ncome Statements underAbsorption CostingandVariable 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 (18,000 units)$2,160,000Production costs (23,000 units):Direct materials$1,021,200Direct labor489,900Variable factory overhead246,100Fixed factory overhead163,3001,920,500Selling and administrative expenses:Variable selling and administrative expenses$297,700Fixed selling and administrative expenses115,200412,900

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

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

Gallatin County Motors Inc.Absorption Costing Income StatementFor the Month Ended July 31Sales

$

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Cost of goods sold

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Gross profit

$

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Selling and administrative expenses

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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.

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

Gallatin County Motors Inc.Variable Costing Income StatementFor the Month Ended July 31Sales

$

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Variable cost of goods sold

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Manufacturing margin

$

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Variable selling and administrative expenses

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Contribution margin

$

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Fixed costs:Fixed factory overhead costs

$

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Fixed selling and administrative expenses

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Total fixed costs

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Operating income

$

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