Question: Race Track Motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May 2014 are as follows:

Unit data April May

Beginning inventory 0 150

Production 500 475

Sales 350 605

Variable costs

Manufacturing cost per unit produced $9,000 $9,000

Operating cost per unit sold 2,800 2,800

Fixed costs

Manufacturing costs $2,000,000 $2,000,000

Operating costs 700,000 700,000

The selling price per vehicle is $21,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 500 units. There are no price, efficiency, or spending variances. Any production-volume variance is written off to cost of good sold in the month in which it occurs.

Requirements:

1. Prepare April and May 2014 income statements for Race Track Motors under (a) variable costing and (b) absorption costing.

2. Prepare a numerical reconciliation and explanation of the difference between operating income for each month under variable costing and absorption costing. I have attached a spreadsheet with the same info as well. Thanks!!