Question

Income Statements under Absorption Costing and Variable Costing

Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July:

Sales (16,500 units)				$2,475,000
Production costs (21,000 units):
Direct materials		$1,165,500
Direct labor		558,600
Variable factory overhead		279,300
Fixed factory overhead		186,900		2,190,300
Selling and administrative expenses:
Variable selling and administrative expenses		$339,500
Fixed selling and administrative expenses		131,400		470,900

If required, round interim per-unit calculations to the nearest cent.

a. Prepare an income statement according to the absorption costing concept.

Gallatin County Motors Inc.
Absorption Costing Income Statement
For the Month Ended July 31
Sales
Cost of goods sold
Gross profit
Selling and administrative expenses
Operating income

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

Gallatin County Motors Inc.
Variable Costing Income Statement
For the Month Ended July 31
Sales
Variable cost of goods sold
Manufacturing margin
Variable selling and administrative expenses
Contribution margin
Fixed costs:
Fixed factory overhead costs
Fixed selling and administrative expenses
Total fixed costs
Operating income

Answer 1

Answer
1
Gallatin County Motors Inc.
Absorption Costing Income Statement
For the Month Ended July 31
Sales	$       2,475,000
Cost of goods sold	$       1,720,950		2190300/21000*16500
Gross profit	$          754,050
Selling and administrative expenses	$          470,900
Income from operations	$          283,150
2
Gallatin County Motors Inc.
Variable Costing Income Statement
For the Month Ended July 31
Sales		$ 2,475,000
Variable cost of goods sold		$ 1,574,100	(2190300-186900)/21000*16500
Manufacturing margin		$    900,900
Variable selling and administrative expenses		$    339,500
Contribution margin		$    561,400
Fixed costs:
Fixed factory overhead	$          186,900
Fixed selling and administrative expenses	$          131,400
Total fixed costs		$    318,300
Income from operations		$    243,100