FastTrack Motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May 2020 are as follows:

Data Table

	A	B	C
1		April	May
2	Unit data:
3	Beginning inventory	0	50
4	Production	500	400
5	Sales	450	425
6	Variable costs:
7	Manufacturing cost per unit produced	$9,000	$9,000
8	Operating (marketing) cost per unit sold	3,800	3,800
9	Fixed costs:
10	Manufacturing costs	$2,400,000	$2,400,000
11	Operating (marketing) costs	500,000	500,000

The selling price per vehicle is $30,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is

500 units. There are no price, efficiency, or spending variances. Any production-volume variance is written off to cost of goods sold in the month in which it occurs.

Requirement 1. Prepare April and May 2020 income statements for FastTrack Motors under (a) variable costing and (b) absorption costing.

(a) Prepare April and May 2020 income statements for FastTrack Motors under variable costing. Complete the top half of the income statement for each month first, then complete the bottom portion. (Complete all input fields. Enter a "0" for any zero balance accounts.)

			April 2020		May 2020
Revenues				$?		$?
Variable cost of goods sold:
	Beginning inventory		$?		$?
	Variable manufacturing costs		?		?
	Cost of goods available for sale		?		?
	Deduct ending inventory		(?)		(?)
	Variable cost of goods sold			?		?
Variable operating costs				?		?
Contribution margin				?		?

Fixed manufacturing costs				?		?
Fixed operating costs				?		?
Operating income				$?		$?

(b) Prepare April and May 2020 income statements for FastTrack Motors under absorption costing. Complete the top half of the income statement for each month first, then complete the bottom portion. (Enter a "0" for any zero balance accounts. Label any variances as favorable (F) or unfavorable (U). If an account does not have a variance, do not select a label.)

			April 2020			May 2020
Revenues					$?			$?
Cost of goods sold:
	Beginning inventory		$?			$?
	Variable manufacturing costs		?			?
	Allocated fixed manufacturing costs		?			?
	Cost of goods available for sale		?			?
	Deduct ending inventory		(? )			(?)
	Adjustment for production-volume variance		?			?	U
	Cost of goods sold				?			?
Gross margin					?			?

Variable operating costs				?		?
Fixed operating costs				?		?
Operating income				$?		$?

Requirement 2. Prepare a numerical reconciliation and explanation of the difference between operating income for each month under variable costing and absorption costing.

Begin by determining the formula that will highlight the difference between the operating income under each method. Then complete the equation for each month. (Abbreviations used: Beg. = Beginning, End. = Ending, Var. = Variable, Mfg = Manufacturing. Complete all answer boxes. Enter a "0" for any zero balance accounts.)

	Absorption-costing operating income	-	Variable-costingoperating income
				=	Fixed mfg costs in end. inventory	-	Fixed mfg costs in beg. inventory

Apr

$?

-

$?

=

$?

-

$?

May

$?

-

$?

=

$?

-

$?

The difference between absorption and variable costing is due solely to moving fixed manufacturing costs into inventories as inventories

increase and out of inventories as they decrease

.