Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at

Income Statements under Absorption and Variable Costing

Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for August:

Sales (16,500 units) $2,145,000
Production costs (21,000 units):
Direct materials $1,010,100
Direct labor 485,100
Variable factory overhead 241,500
Fixed factory overhead 161,700 1,898,400
Selling and administrative expenses:
Variable selling and administrative expenses $294,300
Fixed selling and administrative expenses 113,900 408,200

If required, round interim per-unit calculations to the nearest cent.

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

Shawnee Motors Inc.
Absorption Costing Income Statement
For the Month Ended August 31
$
$
$

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

Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
$
$
$
Fixed costs:
$
$

c. What is the reason for the difference in the amount of income from operations 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 income from operations 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

Accounting Principles

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Weygandt Kimmel Kieso

10th Edition

0470646462, 978-0470646465

More Books

Students also viewed these Accounting questions

Question

a sin(2x) x Let f(x)=2x+1 In(be)

Answered: 1 week ago