The labels, amount discriptions, and numbers i entered in the problems may not be correct.
During the first month of operations ended May 31, Big Sky Creations Company produced 56,000 designer cowboy boots, of which 52,450 were sold. Operating data for the month are summarized as follows:
During June, Big Sky Creations produced 48,900 designer cowboy boots and sold 52,450 cowboy boots. Operating data for June are summarized as follows:
| Required: |
| 1. | Using the absorption costing concept, prepare income statements for (a) May and (b) June.* |
| 2. | Using the variable costing concept, prepare income statements for (a) May and (b) June.* |
| 3a. | Explain the reason for the differences in operating income in (1) and (2) for May. |
| 3b. | Explain the reason for the differences in operating income in (1) and (2) for June. |
| 4. | Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain. | | * Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative. | |
Labels
June 30
Cost of goods sold
Fixed costsFor the Month Ended June 30
For the Month Ended May 31
May 31
Variable cost of goods sold
Amount Descriptions
Contribution margin
Contribution margin ratio
Cost of goods manufactured
Fixed manufacturing costs
Fixed selling and administrative expenses
Gross profitOperating income
Inventory, June 1
Inventory, May 31
Operating loss
Manufacturing margin
Planned contribution margin
SalesSales mix
Selling and administrative expenses
Total cost of goods sold
Total fixed costs
Total variable cost of goods sold
Variable cost of goods manufactured
Variable selling and administrative expenses
1a. Using the absorption costing concept, prepare income statements for May. Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative.
1b. Using the absorption costing concept, prepare income statements for June. Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative.
2a. Using the variable costing concept, prepare income statements for May. Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative.
2b. Using the variable costing concept, prepare income statements for June. Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative.
choices for this last part are always...
absorption, variable
or
fixed, variable
During the first month of operations ended May 31, Big Sky Creations Company produced 55,750 designer cowboy boots, of which 52,650 were sold. Operating data for the month are summarized as follows: 1 Sales $789,750.00 2 Manufacturing costs: 3 Direct materials $395,825.00 4 Direct labor 117,075.00 01 Variable manufacturing cost 61,325.00 6 Fixed manufacturing cost 55,750.00 629,975.00 7 Selling and administrative expenses: 8 Variable $26,325.00 9 Fixed 26,325.00 52,650.00 1 Sales $839,200.00 2 Manufacturing costs: 3 Direct materials $371,640.00 4 Direct labor 107,580.00 5 Variable manufacturing cost 58,680.00 6 Fixed manufacturing cost 56,000.00 593,900.00 7 Selling and administrative expenses: 8 Variable $31,470.00 9 Fixed 26,225.00 57,695.00 Big Sky Creations Company Absorption Costing Income Statement (Label) 1 Sales $839,200.00 2 Cost of goods sold: 3 Cost of goods manufactured $593,900.00 4 Inventory, May 31 42,600.00 5 Total cost of goods sold 6 Gross profit 7 Selling and administrative expenses 8 Operating income Big Sky Creations Company Variable Costing Income Statement For the Month Ended May 31 1 Sales $839,200.00 2 Variable cost of goods sold: 3 Variable cost of goods manufactured 4 Inventory, May 31 5 Total variable cost of goods sold 6 Manufacturing margin 7 Variable selling and administrative expenses 8 Contribution margin 9 Fixed costs: 10 Fixed manufacturing costs 11 Fixed selling and administrative expenses 12 Total fixed costs 13 Operating income Big Sky Creations Company Variable Costing Income Statement (Label) 1 Sales $839,200.00 2 Variable cost of goods sold: 3 Variable cost of goods manufactured 4 Inventory, May 31 5 Total variable cost of goods sold 6 Manufacturing margin 7 Variable selling and administrative expenses 8 Contribution margin 9 Fixed costs: 10 Fixed manufacturing costs 11 Fixed selling and administrative expenses 12 Total fixed costs 13 Operating income 3a. Explain the reason for the differences in operating income in (1) and (2) for May. For May, Operating income reported under absorption costing exceeds that reported under variable costing due to part of fixed manufacturing costs that are expensed on the absorption costing income statement, but not on the costing income statement. 3b. Explain the reason for the differences in operating income in (1) and (2) for June. For June, Operating income reported under costing is less than that reported under costing due to part of manufacturing costs from May that are expensed on the costing income statement, but not on the costing income statement. 4. Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain. Big Sky Creations Company was under the variable costing concept. The difference in operating income reported under the absorption costing concept is due to allocating to the During the first month of operations ended May 31, Big Sky Creations Company produced 55,750 designer cowboy boots, of which 52,650 were sold. Operating data for the month are summarized as follows: 1 Sales $789,750.00 2 Manufacturing costs: 3 Direct materials $395,825.00 4 Direct labor 117,075.00 01 Variable manufacturing cost 61,325.00 6 Fixed manufacturing cost 55,750.00 629,975.00 7 Selling and administrative expenses: 8 Variable $26,325.00 9 Fixed 26,325.00 52,650.00 1 Sales $839,200.00 2 Manufacturing costs: 3 Direct materials $371,640.00 4 Direct labor 107,580.00 5 Variable manufacturing cost 58,680.00 6 Fixed manufacturing cost 56,000.00 593,900.00 7 Selling and administrative expenses: 8 Variable $31,470.00 9 Fixed 26,225.00 57,695.00 Big Sky Creations Company Absorption Costing Income Statement (Label) 1 Sales $839,200.00 2 Cost of goods sold: 3 Cost of goods manufactured $593,900.00 4 Inventory, May 31 42,600.00 5 Total cost of goods sold 6 Gross profit 7 Selling and administrative expenses 8 Operating income Big Sky Creations Company Variable Costing Income Statement For the Month Ended May 31 1 Sales $839,200.00 2 Variable cost of goods sold: 3 Variable cost of goods manufactured 4 Inventory, May 31 5 Total variable cost of goods sold 6 Manufacturing margin 7 Variable selling and administrative expenses 8 Contribution margin 9 Fixed costs: 10 Fixed manufacturing costs 11 Fixed selling and administrative expenses 12 Total fixed costs 13 Operating income Big Sky Creations Company Variable Costing Income Statement (Label) 1 Sales $839,200.00 2 Variable cost of goods sold: 3 Variable cost of goods manufactured 4 Inventory, May 31 5 Total variable cost of goods sold 6 Manufacturing margin 7 Variable selling and administrative expenses 8 Contribution margin 9 Fixed costs: 10 Fixed manufacturing costs 11 Fixed selling and administrative expenses 12 Total fixed costs 13 Operating income 3a. Explain the reason for the differences in operating income in (1) and (2) for May. For May, Operating income reported under absorption costing exceeds that reported under variable costing due to part of fixed manufacturing costs that are expensed on the absorption costing income statement, but not on the costing income statement. 3b. Explain the reason for the differences in operating income in (1) and (2) for June. For June, Operating income reported under costing is less than that reported under costing due to part of manufacturing costs from May that are expensed on the costing income statement, but not on the costing income statement. 4. Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain. Big Sky Creations Company was under the variable costing concept. The difference in operating income reported under the absorption costing concept is due to allocating to the
