Shawnee motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operate 100% capacity during the first month. The following data summarizes the results for August. Prepare an income statement according to the variable cost and concept. What is the reason for the difference in the amount of income from operations support and (a) and (b)

more 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 (13,500 units) $1,755,000 Production costs (17,000 units): Direct materials $817,700 Direct labor 392,700 Variable factory overhead 195,500 Fixed factory overhead 130,900 1,536,800 Selling and administrative expenses: Variable selling and administrative expenses $238,200 Fixed selling and administrative expenses 92,200 330,400 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 1,755,000 Cost of goods sold 1,220,400 Gross profit 534.600 Selling and administrative expenses 330,400 Income from operations 204,200 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 1.755.000 Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin 130.900 Fixed COSES: Fixed factory overhead Fixed selling and administrative expenses 92,200 Total fixed costs Income from operations c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)? Under the method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under 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 increases the Income statement will have a higher income from operations than will the variable costing income statement Previous Next