costing Income Statement For the Month Ended July 31 $ Variable cost of goods sold $ $ $ Fixed costs $ $ 2b Prepare income statement for August using the variable costing concept Head Gear Inc Variable Costing Income Statement For the Month Ended August 31 $ Variable cost of goods sold $ $ $ Fixed costs $ $ 3a For July, operating income reported under costing is less than costing due to part of manufacturing costs that are expensed 3b When large changes in inventory levels occur from one period to the next, it is possible for management to misinterpret such increases (or decreases) in operating income as due to changes in costs prices sales volume sales volume , prices and costs are correct None of these choices is correct The correct answer is 4 Based on your answers to (1) and (2), did Head Gear Inc operate more profitably in July or in August Explain Head Gear Inc was under the variable costing concept The difference in operating income reported under the absorption costing concept is due to allocating to the Check My Work Previous Next

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 17, 2024

Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 34,800

Absorption and Variable Costing Income Statements for Two Months and Analysis

During the first month of operations ended July 31, Head Gear Inc. manufactured 34,800 hats, of which 32,700 were sold. Operating data for the month are summarized as follows:

Sales		$261,600
Manufacturing costs:
Direct materials	$160,080
Direct labor	41,760
Variable manufacturing cost	20,880
Fixed manufacturing cost	17,400	240,120
Selling and administrative expenses:
Variable	$13,080
Fixed	9,550	22,630

During August, Head Gear Inc. manufactured 30,600 hats and sold 32,700 hats. Operating data for August are summarized as follows:

Sales		$261,600
Manufacturing costs:
Direct materials	$140,760
Direct labor	36,720
Variable manufacturing cost	18,360
Fixed manufacturing cost	17,400	213,240
Selling and administrative expenses:
Variable	$13,080
Fixed	9,550	22,630

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
		$
Cost of goods sold:
	$


		$

		$

1b. Prepare income statement for August using the absorption costing concept.

Head Gear Inc.
Absorption Costing Income Statement
For the Month Ended August 31
		$
Cost of goods sold:
	$


		$

		$

2a. Prepare income statement for July using the variable costing concept.

Head Gear Inc.
Variable Costing Income Statement
For the Month Ended July 31
		$
Variable cost of goods sold:
	$


		$

		$
Fixed costs:
	$


		$

2b. Prepare income statement for August using the variable costing concept.

Head Gear Inc.
Variable Costing Income Statement
For the Month Ended August 31
		$
Variable cost of goods sold:
	$


		$

		$
Fixed costs:
	$


		$

3a. For July, operating income reported under costing is less than costing due to part of manufacturing costs that are expensed.

3b. When large changes in inventory levels occur from one period to the next, it is possible for management to misinterpret such increases (or decreases) in operating income as due to changes in:

costs.
prices.
sales volume.
"sales volume", "prices" and "costs" are correct.
None of these choices is correct.

The correct answer is: _______

4. Based on your answers to (1) and (2), did Head Gear Inc. operate more profitably in July or in August? Explain.

Head Gear Inc. was _____ under the variable costing concept. The difference in operating income reported under the absorption costing concept is due to allocating ______ to the _______ .