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Income Statements under Absorption Costing and Variable Costing Crazy Mountain Sports Inc. assembles and sells snowmobile engines. The company began operations on March 1 and operated at 100% of capacity during the first month. The following data summarize the results for March: Sales (5,000 units) Production costs (5,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses $3,850,000 $1,655,500 712,000 116,000 182,000 2,665,500 $82,600 Fixed selling and administrative expenses 34,700 117,300 If required, round interim per-unit calculations to the nearest cent. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet a. Prepare an income statement according to the absorption costing concept. Crazy Mountain Sports Inc. Absorption Costing Income Statement For the Month Ended July 31 Sales - ✓ Cost of goods sold Gross profit ☑✓ $ 3,850,000 x Selling and administrative expenses Operating income $ ✓ b. Prepare an income statement according to the variable costing concept. Crazy Mountain Sports Inc. Variable Costing Income Statement Sales Variable cost of goods sold Manufacturing margin ✓ For the Month Ended July 31 3,850,000 Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead costs ✓ Fixed selling and administrative expenses Total fixed costs ✓ $ ✓ $ $ Operating income c. What is the reason for the difference in the amount of operating income reported in (a) and (b)? Under the absorption costing higher operating income. ✓ 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

Income Statements under Absorption Costing and Variable Costing Crazy Mountain Sports Inc. assembles and sells snowmobile engines. The company began operations on March 1 and operated at 100% of capacity during the first month. The following data summarize the results for March: Sales (5,000 units) Production costs (5,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses $3,850,000 $1,655,500 712,000 116,000 182,000 2,665,500 $82,600 Fixed selling and administrative expenses 34,700 117,300 If required, round interim per-unit calculations to the nearest cent. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet a. Prepare an income statement according to the absorption costing concept. Crazy Mountain Sports Inc. Absorption Costing Income Statement For the Month Ended July 31 Sales - ✓ Cost of goods sold Gross profit ☑✓ $ 3,850,000 x Selling and administrative expenses Operating income $ ✓ b. Prepare an income statement according to the variable costing concept. Crazy Mountain Sports Inc. Variable Costing Income Statement Sales Variable cost of goods sold Manufacturing margin ✓ For the Month Ended July 31 3,850,000 Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead costs ✓ Fixed selling and administrative expenses Total fixed costs ✓ $ ✓ $ $ Operating income c. What is the reason for the difference in the amount of operating income reported in (a) and (b)? Under the absorption costing higher operating income. ✓ 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

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter7: Variable Costing For Management analysis
Section: Chapter Questions
Problem 2E: Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on...
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Income Statements under Absorption Costing and Variable Costing Crazy Mountain Sports Inc. assembles and sells snowmobile engines. The company began operations on March 1 and operated at 100% of capacity during the first month. The following data summarize the results for March: Sales (5,000 units) Production costs (5,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses $3,850,000 $1,655,500 712,000 116,000 182,000 2,665,500 $82,600 Fixed selling and administrative expenses 34,700 117,300 If required, round interim per-unit calculations to the nearest cent. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet a. Prepare an income statement according to the absorption costing concept. Crazy Mountain Sports Inc. Absorption Costing Income Statement For the Month Ended July 31 Sales - ✓ Cost of goods sold Gross profit ☑✓ $ 3,850,000 x Selling and administrative expenses Operating income $ ✓ b. Prepare an income statement according to the variable costing concept. Crazy Mountain Sports Inc. Variable Costing Income Statement Sales Variable cost of goods sold Manufacturing margin ✓ For the Month Ended July 31 3,850,000 Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead costs ✓ Fixed selling and administrative expenses Total fixed costs ✓ $ ✓ $ $ Operating income c. What is the reason for the difference in the amount of operating income reported in (a) and (b)? Under the absorption costing higher operating income. ✓ 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
Transcribed Image Text:Income Statements under Absorption Costing and Variable Costing Crazy Mountain Sports Inc. assembles and sells snowmobile engines. The company began operations on March 1 and operated at 100% of capacity during the first month. The following data summarize the results for March: Sales (5,000 units) Production costs (5,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses $3,850,000 $1,655,500 712,000 116,000 182,000 2,665,500 $82,600 Fixed selling and administrative expenses 34,700 117,300 If required, round interim per-unit calculations to the nearest cent. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet a. Prepare an income statement according to the absorption costing concept. Crazy Mountain Sports Inc. Absorption Costing Income Statement For the Month Ended July 31 Sales - ✓ Cost of goods sold Gross profit ☑✓ $ 3,850,000 x Selling and administrative expenses Operating income $ ✓ b. Prepare an income statement according to the variable costing concept. Crazy Mountain Sports Inc. Variable Costing Income Statement Sales Variable cost of goods sold Manufacturing margin ✓ For the Month Ended July 31 3,850,000 Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead costs ✓ Fixed selling and administrative expenses Total fixed costs ✓ $ ✓ $ $ Operating income c. What is the reason for the difference in the amount of operating income reported in (a) and (b)? Under the absorption costing higher operating income. ✓ 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
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