Question

During the first month of operations ended May 31, Big Sky Creations Company produced 55,000 designer cowboy boots, of which 51,900 were sold. Operating data for the month are summarized as follows:

1	Sales		$804,450.00
2	Manufacturing costs:
3	Direct materials	$467,500.00
4	Direct labor	126,500.00
5	Variable manufacturing cost	77,000.00
6	Fixed manufacturing cost	55,000.00	726,000.00
7	Selling and administrative expenses:
8	Variable	$25,950.00
9	Fixed	25,950.00	51,900.00

During June, Big Sky Creations produced 48,800 designer cowboy boots and sold 51,900 cowboy boots. Operating data for June are summarized as follows:

1	Sales		$804,450.00
2	Manufacturing costs:
3	Direct materials	$414,800.00
4	Direct labor	112,240.00
5	Variable manufacturing cost	68,320.00
6	Fixed manufacturing cost	55,000.00	650,360.00
7	Selling and administrative expenses:
8	Variable	$25,950.00
9	Fixed	25,950.00	51,900.00

	Required:
1.	Using the absorption costing concept, prepare income statements for (a) May and (b) June.*
2.	Using the variable costing concept, prepare income statements for (a) May and (b) June.*
3a.	Explain the reason for the differences in operating income in (1) and (2) for May.
3b.	Explain the reason for the differences in operating income in (1) and (2) for June.
4.	Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain.

Labels
June 30
Cost of goods sold
Fixed costs
For the Month Ended June 30
For the Month Ended May 31
May 31
Variable cost of goods sold
Amount Descriptions
Contribution margin
Contribution margin ratio
Cost of goods manufactured
Fixed manufacturing costs
Fixed selling and administrative expenses
Gross profit
Operating income
Inventory, June 1
Inventory, May 31
Operating loss
Manufacturing margin
Planned contribution margin
Sales
Sales mix
Selling and administrative expenses
Total cost of goods sold
Total fixed costs
Total variable cost of goods sold
Variable cost of goods manufactured
Variable selling and administrative expenses

Answer 1