Reference no: EM132502365
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 (16,000 units) $2,240,000
Production costs (21,000 units):
Direct materials$1,087,800
Direct labor522,900
Variable factory overhead260,400
Fixed factory overhead174,300 2,045,400
Selling and administrative expenses:
Variable selling and administrative expenses$317,000
Fixed selling and administrative expenses122,700 439,700
If required, round interim per-unit calculations to the nearest cent.
Question a. income statement according to the absorption costing concept.
Shawnee Motors Inc.Absorption Costing Income StatementFor the Month Ended August 31 $ $ $
Question b. income statement according to the variable costing concept.
Shawnee Motors Inc.Variable Costing Income StatementFor the Month Ended August 31 $ $ $Fixed costs: $ $
Question 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.