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Income Statements under Absorption and Variable 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 (17,000 units)				$1,700,000
Production costs (22,000 units):
Direct materials		$814,000
Direct labor		391,600
Variable factory overhead		195,800
Fixed factory overhead		129,800		1,531,200
Selling and administrative expenses:
Variable selling and administrative expenses		$237,300
Fixed selling and administrative expenses		91,900		329,200

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	$fill in the blank b324fefd6f93ffc_2
Cost of goods sold	fill in the blank b324fefd6f93ffc_4
Gross profit	$fill in the blank b324fefd6f93ffc_6
Selling and administrative expenses	fill in the blank b324fefd6f93ffc_8
Income from operations	$fill in the blank b324fefd6f93ffc_10

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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.

Learning Objective 1.

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		$fill in the blank 6b0724052001fd9_2
Variable cost of goods sold		fill in the blank 6b0724052001fd9_4
Manufacturing margin		$fill in the blank 6b0724052001fd9_6
Variable selling and administrative expenses		fill in the blank 6b0724052001fd9_8
Contribution margin		$fill in the blank 6b0724052001fd9_10
Fixed costs:
Fixed factory overhead	$fill in the blank 6b0724052001fd9_12
Fixed selling and administrative expenses	fill in the blank 6b0724052001fd9_14
Total fixed costs		fill in the blank 6b0724052001fd9_16
Income from operations		$fill in the blank 6b0724052001fd9_18