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 $839,200.00 $425,600.00 4 123,200.00 67,200.00 2 Manufacturing costs: 3 Direct materials Direct labor 5 Variable manufacturing cost 6 Fixed manufacturing cost 7 Selling and administrative expenses: 8 Variable 9 Fixed 56,000.00 672,000.00 $31,470.00 26,225.00 57,695.00 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: 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 $839,200.00 2 Manufacturing costs: 3 Direct materials $371,640.00 4 107,580.00 Direct labor 5 Variable manufacturing cost 6 Fixed manufacturing cost 7 Selling and administrative expenses: Variable 58,680.00 56,000.00 593,900.00 8 $31,470.00 9 Fixed 26,225.00 57,695.00 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.* 3a. Explain the reason for the differences in operating income in (1) and (2) for May. 3b. Explain the reason for the differences in operating income in (1) and (2) for June. Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain. 4. Labels and Amount Descriptions 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 1a. Using the absorption costing concept, prepare income statements for May. Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon () will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative Big Sky Creations Company Absorption Costing Income Statement (Label) 2 (Label) 3 4 5 6 7 8 1b. Using the absorption costing concept, prepare income statements for June. Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon () will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative. Big Sky Creations Company Absorption Costing Income Statement (Label) 1 2 (Label 3 5 ON 7 8 2a. Using the variable costing concept, prepare income statements for May. Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon () will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Netloss should be negative. Big Sky Creations Company Variable Costing Income Statement (Label) 1 2 Label) 3 4 5 7 8 9 (Label) 10 11 12 13 2b. Using the variable costing concept, prepare income statements for June. Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon () will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative. Big Sky Creations Company Variable Costing Income Statement (Label) 1 2 Label) 3 4 5 6 7 8 9 (Label) 10 11 12 13 3a. Explain the reason for the differences in operating income in (1) and (2) for May. For May, Operating income reported under costing exceeds that reported under costing due to part of manufacturing costs that are expensed on the costing income statement, but not on the costing income statement 3b. Explain the reason for the differences in operating income in (1) and (2) for June. For June, Operating income reported under costing is less than that reported under costing due to part of manufacturing costs from May that are expensed on the costing income statement, but not on the costing income statement. 4. Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain Big Sky Creations Company was under the variable costing concept. The difference in operating income reported under the absorption costing concept is due to allocating to the
