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 (17,500 units) $2,100,000
Production costs (23,000 units):
Direct materials $1,021,200
Direct labor 489,900
Variable factory overhead 246,100
Fixed factory overhead 163,300 1,920,500
Selling and administrative expenses:
Variable selling and administrative expenses $297,700
Fixed selling and administrative expenses 115,200 412,900

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
$_________ (cost of goods, direct labor,direct materials,fixed factory overhead, and sales) ***Pick one for each***
$_________
$_________

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

Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
$________ (cost of goods, direct labor,direct materials,fixed factory overhead, and sales) ***Pick one for each***
$________
$________
Fixed costs:
$_________
$___________

c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

Under the (Absorption cost/Varible cost?) method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under (Absorption cost/Variable cost?) , 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 (Absorption cost/Variable cost?) 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

Auditing IT Infrastructures For Compliance

Authors: Martin Weiss

1st Edition

0763791814, 978-0763791810

More Books

Students also viewed these Accounting questions