During the first month of operations ended May $31,$ Big Sky Creations Company produced $55,500$ designer cowboy boots, of which $51,350$ were sold. Operating data for the month are summarized as follows:

$1$

Sales

$$924,300\mathrm{.}00$

$2$

Manufacturing costs:

$3$

Direct materials

$$416,250\mathrm{.}00$

$4$

Direct labor

$111,000\mathrm{.}00$

$5$

Variable manufacturing cost

$55,500\mathrm{.}00$

$6$

Fixed manufacturing cost

$55,500\mathrm{.}00$

$638,250\mathrm{.}00$

$7$

Selling and administrative expenses:

$8$

Variable

$$30,810\mathrm{.}00$

$9$

Fixed

$25,675\mathrm{.}00$

$56,485\mathrm{.}00$

During June, Big Sky Creations produced $47,200$ designer cowboy boots and sold $51,350$ cowboy boots. Operating data for June are summarized as follows:

$1$

Sales

$$924,300\mathrm{.}00$

$2$

Manufacturing costs:

$3$

Direct materials

$$354,000\mathrm{.}00$

$4$

Direct labor

$94,400\mathrm{.}00$

$5$

Variable manufacturing cost

$47,200\mathrm{.}00$

$6$

Fixed manufacturing cost

$55,500\mathrm{.}00$

$551,100\mathrm{.}00$

$7$

Selling and administrative expenses:

$8$

Variable

$$30,810\mathrm{.}00$

$9$

Fixed

$25,675\mathrm{.}00$

$56,485\mathrm{.}00$

Required:

$1.$ Using the absorption costing concept, prepare income statements for $($a$)$ May and $($b$)$ June.

$2.$ Using the variable costing concept, prepare income statements for $($a$)$ May and $($b$)$ June.

$3$a$.$ Explain the reason for the differences in operating income in $(1)$ and $(2)$ for May.

$3$b$.$ Explain the reason for the differences in operating income in $(1)$ and $(2)$ for June.

$4.$ Based on your answers to $(1)$ and $(2),$ did Big Sky Creations Company operate more profitably in May or in June? Explain.

Labels

June $30$

Cost of goods sold

Fixed costs

For the Month Ended June $30$

For the Month Ended May $31$

May $31$

Variable cost of goods sold

Amount Descriptions

Contribution margin

Contribution margin ratio

Cost of goods manufactured

Fixed manufacturing costs

Fixed selling and administrative expenses

Gross profit

Operating income

Inventory, June $1$

Inventory, May $31$

Operating loss

Manufacturing margin

Planned contribution margin

Sales

Sales mix

Selling and administrative expenses

Total cost of goods sold

Total fixed costs

Total variable cost of goods sold

Variable cost of goods manufactured

Variable selling and administrative expenses

$1$a$.$ Using the absorption costing concept, prepare income statements for May.

Income Statement Instructions

Big Sky Creations Company

Absorption Costing Income Statement

$($Label$)$

$1$

$2$

$($Label$)$

$3$

$4$

$5$

$6$

$7$

$8$

$1$b$.$ Using the absorption costing concept, prepare income statements for June.

Income Statement Instructions

Big Sky Creations Company

Absorption Costing Income Statement

$($Label$)$

$1$

$2$

$($Label$)$

$3$

$4$

$5$

$6$

$7$

$8$

$2$a$.$ Using the variable costing concept, prepare income statements for May.

Income Statement Instructions

Big Sky Creations Company

Variable Costing Income Statement

$($Label$)$

$1$

$2$

$($Label$)$

$3$

$4$

$5$

$6$

$7$

$8$

$9$

$($Label$)$

$10$

$11$

$12$

$13$

$2$b$.$ Using the variable costing concept, prepare income statements for June.

Income Statement Instructions

Big Sky Creations Company

Variable Costing Income Statement

$($Label$)$

$1$

$2$

$($Label$)$

$3$

$4$

$5$

$6$

$7$

$8$

$9$

$($Label$)$

$10$

$11$

$12$

$13$