Income Statements underAbsorptionandVariable Costing

Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for August:

Sales (11,500 units) $1,265,000

Production costs (15,000 units):

Direct materials $610,500

Direct labor292,500

Variable factory overhead147,000

Fixed factory overhead 97,5001,147,500

Selling and administrative expenses:

Variable selling and administrative expenses$177,900

Fixed selling and administrative expenses 68,900 246,800

If required, round interim per-unit calculations to the nearest cent.

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

Shawnee Motors Inc.

Absorption Costing Income Statement

For the Month Ended August 31

Sales$

Cost of goods sold

Gross profit

Selling and administrative expenses

Income from operations

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

Shawnee Motors Inc.

Variable Costing Income Statement

For the Month Ended August 31

Sales

Variable cost of goods sold

Manufacturing margin

Variable selling and administrative expenses

Contribution margin

Fixed costs:

Fixed factory overhead

Fixed selling and administrative expenses

Total fixed costs

Income from operations