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 (8,000 units)		$960,000
Production costs (10,000 units):
Direct materials	$444,000
Direct labor	213,000
Variable factory overhead	107,000
Fixed factory overhead	71,000		835,000
Selling and administrative expenses:
Variable selling and administrative expenses	$129,400
Fixed selling and administrative expenses	50,100		179,500

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