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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) Production costs (13,000 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 $529,100 253,500 127,400 84,500 $154,100 59,700 If required, round interim per-unit calculations to the nearest cent. $1,100,000 994,500 213,800

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) Production costs (13,000 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 $529,100 253,500 127,400 84,500 $154,100 59,700 If required, round interim per-unit calculations to the nearest cent. $1,100,000 994,500 213,800

FINANCIAL ACCOUNTING
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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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) Production costs (13,000 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 ) $529,100 253,500 127,400 84,500 $154,100 59,700 If required, round interim per-unit calculations to the nearest cent. $1,100,000 994,500 213,800
Transcribed Image Text: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) Production costs (13,000 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 ) $529,100 253,500 127,400 84,500 $154,100 59,700 If required, round interim per-unit calculations to the nearest cent. $1,100,000 994,500 213,800
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.
Transcribed Image Text: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.
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