Frigid Motors Inc. assembles and sells snownmobile engines. The company began operations on July 1, 2016, and operated at 100% of capacity during the first month. The following data summarize the results for July: $8,750,000 42,500 units) Sales ( 35,000 units) Production costs Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses Fixed selling and administrative expenses $4,250,000 2,125,000 1,062,500 637,500 8,075,000 1,150,000 200,000 1,350,000 a. Prepare an income statement according to the absorption costing concept. FRIGID MOTORS INC. Absorption Costing Income Statement For the Month Ended July 31, 2016 units x Sales Cost of goods sold ( Gross profit Selling and administrative expenses Income from operations $0 *Production costs per unit: Direct materials per unit Direct labor per unit Variable factory overhead per unit units) units) ( units) units) Total production costs per unit $0.00 Prepare an income statement according to the variable costing concept. FRIGID MOTORS INC. Variable Costing Income Statement For the Month Ended July 31, 2016 Sales Variable cost of goods sold units x per unit) Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead costs Fixed selling and administrative expenses Income from operations $0 $0 0 $0 c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)? The difference between the absorption and variable costing income from operations of $0 - $0 ) can be explained as follows: Increase in inventory x Fixed factory overhead per unit Difference in income from operations $0 $0 Frigid Motors Inc. assembles and sells snownmobile engines. The company began operations on July 1, 2016, and operated at 100% of capacity during the first month. The following data summarize the results for July: $8,750,000 42,500 units) Sales ( 35,000 units) Production costs Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses Fixed selling and administrative expenses $4,250,000 2,125,000 1,062,500 637,500 8,075,000 1,150,000 200,000 1,350,000 a. Prepare an income statement according to the absorption costing concept. FRIGID MOTORS INC. Absorption Costing Income Statement For the Month Ended July 31, 2016 units x Sales Cost of goods sold ( Gross profit Selling and administrative expenses Income from operations $0 *Production costs per unit: Direct materials per unit Direct labor per unit Variable factory overhead per unit units) units) ( units) units) Total production costs per unit $0.00 Prepare an income statement according to the variable costing concept. FRIGID MOTORS INC. Variable Costing Income Statement For the Month Ended July 31, 2016 Sales Variable cost of goods sold units x per unit) Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead costs Fixed selling and administrative expenses Income from operations $0 $0 0 $0 c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)? The difference between the absorption and variable costing income from operations of $0 - $0 ) can be explained as follows: Increase in inventory x Fixed factory overhead per unit Difference in income from operations $0 $0
