Income Statements under Absorption Costing 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 (13,000 units)				$1,430,000
Production costs (17,000 units):
Direct materials		$691,900
Direct labor		331,500
Variable factory overhead		166,600
Fixed factory overhead		110,500		1,300,500
Selling and administrative expenses:
Variable selling and administrative expenses		$201,600
Fixed selling and administrative expenses		78,000		279,600

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

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

	$Sales

	Cost of goods sold

	$Gross profit

	Selling and administrative expenses

$Operating income

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a. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and variable factory costs are included as part of factory overhead.

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

		$Sales

		Variable cost of goods sold

		$Manufacturing margin

		Variable selling and administrative expenses

		$Contribution margin
Fixed costs:

	$Fixed factory overhead costs

	Fixed selling and administrative expenses

		Total fixed costs

$Operating income