Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 29,300 hats, of which 27,800 were sold. Operating data for the month are summarized as follows: Sales $177,920 Manufacturing costs: Direct materials $105,480 Direct labor 29,300 Variable manufacturing cost 11,720 Fixed manufacturing cost 11,720 158,220 Selling and administrative expenses: Variable $8,340 Fixed 6,090 14,430 During August, Head Gear Inc. manufactured 26,300 hats and sold 27,800 hats. Operating data for August are summarized as follows: Sales $177,920 Manufacturing costs: Direct materials $94,680 Direct labor 26,300 Variable manufacturing cost 10,520 Fixed manufacturing cost 11,720 143,220 Selling and administrative expenses: Variable $8,340 Fixed 6,090 14,430 Required: 1a. Prepare income statement for July using the absorption costing concept. Head Gear Inc.Absorption Costing Income StatementFor the Month Ended July 31 $Sales Cost of goods sold: $Cost of goods manufactured - Select - - Select - $- Select - - Select - $- Select - Feedback 1a. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = operating income *(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units) 1b. Prepare income statement for August using the absorption costing concept. Head Gear Inc.Absorption Costing Income StatementFor the Month Ended August 31 $- Select - Cost of goods sold: $- Select - - Select - - Select - $- Select - - Select - $- Select - Feedback 1b. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = operating income *(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units) 2a. Prepare income statement for July using the variable costing concept. Head Gear Inc.Variable Costing Income StatementFor the Month Ended July 31 $- Select - Variable cost of goods sold: $- Select - - Select - - Select - $- Select - - Select - $- Select - Fixed costs: $- Select - - Select - - Select - $- Select - Feedback 2a. Sales - variable cost of goods sold* = Manufacturing margin; Manufacturing margin - variable selling and administrative expenses = Contribution margin; Contribution margin - (fixed manufacturing costs + fixed selling and administrative expenses) = operating income *Variable cost of goods sold = Variable cost of goods manufactured - [(Manufactured Units - Sold units) x (variable manufacturing costs/manufactured units)] 2b. Prepare income statement for August using the variable costing concept. Head Gear Inc.Variable Costing Income StatementFor the Month Ended August 31 $- Select - Variable cost of goods sold: $- Select - - Select - - Select - $- Select - - Select - $- Select - Fixed costs: $- Select - - Select - - Select - $- Select -
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Absorption and Variable Costing Income Statements for Two Months and Analysis
During the first month of operations ended July 31, Head Gear Inc. manufactured 29,300 hats, of which 27,800 were sold. Operating data for the month are summarized as follows:
| Sales | $177,920 | |||
| Direct materials | $105,480 | |||
| Direct labor | 29,300 | |||
| Variable manufacturing cost | 11,720 | |||
| Fixed manufacturing cost | 11,720 | 158,220 | ||
| Selling and administrative expenses: | ||||
| Variable | $8,340 | |||
| Fixed | 6,090 | 14,430 |
During August, Head Gear Inc. manufactured 26,300 hats and sold 27,800 hats. Operating data for August are summarized as follows:
| Sales | $177,920 | |||
| Manufacturing costs: | ||||
| Direct materials | $94,680 | |||
| Direct labor | 26,300 | |||
| Variable manufacturing cost | 10,520 | |||
| Fixed manufacturing cost | 11,720 | 143,220 | ||
| Selling and administrative expenses: | ||||
| Variable | $8,340 | |||
| Fixed | 6,090 | 14,430 |
Required:
1a. Prepare income statement for July using the absorption costing concept.
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$Sales | |
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$Cost of goods manufactured | |
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1a. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = operating income
*(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)
1b. Prepare income statement for August using the absorption costing concept.
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$- Select - | |
| Cost of goods sold: | ||
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$- Select - | |
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1b. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = operating income
*(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)
2a. Prepare income statement for July using the variable costing concept.
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2a. Sales - variable cost of goods sold* = Manufacturing margin; Manufacturing margin - variable selling and administrative expenses = Contribution margin; Contribution margin - (fixed manufacturing costs + fixed selling and administrative expenses) = operating income
*Variable cost of goods sold = Variable cost of goods manufactured - [(Manufactured Units - Sold units) x (variable manufacturing costs/manufactured units)]
2b. Prepare income statement for August using the variable costing concept.
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$- Select - | |
| Variable cost of goods sold: | ||
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$- Select - | |
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