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 (8,000 units)   $800,000   Production costs (10,000 units):     Direct materials $370,000     Direct labor 178,000     Variable factory overhead 89,000     Fixed factory overhead 59,000 696,000     Selling and administrative expenses:     Variable selling and administrative expenses $107,900     Fixed selling and administrative expenses 41,800 149,700     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 - Select - $ - Select -   - Select - $ - Select -   - Select - $   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 - Select -   $ - Select -     - Select -   $ - Select -     - Select -   $ Fixed costs:     - Select - $   - Select -     - Select -     - Select -   $   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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Chapter1: Financial Statements And Business Decisions
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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 (8,000 units)   $800,000  
Production costs (10,000 units):    
Direct materials $370,000    
Direct labor 178,000    
Variable factory overhead 89,000    
Fixed factory overhead 59,000 696,000    
Selling and administrative expenses:    
Variable selling and administrative expenses $107,900    
Fixed selling and administrative expenses 41,800 149,700    

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
- Select -
$
- Select -
 
- Select -
$
- Select -
 
- Select -
$

 

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
- Select -
  $
- Select -
   
- Select -
  $
- Select -
   
- Select -
  $
Fixed costs:    
- Select -
$  
- Select -
   
- Select -
   
- Select -
  $

 

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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