During the first month of operations ended May 31, Big Sky Creations Company produced 55,750 designer cowboy boots, of which 52,650 were sold. Operating data for the month are summarized as follows:

1	Sales		$789,750.00
2	Manufacturing costs:
3	Direct materials	$395,825.00
4	Direct labor	117,075.00
5	Variable manufacturing cost	61,325.00
6	Fixed manufacturing cost	55,750.00	629,975.00
7	Selling and administrative expenses:
8	Variable	$26,325.00
9	Fixed	26,325.00	52,650.00

During June, Big Sky Creations produced 49,550 designer cowboy boots and sold 52,650 cowboy boots. Operating data for June are summarized as follows:

1	Sales		$789,750.00
2	Manufacturing costs:
3	Direct materials	$351,805.00
4	Direct labor	104,055.00
5	Variable manufacturing cost	54,505.00
6	Fixed manufacturing cost	55,750.00	566,115.00
7	Selling and administrative expenses:
8	Variable	$26,325.00
9	Fixed	26,325.00	52,650.00

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.

4.

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

* 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.

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
Total fixed costs
Total variable cost of goods sold
Variable cost of goods manufactured
Variable selling and administrative expenses

Absorption Costing Income Statement-May

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

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Absorption Costing Income Statement-June

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

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Variable Costing Income Statement-May

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: Net loss should be negative.

Big Sky Creations Company

Variable Costing Income Statement

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Variable Costing Income Statement-June

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

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