1. Income Statements under The reporting of the costs of manufactured products, normally direct materials, direct labor, and factory overhead, as product costs.Absorption Costing and The concept that considers the cost of products manufactured to be composed only of those manufacturing costs that increase or decrease as the volume of production rises or falls (direct materials, direct labor, and variable factory overhead).Variable Costing

   Joplin Industries Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable J-Sports logo. The company began operations on May 1 and operated at 100% of capacity (40,700 units) during the first month, creating an ending inventory of 3,700 units. During June, the company produced 37,000 garments during the month but sold 40,700 units at $115 per unit. The June manufacturing costs and selling and administrative expenses were as follows:

   	Number of Units		Unit Cost		Total Cost
   Manufacturing costs in June 1 beginning inventory:
   Variable	3,700		$46.00		$170,200
   Fixed	3,700		17.00		62,900
   Total			$63.00		$233,100
   Manufacturing costs in June:
   Variable	37,000		$46.00		$1,702,000
   Fixed	37,000		18.70		691,900
   Total			$64.70		$2,393,900
   Selling and administrative expenses in June:
   Variable	40,700		22.10		$899,470
   Fixed	40,700		7.00		284,900
   Total			29.10		$1,184,370

   a. Prepare an income statement according to the absorption costing concept for June.

   Joplin Industries Inc.
   Absorption Costing Income Statement
   For the Month Ended June 30
   Beginning inventory Cost of goods manufactured Gross profit Sales Selling and administrative expenses		$
   Cost of goods sold:
   Beginning inventory Cost of goods manufactured Cost of goods sold Gross profit Selling and administrative expenses	$
   Cost of goods manufactured Cost of goods sold Gross profit Sales Selling and administrative expenses
   Beginning inventory Cost of goods manufactured Gross profit Selling and administrative expenses Total cost of goods sold
   Cost of goods manufactured Cost of goods sold Gross profit Sales Selling and administrative expenses		$
   Beginning inventory Cost of goods manufactured Gross profit Sales Selling and administrative expenses
   Income from operations Loss from operations		$

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

   Joplin Industries Inc.
   Variable Costing Income Statement
   For the Month Ended June 30
   Contribution margin Fixed selling and administrative expenses Manufacturing margin Sales Variable selling and administrative expenses		$
   Contribution margin Manufacturing margin Sales Variable cost of goods sold Variable selling and administrative expenses
   Fixed manufacturing costs Manufacturing margin Sales Variable cost of goods sold Variable selling and administrative expenses		$
   Contribution margin Manufacturing margin Sales Variable cost of goods sold Variable selling and administrative expenses
   Contribution margin Fixed manufacturing costs Fixed selling and administrative expenses Manufacturing margin Sales		$
   Fixed costs:
   Contribution margin Fixed manufacturing costs Sales Variable cost of goods sold Variable selling and administrative expenses	$
   Fixed selling and administrative expenses Manufacturing margin Sales Variable cost of goods sold Variable selling and administrative expenses
   Contribution margin Income from operations Manufacturing margin Sales Total fixed costs
   Income from operations Loss from operations		$

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   c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

   Under the

   • absorption costing
   • variable costing
   method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under
   • absorption costing
   • variable costing
   , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the
   • absorption costing
   • variable costing
   income statement will have a lower income from operations.