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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

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) $1,820,000
Production costs (17,000 units):
Direct materials $880,600
Direct labor 423,300
Variable factory overhead 210,800
Fixed factory overhead 141,100 1,655,800
Selling and administrative expenses:
Variable selling and administrative expenses $256,600
Fixed selling and administrative expenses 99,300 355,900

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

Question Content Area

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

Cost of goods soldDirect laborDirect materialsFixed factory overhead costsSalesSales $Sales
Cost of goods soldGross profitSalesSelling and administrative expensesVariable factory overheadCost of goods sold

Cost of goods sold

Direct laborDirect materialsGross profitFixed factory overhead costsSalesGross profit $Gross profit
Cost of goods soldFixed factory overhead costsSalesSelling and administrative expensesVariable factory overheadSelling and administrative expenses

Selling and administrative expenses

Operating incomeLoss from operationsOperating income $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.

Question Content Area

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

Contribution marginFixed selling and administrative expensesManufacturing marginSalesVariable selling and administrative expensesSales $Sales
Fixed factory overhead costsFixed selling and administrative expensesManufacturing marginVariable cost of goods soldVariable selling and administrative expensesVariable cost of goods sold

Variable cost of goods sold

Contribution marginManufacturing marginSalesVariable cost of goods soldVariable selling and administrative expensesManufacturing margin $Manufacturing margin
Fixed factory overhead costsFixed selling and administrative expensesManufacturing marginVariable cost of goods soldVariable selling and administrative expensesVariable selling and administrative expenses

Variable selling and administrative expenses

Contribution marginFixed selling and administrative expensesManufacturing marginSalesVariable selling and administrative expensesContribution margin $Contribution margin
Fixed costs:
Contribution marginFixed factory overhead costsManufacturing marginSalesVariable cost of goods soldFixed factory overhead costs $Fixed factory overhead costs
Fixed selling and administrative expensesManufacturing marginSalesVariable cost of goods soldVariable selling and administrative expensesFixed selling and administrative expenses

Fixed selling and administrative expenses

Contribution marginOperating incomeManufacturing marginSalesTotal fixed costsTotal fixed costs

Total fixed costs

Operating incomeLoss from operationsOperating income $Operating income

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