Shawnee Motors Inc. assembles and sells snowmobile engines. 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:

1	Sales (38,000 units)		$9,500,000.00
2	Production costs (44,000 units):
3	Direct materials	$4,400,000.00
4	Direct labor	1,760,000.00
5	Variable factory overhead	1,100,000.00
6	Fixed factory overhead	660,000.00	7,920,000.00
7	Selling and administrative expenses:
8	Variable selling and administrative expenses	$1,170,000.00
9	Fixed selling and administrative expenses	200,000.00	1,370,000.00

Required:

a.

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

b.

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

c.

What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

* Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. Enter all amounts as positive numbers.

LabelsFixed costsFor the Month Ended August 31August 31Amount DescriptionsContribution marginContribution margin ratioCost of goods soldFixed factory overhead costsFixed selling and administrative expensesGross profitIncome from operationsLoss from operationsManufacturing marginPlanned contribution marginSalesSales mixSelling and administrative expensesTotal fixed costsVariable cost of goods soldVariable selling and administrative expenses

a. Prepare an income statement according to the absorption costing concept. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. Enter all amounts as positive numbers.

Shawnee Motors Inc.

Absorption Costing Income Statement

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b. Prepare an income statement according to the variable costing concept. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. Enter all amounts as positive numbers.

Shawnee Motors Inc.

Variable Costing Income Statement

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10			c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)? Check all that apply. There is no difference; the income from operations reported in (a) and (b) is the same. Under variable costing, all of the fixed factory overhead cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Under variable costing, the units that were produced but unsold include fixed factory overhead cost, which is not included in cost of goods sold. Under absorption costing, when inventory increases, the income statement will have a lower income from operations than will the variable costing income statement. Under absorption costing, when inventory increases, the income statement will have a higher income from operations than will the variable costing income statement.