Income Statements under Absorption Costing and Variable Costing

Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (72,600 units) during the first month, creating an ending inventory of 6,600 units. During February, the company produced 66,000 units during the month but sold 72,600 units at $125 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 1 beginning inventory:
Variable	6,600		$50.00		$330,000
Fixed	6,600		19.00		125,400
Total			$69.00		$455,400
Manufacturing costs in February:
Variable	66,000		$50.00		$3,300,000
Fixed	66,000		20.90		1,379,400
Total			$70.90		$4,679,400
Selling and administrative expenses in February:
Variable	72,600		$24.70		$1,793,220
Fixed	72,600		7.00		508,200
Total			$31.70		$2,301,420

a. Prepare an income statement according to the absorption costing concept for the month ending February 28.

Fresno Industries Inc.
Absorption Costing Income Statement
For the Month Ended February 28
Sales		$
Cost of goods sold:
Beginning inventory	$
Cost of goods manufactured
Total cost of goods sold
Gross profit		$
Selling and administrative expenses
Operating income		$

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b. Prepare an income statement according to the variable costing concept for the month ending February 28.

Fresno Industries Inc.
Variable Costing Income Statement
For the Month Ended February 28
Sales		$
Variable cost of goods sold
Manufacturing margin		$
Variable selling and administrative expenses
Contribution margin		$
Fixed costs:
Fixed manufacturing costs	$
Fixed selling and administrative expenses
Total fixed costs
Operating income		$