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 (9,000 units)		$1,260,000
Production costs (12,000 units):
Direct materials	$621,600
Direct labor	298,800
Variable factory overhead	148,800
Fixed factory overhead	99,600		1,168,800
Selling and administrative expenses:
Variable selling and administrative expenses	$181,200
Fixed selling and administrative expenses	70,100		251,300

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

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

Sales	$Sales
Cost of goods sold	Cost of goods sold
Gross profit	$Gross profit
Selling and administrative expenses	Selling and administrative expenses
Operating income	$Operating income

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

Sales		$Sales
Variable cost of goods sold		Variable cost of goods sold
Manufacturing margin		$Manufacturing margin
Variable selling and administrative expenses		Variable selling and administrative expenses
Contribution margin		$Contribution margin
Fixed costs:
Fixed factory overhead costs	$Fixed factory overhead costs
Fixed selling and administrative expenses	Fixed selling and administrative expenses
Total fixed costs		Total fixed costs
Operating income		$Operating income