Question

Absorption and Variable Costing Income Statements for Two Months and Analysis

During the first month of operations ended July 31, Head Gear Inc. manufactured 28,200 hats, of which 26,200 were sold. Operating data for the month are summarized as follows:

Sales			$251,520
Manufacturing costs:
Direct materials	$155,100
Direct labor	39,480
Variable manufacturing cost	19,740
Fixed manufacturing cost	16,920		231,240
Selling and administrative expenses:
Variable	$13,100
Fixed	9,560		22,660

During August, Head Gear Inc. manufactured 24,200 hats and sold 26,200 hats. Operating data for August are summarized as follows:

Sales			$251,520
Manufacturing costs:
Direct materials	$133,100
Direct labor	33,880
Variable manufacturing cost	16,940
Fixed manufacturing cost	16,920		200,840
Selling and administrative expenses:
Variable	$13,100
Fixed	9,560		22,660

Required:

1a. Prepare income statement for July using the absorption costing concept.

Head Gear Inc.
Absorption Costing Income Statement
For the Month Ended July 31
Sales		$
Cost of goods sold:
Cost of goods manufactured	$
Inventory, July 31
Total cost of goods sold
Gross profit		$
Selling and administrative expenses
Operating income		$

1b. Prepare income statement for August using the absorption costing concept.

Head Gear Inc.
Absorption Costing Income Statement
For the Month Ended August 31
		$
Cost of goods sold:
	$
		$
		$

Answer 1