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 (15,500 units) Production costs (20,000 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 $740,000 356,000 178,000 118,000 1,392,000 $215,800 $1,550,000 For the Month Ended March 31 Line Item Description Amount 83,500 299,300 If required, round interim per-unit calculations to the nearest cent. a. Prepare an income statement according to the absorption costing concept. Crazy Mountain Sports Inc. Absorption Costing Income Statement

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 (15,500 units) Production costs (20,000 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 $740,000 356,000 178,000 118,000 1,392,000 $215,800 $1,550,000 For the Month Ended March 31 Line Item Description Amount 83,500 299,300 If required, round interim per-unit calculations to the nearest cent. a. Prepare an income statement according to the absorption costing concept. Crazy Mountain Sports Inc. Absorption Costing Income Statement

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Description: Income Statements under Absorption Costing and Variable CostingCrazy Mountain Sports Inc. assembles and sells snowmobile engines. The company began operations on March1 and operated at 100% of capacity during the first month. The following data summ

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Concept explainers

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.

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Question

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 (15,500 units)
Production costs (20,000
units):
Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
Selling and administrative
es:
Variable selling and
administrative expenses
Fixed selling and
administrative expenses
$740,000
356,000
178,000
118,000 1,392,000
$215,800
$1,550,000
For the Month Ended March 31
Line Item Description Amount
83,500 299,300
If required, round interim per-unit calculations to the nearest cent.
a. Prepare an income statement according to the absorption costing concept.
Crazy Mountain Sports Inc.
Absorption Costing Income
Statement

b. Prepare an income statement according to the variable costing concept.
Crazy Mountain Sports Inc.
Variable Costing Income Statement
For the Month Ended March 31
Line Item Description Amount Amount
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.

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