During the first month of operations ended May $31,$ Big Sky Creations Company produced $56,000$ designer cowboy boots, of which $52,450$ were sold. Operating data for the month are summarized as follows:

$1$

Sales

$$839,200\mathrm{.}00$

$2$

Manufacturing costs:

$3$

Direct materials

$$425,600\mathrm{.}00$

$4$

Direct labor

$123,200\mathrm{.}00$

$5$

Variable manufacturing cost

$67,200\mathrm{.}00$

$6$

Fixed manufacturing cost

$56,000\mathrm{.}00$

$672,000\mathrm{.}00$

$7$

Selling and administrative expenses:

$8$

Variable

$$31,470\mathrm{.}00$

$9$

Fixed

$26,225\mathrm{.}00$

$57,695\mathrm{.}00$

During June, Big Sky Creations produced $48,900$ designer cowboy boots and sold $52,450$ cowboy boots. Operating data for June are summarized as follows:

$1$

Sales

$$839,200\mathrm{.}00$

$2$

Manufacturing costs:

$3$

Direct materials

$$371,640\mathrm{.}00$

$4$

Direct labor

$107,580\mathrm{.}00$

$5$

Variable manufacturing cost

$58,680\mathrm{.}00$

$6$

Fixed manufacturing cost

$56,000\mathrm{.}00$

$593,900\mathrm{.}00$

$7$

Selling and administrative expenses:

$8$

Variable

$$31,470\mathrm{.}00$

$9$

Fixed

$26,225\mathrm{.}00$

$57,695\mathrm{.}00$

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.

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

Income Statement Instructions

Score: $51/65$

Big Sky Creations Company

Absorption Costing Income Statement

For the Month Ended June $30$

$$

$1$

Sales

$$

$$839,200\mathrm{.}00$

$$

$2$

Cost of goods sold:

$$

$3$

Cost of goods manufactured

$$

$$593,900\mathrm{.}00$

$$

$4$

Inventory, June $1$

$$

$5$

Total cost of goods sold

$$

$6$

Gross profit

$$

$7$

Selling and administrative expenses

$$

$57,695\mathrm{.}00$

$$

$8$

Operating income

$$

Points:

$12\mathrm{.}55/16$

Check My Work

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$)$

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

Income Statement Instructions

Score: $69/106$

Big Sky Creations Company

Variable Costing Income Statement

For the Month Ended June $30$

$$

$1$

Sales

$$

$$839,200\mathrm{.}00$

$$

$2$

Variable cost of goods sold:

$$

$3$

Variable cost of goods manufactured

$$

$4$

Inventory, June $1$

$$

$5$

Total variable cost of goods sold

$$

$6$

Manufacturing margin

$$

$7$

Variable selling and administrative expenses

$$

$8$

Contribution margin

$$

$9$

Fixed costs:

$$

$10$

Fixed manufacturing costs

$$

$11$

Fixed selling and administrative expenses

$$

$12$

Total fixed costs

$$

$13$

Operating income

$$During the first month of operations ended May $31,$ Big Sky Creations Company produced $56,000$ designer cowboy boots, of

which $52,450$ were sold. Operating data for the month are summarized as follows:

During June, Big Sky Creations produced $48,900$ designer cowboy boots and sold $52,450$ cowboy boots. Operating data for June

are summarized as follows: