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 Sales (4,000 units) $2,600,000.00 2 Production costs (4,350 units): 3 Direct materials $1,218,000.00 4 Direct labor 522,000.00 5 Variable factory overhead 87,000.00 6 Fixed factory overhead 130,500.00 1,957,500.00 7 Selling and administrative expenses: 8 Variable selling and administrative expenses $60,000.00 9 Fixed selling and administrative expenses 25,000.00 85,000.00 Required: a. Prepare an income statement according to the absorption costing concept.* b. Prepare an income statement according to the variable costing concept.* c. What is the reason for the difference in the amount of operating income reported in (a) and (b)? *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. Expenses should be positive.

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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Question

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	Sales (4,000 units)		$2,600,000.00
2	Production costs (4,350 units):
3	Direct materials	$1,218,000.00
4	Direct labor	522,000.00
5	Variable factory overhead	87,000.00
6	Fixed factory overhead	130,500.00	1,957,500.00
7	Selling and administrative expenses:
8	Variable selling and administrative expenses	$60,000.00
9	Fixed selling and administrative expenses	25,000.00	85,000.00

Required:

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

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

What is the reason for the difference in the amount of operating income reported in (a) and (b)?

*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. Expenses should be positive.

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