During the first month of operations ended May 31, Big Sky Creations Company produced 40,000 designer cowboy boots, of which 36,000 were sold. Operating data for the month are summarized as follows: 1 Sales $4,500,000.00 2 Manufacturing costs: 3 Direct materials $960,000.00 4 Direct labor 2,000,000.00 5 Variable manufacturing cost 520,000.00 6 Fixed manufacturing cost 120,000.00 3,600,000.00 7 Selling and administrative expenses: 8 Variable $72,000.00 9 Fixed 80,000.00 152,000.00 During June, Big Sky Creations produced 32,000 designer cowboy boots and sold 36,000 cowboy boots. Operating data for June are summarized as follows: 1 Sales $4,500,000.00 2 Manufacturing costs: 3 Direct materials $768,000.00 4 Direct labor 1,600,000.00 5 Variable manufacturing cost 416,000.00 6 Fixed manufacturing cost 120,000.00 2,904,000.00 7 Selling and administrative expenses: 8 Variable $72,000.00 9 Fixed 80,000.00 152,000.00 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 and for May. 3b. Explain the reason for the differences in operating income in and for June.

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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During the first month of operations ended May 31, Big Sky Creations Company produced 40,000 designer cowboy boots, of which 36,000 were sold. Operating data for the month are summarized as follows:

1	Sales		$4,500,000.00
2	Manufacturing costs:
3	Direct materials	$960,000.00
4	Direct labor	2,000,000.00
5	Variable manufacturing cost	520,000.00
6	Fixed manufacturing cost	120,000.00	3,600,000.00
7	Selling and administrative expenses:
8	Variable	$72,000.00
9	Fixed	80,000.00	152,000.00

During June, Big Sky Creations produced 32,000 designer cowboy boots and sold 36,000 cowboy boots. Operating data for June are summarized as follows:

1	Sales		$4,500,000.00
2	Manufacturing costs:
3	Direct materials	$768,000.00
4	Direct labor	1,600,000.00
5	Variable manufacturing cost	416,000.00
6	Fixed manufacturing cost	120,000.00	2,904,000.00
7	Selling and administrative expenses:
8	Variable	$72,000.00
9	Fixed	80,000.00	152,000.00

	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 and for May.
3b.	Explain the reason for the differences in operating income in and 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.

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