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 $(17,000$ units$)$ $$2,210,000$

Production costs $(22,000$ units$)$:

Direct materials $$1,058,200$

Direct labor $508,200$

Variable factory overhead $253,000$

Fixed factory overhead $169,4001,988,800$

Selling and administrative expenses:

Variable selling and administrative expenses $$308,300$

Fixed selling and administrative expenses $119,300427,600$

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.

Gallatin County Motors Inc.

Absorption Costing Income Statement

For the Month Ended July $31$

Sales

$Sales

$2,210,000$

Cost of goods sold

Cost of goods sold

Gross profit

$Gross profit

Selling and administrative expenses

Selling and administrative expenses

$427,600$

Operating 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.

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

Gallatin County Motors Inc.

Variable Costing Income Statement

For the Month Ended July $31$

Sales

$Sales

$2,210,000$

Variable cost of goods sold

Variable cost of goods sold

Manufacturing margin

$Manufacturing margin

Variable selling and administrative expenses

Variable selling and administrative expenses

$308,300$

Contribution margin

$Contribution margin

Fixed costs:

Fixed factory overhead costs

$Fixed factory overhead costs

$169,400$

Fixed selling and administrative expenses

Fixed selling and administrative expenses

$119,300$

Total fixed costs

Total fixed costs

$288,700$

Operating income

$Operating income