During the first month of operations ended July 31, Head Gear Inc. manufactured 25,900 hats, of which 24,600 were sold. Operating data for the month are summarized as follows:

Line Item Description	Amount	Amount
Sales		$191,880
Manufacturing costs:
Direct materials	$113,960
Direct labor	31,080
Variable manufacturing cost	12,950
Fixed manufacturing cost	12,950	170,940
Selling and administrative expenses:
Variable	$9,840
Fixed	7,180	17,020

During August, Head Gear Inc. manufactured 23,300 hats and sold 24,600 hats. Operating data for August are summarized as follows:

Line Item Description	Amount	Amount
Sales		$191,880
Manufacturing costs:
Direct materials	$102,520
Direct labor	27,960
Variable manufacturing cost	11,650
Fixed manufacturing cost	12,950	155,080
Selling and administrative expenses:
Variable	$9,840
Fixed	7,180	17,020

Required:

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1a. Prepare income statement for July using the absorption costing concept.

Line Item Description	Amount	Amount
Contribution marginGross profitInventory, July 31SalesTotal cost of goods soldSales		$Sales
Cost of goods sold:
Contribution marginCost of goods manufacturedDirect laborDirect materialsSelling and administrative expensesCost of goods manufactured	$Cost of goods manufactured
Contribution marginDirect laborGross profitInventory, July 31Selling and administrative expensesInventory, July 31	Inventory, July 31
Contribution marginInventory, August 1Manufacturing marginSalesTotal cost of goods soldTotal cost of goods sold		Total cost of goods sold
Manufacturing marginGross profitInventory, August 1SalesSelling and administrative expensesGross profit		$Gross profit
Contribution marginDirect laborInventory, August 1SalesSelling and administrative expensesSelling and administrative expenses		Selling and administrative expenses
Operating incomeOperating lossOperating income		$Operating income

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1a. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = operating income *(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)

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1b. Prepare income statement for August using the absorption costing concept.

Line Item Description	Amount	Amount
Contribution marginDirect laborGross profitInventory, July 31SalesSales		$Sales
Cost of goods sold:
Contribution marginDirect laborDirect materialsInventory, August 1Variable cost of goods soldInventory, August 1	$Inventory, August 1
Cost of goods manufacturedFixed manufacturing costsInventory, August 1Manufacturing marginSalesCost of goods manufactured	Cost of goods manufactured
Contribution marginDirect materialsInventory, August 1Selling and administrative expensesTotal cost of goods soldTotal cost of goods sold		Total cost of goods sold
Gross profitInventory, August 1Manufacturing marginSalesSelling and administrative expensesGross profit		$Gross profit
Cost of goods manufacturedDirect laborInventory, August 1Selling and administrative expensesTotal cost of goods soldSelling and administrative expenses		Selling and administrative expenses
Operating incomeOperating lossOperating income		$Operating income

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1b. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = operating income *(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)

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2a. Prepare income statement for July using the variable costing concept.

Line Item Description	Amount	Amount
Contribution marginGross profitManufacturing marginInventory, July 31Sales		$- Select -
Variable cost of goods sold:
Cost of goods soldDirect laborDirect materialsFixed manufacturing costsVariable cost of goods manufactured	$- Select -
Contribution marginCost of goods soldFixed manufacturing costsFixed selling and administrative expensesInventory, July 31	- Select -
Fixed cost of goods soldFixed selling and administrative expensesManufacturing marginSalesTotal variable cost of goods sold		- Select -
Contribution marginFixed manufacturing costsGross profitInventory, July 31Manufacturing margin		$- Select -
Direct laborDirect materialsFixed selling and administrative expensesInventory, July 31Variable selling and administrative expenses		- Select -
Contribution marginCost of goods manufacturedFixed manufacturing costsInventory, July 31Manufacturing margin		$- Select -
Fixed costs:
Fixed contribution marginFixed manufacturing costsFixed salesTotal variable cost of goods soldVariable cost of goods manufactured	$- Select -
Fixed selling and administrative expensesFixed manufacturing marginTotal variable cost of goods soldVariable cost of goods manufacturedVariable selling and administrative expenses	- Select -	blank
Fixed selling and administrative expensesFixed manufacturing marginTotal fixed costsVariable cost of goods manufacturedVariable selling and administrative expenses	blank	- Select -
Operating incomeOperating loss		$- Select -

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2a. 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) = operating income *Variable cost of goods sold = Variable cost of goods manufactured - [(Manufactured Units - Sold units) x (variable manufacturing costs/manufactured units)]

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2b. Prepare income statement for August using the variable costing concept.

Line Item Description	Amount	Amount
Contribution marginGross profitManufacturing marginInventory, July 31Sales		$- Select -
Variable cost of goods sold:
Contribution marginDirect laborFixed selling and administrative expensesInventory, August 1Total variable cost of goods sold	$- Select -
Direct laborInventory, August 1Manufacturing marginFixed selling and administrative expensesVariable cost of goods manufactured	- Select -
Contribution marginFixed selling and administrative expensesSalesTotal variable cost of goods soldVariable selling and administrative expenses		- Select -
Direct laborDirect materialsInventory, August 1Manufacturing marginSales		$- Select -
Contribution marginFixed selling and administrative expensesInventory, August 1Variable cost of goods manufacturedVariable selling and administrative expenses		- Select -
Contribution marginDirect laborDirect materialsInventory, August 1Sales		$- Select -
Fixed costs:
Fixed contribution marginFixed manufacturing costsFixed salesTotal variable cost of goods soldVariable cost of goods manufactured	$- Select -
Fixed selling and administrative expensesFixed manufacturing marginTotal variable cost of goods soldVariable cost of goods manufacturedVariable selling and administrative expenses	- Select -	blank
Fixed selling and administrative expensesFixed manufacturing marginTotal fixed costsVariable cost of goods manufacturedVariable selling and administrative expenses	blank	- Select -
Operating incomeOperating loss		$- Select -