Question

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 labor		522,900
Variable factory overhead		260,400
Fixed factory overhead		174,300		2,045,400
Selling and administrative expenses:
Variable selling and administrative expenses		$317,000
Fixed selling and administrative expenses		122,700		439,700

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
Sales	$
Cost of goods sold
Gross profit	$
Selling and administrative expenses
Income from operations	$

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

Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
Sales		$
Variable cost of goods sold
Manufacturing margin		$
Variable selling and administrative expenses
Contribution margin		$
Fixed costs:
Fixed factory overhead	$
Fixed selling and administrative expenses
Total fixed costs
Income from operations		$

Answer 1

a
Shawnee Motors Inc.
Absorption Costing Income Statement
For the Month Ended August 31
Sales	2240000
Cost of goods sold	1558400	=2045400/21000*16000
Gross profit	681600
Selling and administrative expenses	439700	=317000+122700
Income from operations	241900
b
Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
Sales		2240000
Variable cost of goods sold		1425600	=(1087800+522900+260400)/21000*16000
Manufacturing margin		814400
Variable selling and administrative expenses		317000
Contribution margin		497400
Fixed costs:
Fixed factory overhead	174300
Fixed selling and administrative expenses	122700
Total fixed costs		297000
Income from operations		200400