Alice Bohne obtained a patent on a small electronic device and organized Bohne Products, Inc., to produce and sell the device. During the first month of operations, the device was very well received on the market, so Ms. Bohne looked forward to a healthy profit. For this reason, she was surprised to see a loss for the month on her income statement. This statement was prepared by her accounting service, which takes great pride in providing its clients with timely financial data. The statement follows:

Bohne Products, Inc. Income Statement
Sales (21,000 units)			$	762,300
Variable expenses:
Variable cost of goods sold	$	254,100
Variable selling and administrative expenses		161,700		415,800
Contribution margin				346,500
Fixed expenses:
Fixed manufacturing overhead		194,400
Fixed selling and administrative expenses		219,000		413,400
Net operating loss			$	(66,900)

Ms. Bohne is discouraged over the loss shown for the month, particularly because she had planned to use the statement to encourage investors to purchase stock in the new company. A friend, who is a CPA, insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month.

Selected cost data relating to the product and to the first month of operations follow:

Units produced

24,000

Units sold

21,000

Variable costs per unit:

Direct materials

$

7.40

Direct labor

$

3.00

Variable manufacturing overhead

$

1.70

Variable selling and administrative expenses

2.	During the second month of operations, the company again produced 24,000 units but sold 27,000 units. (Assume no change in total fixed costs.)

a.	Prepare a contribution format income statement for the month using variable costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

Variable Costing Income Statement
(Click to select) Variable selling and administrative expenses Variable cost of goods sold Sales Net operating income (loss) Fixed selling and administrative expenses Fixed manufacturing overhead Contribution margin		$
Variable expenses:
(Click to select) Variable cost of goods sold Direct materials Net operating income (loss) Sales Fixed selling and administrative expenses Contribution margin Fixed manufacturing overhead	$
(Click to select) Fixed selling and administrative expenses Variable selling and administrative expenses Contribution margin Direct materials Net operating income (loss) Sales Fixed manufacturing overhead
(Click to select) Gross margin Contribution margin
Fixed expenses:
(Click to select) Net operating income (loss) Fixed manufacturing overhead Direct materials Contribution margin Variable cost of goods sold Sales Variable selling and administrative expenses
(Click to select) Sales Variable cost of goods sold Fixed selling and administrative expenses Variable selling and administrative expenses Contribution margin Net operating income (loss) Direct materials
(Click to select) Net operating loss Net operating income		$

b.	Prepare an income statement for the month using absorption costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

Absorption Costing Income Statement
(Click to select) Cost of goods sold Selling and administrative expenses Sales Net operating income (loss) Gross margin	$
(Click to select) Cost of goods sold Gross margin Selling and administrative expenses Net operating income (loss) Sales
(Click to select) Gross margin Contribution margin
(Click to select) Cost of goods sold Selling and administrative expenses Sales Net operating income (loss) Gross margin
(Click to select) Net operating loss Net operating income	$

c.	Reconcile the variable costing and absorption costing net operating incomes. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income (loss)	$
(Click to select) Deduct Add : (Click to select) Fixed manufacturing overhead cost deferred in inventory Fixed manufacturing overhead cost released from inventory
Absorption costing net operating income (loss)	$

$

7.70