During the first month of operations ended July 31, Western Creations Company produced 80,000 designer cowboy hats, of which 72,000 were sold. Operating data for the month are summarized as follows:

1	Sales		$4,320,000.00
2	Manufacturing costs:
3	Direct materials	$1,600,000.00
4	Direct labor	1,440,000.00
5	Variable manufacturing cost	240,000.00
6	Fixed manufacturing cost	320,000.00	3,600,000.00
7	Selling and administrative expenses:
8	Variable	$144,000.00
9	Fixed	25,000.00	169,000.00

During August, Western Creations produced 64,000 designer cowboy hats and sold 72,000 cowboy hats. Operating data for August are summarized as follows:

1	Sales		$4,320,000.00
2	Manufacturing costs:
3	Direct materials	$1,280,000.00
4	Direct labor	1,152,000.00
5	Variable manufacturing cost	192,000.00
6	Fixed manufacturing cost	320,000.00	2,944,000.00
7	Selling and administrative expenses:
8	Variable	$144,000.00
9	Fixed	25,000.00	169,000.00

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 Western Creations Company operate more profitably in July or in August? Explain.

* 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. A colon (:) will automatically appear if required. Enter Inventory, July 31 as a negative number using a minus sign. If a net loss is incurred, enter that amount as a negative number using a minus sign.