allatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July: Sales (8,000 units) $1,120,000 Production costs (10,000 units): Direct materials $518,000 Direct labor 249,000 Variable factory overhead 124,000 Fixed factory overhead 83,000 974,000 Selling and administrative expenses: Variable selling and administrative expenses $151,000 Fixed selling and administrative expenses 58,400 209,400 If required, round interim per-unit calculations to the nearest cent. a. Prepare an income statement according to the absorption costing concept. Gallatin County Motors Inc. Absorption Costing Income Statement For the Month Ended July 31 Sales $fill in the blank 068da8fc7078fd6_2 Cost of goods sold fill in the blank 068da8fc7078fd6_4 $fill in the blank 068da8fc7078fd6_6 fill in the blank 068da8fc7078fd6_8 $fill in the blank 068da8fc7078fd6_10 b. Prepare an income statement according to the variable costing concept. Gallatin County Motors Inc. Variable Costing Income Statement For the Month Ended July 31 $fill in the blank b6147801dfcffce_2 fill in the blank b6147801dfcffce_4 $fill in the blank b6147801dfcffce_6 fill in the blank b6147801dfcffce_8 $fill in the blank b6147801dfcffce_10 Fixed costs: $fill in the blank b6147801dfcffce_12 fill in the blank b6147801dfcffce_14 fill in the blank b6147801dfcffce_16 $fill in the blank b6147801dfcffce_18 c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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allatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July:

Sales (8,000 units)		$1,120,000
Production costs (10,000 units):
Direct materials	$518,000
Direct labor	249,000
Variable factory overhead	124,000
Fixed factory overhead	83,000		974,000
Selling and administrative expenses:
Variable selling and administrative expenses	$151,000
Fixed selling and administrative expenses	58,400		209,400

If required, round interim per-unit calculations to the nearest cent.

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

Gallatin County Motors Inc.
Absorption Costing Income Statement
For the Month Ended July 31
Sales	$fill in the blank 068da8fc7078fd6_2
Cost of goods sold	fill in the blank 068da8fc7078fd6_4
	$fill in the blank 068da8fc7078fd6_6
	fill in the blank 068da8fc7078fd6_8
	$fill in the blank 068da8fc7078fd6_10

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

Gallatin County Motors Inc.
Variable Costing Income Statement
For the Month Ended July 31
		$fill in the blank b6147801dfcffce_2
		fill in the blank b6147801dfcffce_4
		$fill in the blank b6147801dfcffce_6
		fill in the blank b6147801dfcffce_8
		$fill in the blank b6147801dfcffce_10
Fixed costs:
	$fill in the blank b6147801dfcffce_12
	fill in the blank b6147801dfcffce_14
		fill in the blank b6147801dfcffce_16
		$fill in the blank b6147801dfcffce_18

c. What is the reason for the difference in the amount of operating income 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 operating income.

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