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 (15,000 units) $2,100,000 Production costs (19,000 units): Direct materials$984,200 Direct labor473,100 Variable factory overhead235,600 Fixed factory overhead157,700 1,850,600 Selling and administrative expenses: Variable selling and administrative expenses$286,800 Fixed selling and administrative expenses111,000 397,800

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.

Cost of goods soldDirect laborDirect materialsFixed factory overhead costsSalesSales$SalesCost of goods soldGross profitSalesSelling and administrative expensesVariable factory overheadCost of goods soldCost of goods soldDirect laborDirect materialsGross profitFixed factory overhead costsSalesGross profit$Gross profitCost of goods soldFixed factory overhead costsSalesSelling and administrative expensesVariable factory overheadSelling and administrative expensesSelling and administrative expensesOperating 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.

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

Contribution marginFixed selling and administrative expensesManufacturing marginSalesVariable selling and administrative expensesSales $SalesFixed factory overhead costsFixed selling and administrative expensesManufacturing marginVariable cost of goods soldVariable selling and administrative expensesVariable cost of goods sold Variable cost of goods soldContribution marginManufacturing marginSalesVariable cost of goods soldVariable selling and administrative expensesManufacturing margin $Manufacturing marginFixed factory overhead costsFixed selling and administrative expensesManufacturing marginVariable cost of goods soldVariable selling and administrative expensesVariable selling and administrative expenses Variable selling and administrative expensesContribution marginFixed selling and administrative expensesManufacturing marginSalesVariable selling and administrative expensesContribution margin $Contribution marginFixed costs: Contribution marginFixed factory overhead costsManufacturing marginSalesVariable cost of goods soldFixed factory overhead costs$Fixed factory overhead costs Fixed selling and administrative expensesManufacturing marginSalesVariable cost of goods soldVariable selling and administrative expensesFixed selling and administrative expensesFixed selling and administrative expenses Contribution marginOperating incomeManufacturing marginSalesTotal fixed costsTotal fixed costs Total fixed costsOperating incomeLoss from operationsOperating income $Operating income