During the first month of operations ended July 31, Head Gear Inc. manufactured 32,700 hats, of which 31,100 were sold. Operating data for the month are summarized as follows:

Sales			$248,800
Manufacturing costs:
Direct materials	$150,420
Direct labor	39,240
Variable manufacturing cost	19,620
Fixed manufacturing cost	16,350		225,630
Selling and administrative expenses:
Variable	$12,440
Fixed	9,080		21,520

During August, Head Gear Inc. manufactured 29,500 designer hats and sold 31,100 hats. Operating data for August are summarized as follows:

Sales			$248,800
Manufacturing costs:
Direct materials	$135,700
Direct labor	35,400
Variable manufacturing cost	17,700
Fixed manufacturing cost	16,350		205,150
Selling and administrative expenses:
Variable	$12,440
Fixed	9,080		21,520

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
Sales		$
Cost of goods sold:
Cost of goods manufactured	$
Inventory, July 31
Total cost of goods sold
Gross profit		$
Selling and administrative expenses
Income from operations		$

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1a. & b. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = income from operations *(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units) a & b. Sales - variable cost of goods sold* = Manufacturing margin; Manufacturing margin - variable selling and administrative expenses = Contribution margin; Contribution margin - (fixed manufacturing costs + fixed selling and administrative expenses) = income from operations *Variable cost of goods sold = Variable cost of goods manufactured - [(Manufactured Units - Sold units) x (variable manufacturing costs/manufactured units)]

Learning Objective 1 and Learning Objective 2.

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
Sales		$
Cost of goods sold:
Inventory, August 1	$
Cost of goods manufactured
Total cost of goods sold
Gross profit		$
Selling and administrative expenses
Income from operations		$

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Learning Objective 1 and Learning Objective 2.

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
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
Income from operations		$

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Partially correct

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
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
Income from operations		$