During the first month of operations ended July 31, 2016, Head Gear Inc. manufactured 6,400 hats, of which 5,200 were sold. Operating data for the month are summarized as follows:

1	Sales		$104,000.00
2	Manufacturing costs:
3	Direct materials	$47,360.00
4	Direct labor	22,400.00
5	Variable manufacturing cost	12,160.00
6	Fixed manufacturing cost	15,360.00	97,280.00
7	Selling and administrative expenses:
8	Variable	$10,920.00
9	Fixed	5,200.00	16,120.00

During August Head Gear Inc. manufactured 4,000 hats and sold 5,200 hats. Operating data for August are summarized as follows:

1	Sales		$104,000.00
2	Manufacturing costs:
3	Direct materials	$29,600.00
4	Direct labor	14,000.00
5	Variable manufacturing cost	7,600.00
6	Fixed manufacturing cost	15,360.00	66,560.00
7	Selling and administrative expenses:
8	Variable	$10,920.00
9	Fixed	5,200.00	16,120.00

Required:

1.

Using the absorption costing concept, prepare income statements for (a) July and (b) August.*

2.

Using the variable costing concept, prepare income statements for (a) July and (b) August.*

3a.

Explain the reason for the differences in the amount of income from operations in (1) and (2) for July.

3b.

Explain the reason for the differences in the amount of income from operations in (1) and (2) for August.

4.

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

* Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign.

1a. Using the absorption costing concept, prepare income statements for (a) July and (b) August. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign. The following income statement is for July.

Score: 8/66

Head Gear Inc.

Absorption Costing Income Statement

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1b. Using the absorption costing concept, prepare income statements for (a) July and (b) August. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign. The following income statement is for August.

Question not attempted.

Score: 0/66

Head Gear Inc.

Absorption Costing Income Statement

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2a. Using the variable costing concept, prepare income statements for (a) July and (b) August. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign. The following income statement is for July.

DO A JOURNAL ENTRY FOR VARIABLE INCOME STATEMENT

Head Gear Inc.

Variable Costing Income Statement

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2b. Using the variable costing concept, prepare income statements for (a) July and (b) August. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign. The following income statement is for August.

DO A JOURNAL ENTRY FOR VARIABLE INCOME STATEMENT

Head Gear Inc.

Variable Costing Income Statement

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