Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 35,200 hats, of which 33,400 were sold. Operating data for the month are summarized as follows: Sales $313,960 Manufacturing costs: Direct materials $190,080 Direct labor 49,280 Variable manufacturing cost 24,640 Fixed manufacturing cost 21,120 285,120 Selling and administrative expenses: Variable $16,700 Fixed 12,190 28,890 During August, Head Gear Inc. manufactured 31,600 designer hats and sold 33,400 hats. Operating data for August are summarized as follows: Sales $313,960 Manufacturing costs: Direct materials $170,640 Direct labor 44,240 Variable manufacturing cost 22,120 Fixed manufacturing cost 21,120 258,120 Selling and administrative expenses: Variable $16,700 Variable $16,700 Fixed 12,190 28,890 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: costing due to part of costing is less than 3a. For July, income from operations reported under 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 income from operations as due to changes in: a. costs. b. prices 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 income from operations as due to changes in: a. costs. b. prices c. sales volume. d. "sales volume", "prices" and "costs" are correct e. 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 income reported under the absorption costing concept is due to allocating to the
