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 (16,500 units)		$2,475,000
Production costs (21,000 units):
Direct materials	$1,165,500
Direct labor	558,600
Variable factory overhead	279,300
Fixed factory overhead	186,900		2,190,300
Selling and administrative expenses:
Variable selling and administrative expenses	$339,500
Fixed selling and administrative expenses	131,400		470,900

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.

	$Sales

	Cost of goods sold

	$Gross profit

	Selling and administrative expenses

$Operating income

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.

		$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