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Fresno Industries Inc. manufactures and sells high - quality camping tents. The company began operations on January 1 and operated at 1 0 0 %
Fresno Industries Inc. manufactures and sells highquality camping tents. The company began operations on January and operated at of capacity units during the first month, creating an ending inventory of units. During February, the company produced units during the month but sold units at $ per unit. The February manufacturing costs and selling and administrative expenses were as follows:
Number of Units Unit Cost Total
Cost
Manufacturing costs in February beginning inventory:
Variable $ $
Fixed
Total $ $
Manufacturing costs in February:
Variable $ $
Fixed
Total $ $
Selling and administrative expenses in February:
Variable $ $
Fixed
Total $ $
Question Content Area
a Prepare an income statement according to the absorption costing concept for the month ending February
Fresno Industries Inc.
Absorption Costing Income Statement
For the Month Ended February
$ Select
Cost of goods sold:
$ Select
Select
Select
$ Select
Select
$ Select
Question Content Area
b Prepare an income statement according to the variable costing concept for the month ending February
Fresno Industries Inc.
Variable Costing Income Statement
For the Month Ended February
$ Select
Select
$ Select
Select
$ Select
Fixed costs:
$ Select
Select
Select
$ Select
Question Content Area
c What is the reason for the difference in the amount of operating income reported in a and b
Under the
method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under
all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the
income statement will have a lower operating income.
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