Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Income statements under absorption and variable costing Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated

Income statements under absorption and variable costing

Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July:

Sales (3,000 units) $1,530,000
Production costs (3,000 units):
Direct materials $657,900
Direct labor 282,900
Variable factory overhead 46,200
Fixed factory overhead 72,300 1,059,300
Selling and administrative expenses:
Variable selling and administrative expenses $32,800
Fixed selling and administrative expenses 13,800 46,600

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

a. Prepare an income statement according to the absorption costing concept.

Gallatin County Motors Inc.
Absorption Costing Income Statement
For the Month Ended July 31
$ fill in the blank 3
fill in the blank 5
$ fill in the blank 7
fill in the blank 9
$ fill in the blank 11

b. Prepare an income statement according to the variable costing concept.

Gallatin County Motors Inc.
Variable Costing Income Statement
For the Month Ended July 31
$ fill in the blank 13
fill in the blank 15
$ fill in the blank 17
fill in the blank 19
$ fill in the blank 21
Fixed costs:
$ fill in the blank 23
fill in the blank 25
fill in the blank 27
$ fill in the blank 29

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 increases, the income statement will have a higher Operating income than will the variable costing income statement.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Sector Accounting And Auditing In Europe The Challenge Of Harmonization

Authors: I. Brusca, E. Caperchione, S. Cohen, F Manes Rossi

2015th Edition

1137461330, 978-1137461339

More Books

Students also viewed these Accounting questions

Question

General Purpose of Your Speech Analyzing Your Audience

Answered: 1 week ago

Question

Ethical Speaking: Taking Responsibility for Your Speech?

Answered: 1 week ago