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 (10,000 units) $1,500,000 Production costs (13,000 units): Direct materials $721,500 Direct labor 345,800 Variable factory overhead 172,900 Fixed factory overhead 115,700 1,355,900 Selling and administrative expenses: Variable selling and administrative expenses $210,200 Fixed selling and administrative expenses 81,400 291,600 If required, round interim per-unit calculations to the nearest cent. a. Prepare an income statement according to the absorption costing concept. b. Prepare an income statement according to the variable costing concept.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Income Statements under Absorption Costing and Variable 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:
| Sales (10,000 units) | $1,500,000 | |||
| Production costs (13,000 units): | ||||
| Direct materials | $721,500 | |||
| Direct labor | 345,800 | |||
| Variable factory |
172,900 | |||
| Fixed factory overhead | 115,700 | 1,355,900 | ||
| Selling and administrative expenses: | ||||
| Variable selling and administrative expenses | $210,200 | |||
| Fixed selling and administrative expenses | 81,400 | 291,600 |
If required, round interim per-unit calculations to the nearest cent.
a. Prepare an income statement according to the absorption costing concept.
b. Prepare an income statement according to the variable costing concept.
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