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 (4,000 units) $2,600,000 Production costs (4,350 units): Direct materials $1,218,000 Direct labor 522,000 Variable factory overhead 87,000 Fixed factory overhead 130,500 1,957,500 Selling and administrative expenses: Variable selling and administrative expenses $60,000 Fixed selling and administrative expenses 25,000 85,000 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 $Sales Cost of goods sold $Gross profit Selling and administrative expenses $Operating income Feedback a. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and variable factory costs are included as part of factory overhead. 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 $Sales Variable cost of goods sold $Manufacturing margin Variable selling and administrative expenses $Contribution margin Fixed costs: $Fixed factory overhead costs Fixed selling and administrative expenses Total fixed costs $Operating income

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 (4,000 units)		$2,600,000
Production costs (4,350 units):
Direct materials	$1,218,000
Direct labor	522,000
Variable factory overhead	87,000
Fixed factory overhead	130,500		1,957,500
Selling and administrative expenses:
Variable selling and administrative expenses	$60,000
Fixed selling and administrative expenses	25,000		85,000

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

	$Sales
	Cost of goods sold
	$Gross profit
	Selling and administrative expenses
	$Operating income

Feedback

a. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and variable factory costs are included as part of factory overhead.

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

		$Sales
		Variable cost of goods sold
		$Manufacturing margin
		Variable selling and administrative expenses
		$Contribution margin
Fixed costs:
	$Fixed factory overhead costs
	Fixed selling and administrative expenses
		Total fixed costs
		$Operating income