During the first month of operations ended July 31, Head Gear Inc manufactured 29,800 hats, of which 28,300 were sold Operating data for the month are summarized as follows Sales $215,080 Manufacturing costs Direct materials $128,140 Direct labor 32,780 Variable manufacturing cost 14,900 Fixed manufacturing cost 14,900 190,720 Selling and administrative expenses Variable $11,320 Fixed 8,260 19,580 During August, Head Gear Inc manufactured 26,800 hats and sold 28,300 hats Operating data for August are summarized as follows Sales $215,080 Manufacturing costs Direct materials $115,240 Direct labor 29,480 Variable manufacturing cost 13,400 Fixed manufacturing cost 14,900 173,020 Selling and administrative expenses Variable $11,320 Fixed 8,260 19,580 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

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During the first month of operations ended July 31, Head Gear Inc. manufactured 29,800 hats, of which 28,300 were sold. Operating data for the month

During the first month of operations ended July 31, Head Gear Inc. manufactured 29,800 hats, of which 28,300 were sold. Operating data for the month are summarized as follows:

Sales		$215,080
Manufacturing costs:
Direct materials	$128,140
Direct labor	32,780
Variable manufacturing cost	14,900
Fixed manufacturing cost	14,900	190,720
Selling and administrative expenses:
Variable	$11,320
Fixed	8,260	19,580

During August, Head Gear Inc. manufactured 26,800 hats and sold 28,300 hats. Operating data for August are summarized as follows:

Sales		$215,080
Manufacturing costs:
Direct materials	$115,240
Direct labor	29,480
Variable manufacturing cost	13,400
Fixed manufacturing cost	14,900	173,020
Selling and administrative expenses:
Variable	$11,320
Fixed	8,260	19,580

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 .