Chapter 7, Problem 3E

Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (150,000 units) during the first month, creating an ending inventory of 20,000 units. During February, the company produced 130,000 units during the month but sold 150,000 units at $500 per unit. The February manufacturing costs and selling and administrative expenses were as follows:

1. a. Prepare an income statement according to the absorption costing concept for the month ending February 28.
2. b. Prepare an income statement according to the variable costing concept for for the month ending February 28.
3. c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?