Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for August: Sales (9,000 units) $990,000 Production costs (12,000 units): Direct materials $488,400 Direct labor 234,000 Variable factory overhead 117,600 Fixed factory overhead 78,000 918,000 Selling and administrative expenses: Variable selling and administrative expenses $142,300 Fixed selling and administrative expenses 55,100 197,400 If required, round interim per-unit calculations to the nearest cent. a. Prepare an income statement according to the absorption costing concept. Shawnee Motors Inc. Absorption Costing Income Statement For the Month Ended August 31 $fill in the blank e961caf34018fef_2 fill in the blank e961caf34018fef_4 $fill in the blank e961caf34018fef_6 fill in the blank e961caf34018fef_8 $fill in the blank e961caf34018fef_10 b. Prepare an income statement according to the variable costing concept. Shawnee Motors Inc. Variable Costing Income Statement For the Month Ended August 31 $fill in the blank 3b485a00604903c_2 fill in the blank 3b485a00604903c_4 $fill in the blank 3b485a00604903c_6 fill in the blank 3b485a00604903c_8 $fill in the blank 3b485a00604903c_10 Fixed costs: $fill in the blank 3b485a00604903c_12 fill in the blank 3b485a00604903c_14 fill in the blank 3b485a00604903c_16 $fill in the blank 3b485a00604903c_18 c. What is the reason for the difference in the amount of income from operations 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 income from operations than will the variable costing income statement.

Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for August: Sales (9,000 units) $990,000 Production costs (12,000 units): Direct materials $488,400 Direct labor 234,000 Variable factory overhead 117,600 Fixed factory overhead 78,000 918,000 Selling and administrative expenses: Variable selling and administrative expenses $142,300 Fixed selling and administrative expenses 55,100 197,400 If required, round interim per-unit calculations to the nearest cent. a. Prepare an income statement according to the absorption costing concept. Shawnee Motors Inc. Absorption Costing Income Statement For the Month Ended August 31 $fill in the blank e961caf34018fef_2 fill in the blank e961caf34018fef_4 $fill in the blank e961caf34018fef_6 fill in the blank e961caf34018fef_8 $fill in the blank e961caf34018fef_10 b. Prepare an income statement according to the variable costing concept. Shawnee Motors Inc. Variable Costing Income Statement For the Month Ended August 31 $fill in the blank 3b485a00604903c_2 fill in the blank 3b485a00604903c_4 $fill in the blank 3b485a00604903c_6 fill in the blank 3b485a00604903c_8 $fill in the blank 3b485a00604903c_10 Fixed costs: $fill in the blank 3b485a00604903c_12 fill in the blank 3b485a00604903c_14 fill in the blank 3b485a00604903c_16 $fill in the blank 3b485a00604903c_18 c. What is the reason for the difference in the amount of income from operations 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 income from operations than will the variable costing income statement.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Income Statements under Absorption and Variable Costing

Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for August:

Sales (9,000 units)		$990,000
Production costs (12,000 units):
Direct materials	$488,400
Direct labor	234,000
Variable factory overhead	117,600
Fixed factory overhead	78,000		918,000
Selling and administrative expenses:
Variable selling and administrative expenses	$142,300
Fixed selling and administrative expenses	55,100		197,400

If required, round interim per-unit calculations to the nearest cent.

a. Prepare an income statement according to the absorption costing concept.

Shawnee Motors Inc.
Absorption Costing Income Statement
For the Month Ended August 31
	$fill in the blank e961caf34018fef_2
	fill in the blank e961caf34018fef_4
	$fill in the blank e961caf34018fef_6
	fill in the blank e961caf34018fef_8
	$fill in the blank e961caf34018fef_10

b. Prepare an income statement according to the variable costing concept.

Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
		$fill in the blank 3b485a00604903c_2
		fill in the blank 3b485a00604903c_4
		$fill in the blank 3b485a00604903c_6
		fill in the blank 3b485a00604903c_8
		$fill in the blank 3b485a00604903c_10
Fixed costs:
	$fill in the blank 3b485a00604903c_12
	fill in the blank 3b485a00604903c_14
		fill in the blank 3b485a00604903c_16
		$fill in the blank 3b485a00604903c_18

c. What is the reason for the difference in the amount of income from operations 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 income from operations than will the variable costing income statement.

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