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% capacity during the first month. The following data summarize the results for July:

Sales (14,500 units). $2,175,000

Production costs(19,000 units)

Direct Materials $1,054,500

Direct Labor. 505,400

Variable factory overhead 252,700

Fixed factory overhead 169,100

totaling 1,981,700

Selling and administrative expenses:

Variable selling and administrative expenses $307,200

Fixed selling and administrative expenses 118,900

totaling 426,100

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 $2,175,000

Variable cost of goods sold

Manufacturing margin

Variable selling and administrative expenses 307,200

Contribution margin

Fixed costs:

Fixed factory overhead $169,100

Fixed selling and administrative expenses 118,900

Total fixed costs 288,000

Operating income