Question

In: Accounting

Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...

Absorption and Variable Costing Income Statements for Two Months and Analysis

During the first month of operations ended July 31, Head Gear Inc. manufactured 21,800 hats, of which 20,700 were sold. Operating data for the month are summarized as follows:

Sales $198,720
Manufacturing costs:
Direct materials $119,900
Direct labor 30,520
Variable manufacturing cost 15,260
Fixed manufacturing cost 13,080 178,760
Selling and administrative expenses:
Variable $10,350
Fixed 7,560 17,910

During August, Head Gear Inc. manufactured 19,600 hats and sold 20,700 hats. Operating data for August are summarized as follows:

Sales $198,720
Manufacturing costs:
Direct materials $107,800
Direct labor 27,440
Variable manufacturing cost 13,720
Fixed manufacturing cost 13,080 162,040
Selling and administrative expenses:
Variable $10,350
Fixed 7,560 17,910

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
$
Cost of goods sold:
$
$
$

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:
$
$
$

2a. Prepare income statement for July using the variable costing concept.

Head Gear Inc.
Variable Costing Income Statement
For the Month Ended July 31
$
Variable cost of goods sold:
$
$
$
Fixed costs:
$
$

2b. Prepare income statement for August using the variable costing concept.

Head Gear Inc.
Variable Costing Income Statement
For the Month Ended August 31
$
Variable cost of goods sold:
$
$
$
Fixed costs:
$
$

3a. For July, operating income reported under   costing is less than   costing due to part of   manufacturing costs that are expensed.

3b. When large changes in inventory levels occur from one period to the next, it is possible for management to misinterpret such increases (or decreases) in operating income as due to changes in:

  1. costs.
  2. prices.
  3. sales volume.
  4. "sales volume", "prices" and "costs" are correct.
  5. None of these choices is correct.

The correct answer is:

4. Based on your answers to (1) and (2), did Head Gear Inc. operate more profitably in July or in August? Explain.

Head Gear Inc. was   under the variable costing concept. The difference in operating income reported under the absorption costing concept is due to allocating   to the  .

Solutions

Expert Solution


Related Solutions

Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 32,600 hats, of which 30,600 were sold. Operating data for the month are summarized as follows: Sales $201,960 Manufacturing costs: Direct materials $123,880 Direct labor 32,600 Variable manufacturing cost 16,300 Fixed manufacturing cost 13,040 185,820 Selling and administrative expenses: Variable $9,180 Fixed 6,700 15,880 During August, Head Gear Inc. manufactured 28,600 designer hats and sold 30,600...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 21,800 hats, of which 20,700 were sold. Operating data for the month are summarized as follows: Sales $198,720 Manufacturing costs: Direct materials $119,900 Direct labor 30,520 Variable manufacturing cost 15,260 Fixed manufacturing cost 13,080 178,760 Selling and administrative expenses: Variable $10,350 Fixed 7,560 17,910 During August, Head Gear Inc. manufactured 19,600 hats and sold 20,700 hats....
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 6,400 hats, of which 5,200 were sold. Operating data for the month are summarized as follows: Sales $104,000 Manufacturing costs: Direct materials $47,360 Direct labor 22,400 Variable manufacturing cost 12,160 Fixed manufacturing cost 15,360 97,280 Selling and administrative expenses: Variable $10,920 Fixed 5,200 16,120 During August, Head Gear Inc. manufactured 4,000 hats and sold 5,200 hats....
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 29,300 hats, of which 27,200 were sold. Operating data for the month are summarized as follows: Sales $174,080 Manufacturing costs: Direct materials $105,480 Direct labor 29,300 Variable manufacturing cost 11,720 Fixed manufacturing cost 11,720 158,220 Selling and administrative expenses: Variable $8,160 Fixed 5,960 14,120 During August, Head Gear Inc. manufactured 25,100 designer hats and sold 27,200...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 23,000 hats, of which 21,400 were sold. Operating data for the month are summarized as follows: Sales $179,760 Manufacturing costs: Direct materials $110,400 Direct labor 29,900 Variable manufacturing cost 13,800 Fixed manufacturing cost 11,500 165,600 Selling and administrative expenses: Variable $8,560 Fixed 6,250 14,810 During August, Head Gear Inc. manufactured 19,800 hats and sold 21,400 hats....
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 34,800 hats, of which 32,700 were sold. Operating data for the month are summarized as follows: Sales $261,600 Manufacturing costs: Direct materials $160,080 Direct labor 41,760 Variable manufacturing cost 20,880 Fixed manufacturing cost 17,400 240,120 Selling and administrative expenses: Variable $13,080 Fixed 9,550 22,630 During August, Head Gear Inc. manufactured 30,600 hats and sold 32,700 hats....
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 26,800 hats, of which 25,500 were sold. Operating data for the month are summarized as follows: Sales $183,600 Manufacturing costs: Direct materials $109,880 Direct labor 29,480 Variable manufacturing cost 13,400 Fixed manufacturing cost 10,720 163,480 Selling and administrative expenses: Variable $10,200 Fixed 7,450 17,650 During August, Head Gear Inc. manufactured 24,200 designer hats and sold 25,500...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...
Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 31,600 hats, of which 29,700 were sold. Operating data for the month are summarized as follows: Sales $243,540 Manufacturing costs: Direct materials $148,520 Direct labor 37,920 Variable manufacturing cost 18,960 Fixed manufacturing cost 15,800 221,200 Selling and administrative expenses: Variable $11,880 Fixed 8,670 20,550 During August, Head Gear Inc. manufactured 27,800 designer hats and sold 29,700...
Absorption and Variable Costing Income Statements During the first month of operations ended July 31, YoSan...
Absorption and Variable Costing Income Statements During the first month of operations ended July 31, YoSan Inc. manufactured 9,800 flat panel televisions, of which 9,100 were sold. Operating data for the month are summarized as follows: Sales $1,456,000 Manufacturing costs:     Direct materials $735,000     Direct labor 215,600     Variable manufacturing cost 186,200     Fixed manufacturing cost 98,000 1,234,800 Selling and administrative expenses:     Variable $118,300     Fixed 54,400 172,700 Required: 1. Prepare an income statement based on the absorption...
Absorption and Variable Costing Income Statements During the first month of operations ended July 31, YoSan...
Absorption and Variable Costing Income Statements During the first month of operations ended July 31, YoSan Inc. manufactured 10,400 flat panel televisions, of which 9,800 were sold. Operating data for the month are summarized as follows: Sales $1,715,000 Manufacturing costs:     Direct materials $852,800     Direct labor 260,000     Variable manufacturing cost 218,400     Fixed manufacturing cost 114,400 1,445,600 Selling and administrative expenses:     Variable $137,200     Fixed 63,100 200,300 Required: 1. Prepare an income statement based on the absorption...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT