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 $ $ $ 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 $ $ $ Fixed costs: $ $ 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.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 (17,500 units) | $2,800,000 | |||
| Production costs (23,000 units): | ||||
| Direct materials | $1,361,600 | |||
| Direct labor | 653,200 | |||
| Variable factory |
326,600 | |||
| Fixed factory overhead | 218,500 | 2,559,900 | ||
| Selling and administrative expenses: | ||||
| Variable selling and administrative expenses | $396,800 | |||
| Fixed selling and administrative expenses | 153,600 | 550,400 |
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 | |
| $ | |
| $ | |
| $ |
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 | ||
| $ | ||
| $ | ||
| $ | ||
| Fixed costs: | ||
| $ | ||
| $ |
c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?
Under the method, the fixed
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
