Gallatin 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 (14,500 units) Production costs (19,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses Fixed selling and administrative expenses $703,000 338,200 169,100 112,100 1,322,400 $205,000 79,300 Feedback If required, round interim per-unit calculations to the nearest cent. Gallatin County Motors Inc. Absorption Costing Income Statement For the Month Ended July 31 Sales ✔ 1,450,000 Cost of goods sold ✔ 1,322,400 X Gross profit ✓ Selling and administrative expenses Operating income ✔ Check My Work a. Prepare an income statement according to the absorption costing concept. $1,450,000 284,300 284,300 a. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and variable factory costs are included as part of factory overhead. Gallatin County Motors Inc. b. Prepare an income statement according to the variable costing concept.

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8:20
Costing
Gallatin 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:
$1,450,000
Sales (14,500 units)
Production costs (19,000 units):
Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
Selling and administrative expenses:
Variable selling and administrative expenses
Fixed selling and administrative expenses
Sales✔
Cost of goods sold ✔
Gross profit ✓
Selling and administrative expenses
If required, round interim per-unit calculations to the
nearest cent.
Gallatin County Motors Inc.
Absorption Costing Income Statement
For the Month Ended July 31
1,450,000
Operating income ✓
a. Prepare an income statement according to the
absorption costing concept.
$703,000
338,200
169,100
112,100 1,322,400
$205,000
79,300
Feedback
AA
Check My Work
.LTE
1,322,400 X
284,300
284,300
a. Under absorption costing, the cost of goods
manufactured includes direct materials, direct labor,
and factory overhead costs. Both fixed and variable
factory costs are included as part of factory overhead.
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
v2.cengagenow.com
Transcribed Image Text:8:20 Costing Gallatin 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: $1,450,000 Sales (14,500 units) Production costs (19,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses Fixed selling and administrative expenses Sales✔ Cost of goods sold ✔ Gross profit ✓ Selling and administrative expenses If required, round interim per-unit calculations to the nearest cent. Gallatin County Motors Inc. Absorption Costing Income Statement For the Month Ended July 31 1,450,000 Operating income ✓ a. Prepare an income statement according to the absorption costing concept. $703,000 338,200 169,100 112,100 1,322,400 $205,000 79,300 Feedback AA Check My Work .LTE 1,322,400 X 284,300 284,300 a. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and variable factory costs are included as part of factory overhead. 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 v2.cengagenow.com
8:20
Check My Work
a. Under absorption costing, the cost of goods
manufactured includes direct materials, direct labor,
and factory overhead costs. Both fixed and variable
factory costs are included as part of factory overhead.
b. Prepare an income statement according to the variable
costing concept.
Sales ✓
Variable cost of goods sold
Manufacturing margin ✓
Variable selling and administrative expenses
Contribution margin ✔
Gallatin County Motors Inc.
Variable Costing Income Statement
For the Month Ended July 31
Fixed costs:
Fixed factory overhead costs ▾ ✓
Fixed selling and administrative expenses
Total fixed costs ✔
Operating income
AA
Feedback
costs.
112,100
.LTE
79.300
1,450,000
205,000
✓ Check My Work
b. Under variable costing, the cost of goods
manufactured includes only variable manufacturing
v2.cengagenow.com
191,400
c. What is the reason for the difference in the amount of
operating income reported in (a) and (b)?
Under the absorption costing method, the fixed
manufacturing cost included in the cost of goods sold is
matched with the revenues. Under variable costing ✓, 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
absorption costing ✔ income statement will have a higher
operating income.
Ć
Transcribed Image Text:8:20 Check My Work a. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and variable factory costs are included as part of factory overhead. b. Prepare an income statement according to the variable costing concept. Sales ✓ Variable cost of goods sold Manufacturing margin ✓ Variable selling and administrative expenses Contribution margin ✔ Gallatin County Motors Inc. Variable Costing Income Statement For the Month Ended July 31 Fixed costs: Fixed factory overhead costs ▾ ✓ Fixed selling and administrative expenses Total fixed costs ✔ Operating income AA Feedback costs. 112,100 .LTE 79.300 1,450,000 205,000 ✓ Check My Work b. Under variable costing, the cost of goods manufactured includes only variable manufacturing v2.cengagenow.com 191,400 c. What is the reason for the difference in the amount of operating income reported in (a) and (b)? Under the absorption costing method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under variable costing ✓, 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 absorption costing ✔ income statement will have a higher operating income. Ć
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