Question

In: Accounting

Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and...

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 (15,500 units) $2,480,000
Production costs (20,000 units):
Direct materials $1,184,000
Direct labor 568,000
Variable factory overhead 284,000
Fixed factory overhead 190,000 2,226,000
Selling and administrative expenses:
Variable selling and administrative expenses $345,000
Fixed selling and administrative expenses 133,600 478,600

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
$
$
$

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

Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
$
$
$
Fixed costs:
$
$

c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

Under the method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory increases, the income statement will have a higher income from operations than will the variable costing income statement.

Solutions

Expert Solution

a
Shawnee Motors Inc.
Absorption Costing Income Statement
For the Month Ended August 31
Sales 2480000
Cost of goods sold 1725150 =2226000/20000*15500
Gross Profit 754850
Selling and administrative expenses 478600
Income from operations 276250
b Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
Sales 2480000
Variable Cost of goods sold 1577900 =(2226000-190000)/20000*15500
Manufacturing margin 902100
Variable selling and administrative expenses 345000
Contribution margin 557100
Fixed expenses:
Fixed factory overhead 190000
Fixed selling and administrative expenses 133600 323600
Income from operations 233500
c
Under the absorption costing method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues.
Under variable costing, all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change.
Thus, when inventory increases, the absorption costing income statement will have a higher income from operations than will the variable costing income statement.

Related Solutions

Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and...
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 (9,000 units) $990,000 Production costs (12,000 units): Direct materials $488,400 Direct labor 234,000 Variable factory overhead 117,600 Fixed factory overhead 78,000 918,000 Selling and administrative expenses: Variable selling and administrative expenses $142,300 Fixed selling and administrative expenses 55,100 197,400 If required, round interim per-unit calculations to...
Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and...
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 (9,000 units) $990,000 Production costs (12,000 units): Direct materials $488,400 Direct labor 234,000 Variable factory overhead 117,600 Fixed factory overhead 78,000 918,000 Selling and administrative expenses: Variable selling and administrative expenses $142,300 Fixed selling and administrative expenses 55,100 197,400 If required, round interim per-unit calculations to...
Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and...
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 (18,000 units) $2,880,000 Production costs (23,000 units): Direct materials $1,361,600 Direct labor 653,200 Variable factory overhead 326,600 Fixed factory overhead 218,500 2,559,900 Selling and administrative expenses: Variable selling and administrative expenses $396,800 Fixed selling and administrative expenses 153,600 550,400 If required, round interim per-unit calculations to...
Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and...
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 (20,000 units) $2,000,000 Production costs (26,000 units): Direct materials $962,000 Direct labor 462,800 Variable factory overhead 231,400 Fixed factory overhead 153,400 1,809,600 Selling and administrative expenses: Variable selling and administrative expenses $280,500 Fixed selling and administrative expenses 108,600 389,100 If required, round interim per-unit calculations to...
Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and...
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 (14,000 units) $1,960,000 Production costs (18,000 units): Direct materials $932,400 Direct labor 448,200 Variable factory overhead 223,200 Fixed factory overhead 149,400 1,753,200 Selling and administrative expenses: Variable selling and administrative expenses $271,700 Fixed selling and administrative expenses 105,200 376,900 If required, round interim per-unit calculations to...
Johnson Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and...
Johnson 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 (12,000 units) $1,320,000 Production costs (15,000 units): Direct materials $610,500 Direct labor 292,500 Variable factory overhead 147,000 Fixed factory overhead 97,500 1,147,500 Selling and administrative expenses: Variable selling and administrative expenses $177,900 Fixed selling and administrative expenses 68,900 246,800 If required, round interim per-unit calculations to...
Shawnee Motors Inc. assembles and sells snowmobile engines. The company began operations on August 1 and...
Shawnee Motors Inc. assembles and sells snowmobile engines. 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: 1 Sales (33,000 units) $8,250,000.00 2 Production costs (40,500 units): 3 Direct materials $3,240,000.00 4 Direct labor 1,822,500.00 5 Variable factory overhead 1,012,500.00 6 Fixed factory overhead 607,500.00 6,682,500.00 7 Selling and administrative expenses: 8 Variable selling and administrative expenses $1,160,000.00 9 Fixed selling and administrative expenses...
Shawnee Motors Inc. assembles and sells snowmobile engines. The company began operations on August 1 and...
Shawnee Motors Inc. assembles and sells snowmobile engines. 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: 1 Sales (38,000 units) $9,500,000.00 2 Production costs (44,000 units): 3 Direct materials $4,400,000.00 4 Direct labor 1,760,000.00 5 Variable factory overhead 1,100,000.00 6 Fixed factory overhead 660,000.00 7,920,000.00 7 Selling and administrative expenses: 8 Variable selling and administrative expenses $1,170,000.00 9 Fixed selling and administrative expenses...
Shawnee Motors Inc. assembles and sells snowmobile engines. The company began operations on August 1 and...
Shawnee Motors Inc. assembles and sells snowmobile engines. 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: 1 Sales (38,000 units) $9,500,000.00 2 Production costs (44,000 units): 3 Direct materials $4,400,000.00 4 Direct labor 1,760,000.00 5 Variable factory overhead 1,100,000.00 6 Fixed factory overhead 660,000.00 7,920,000.00 7 Selling and administrative expenses: 8 Variable selling and administrative expenses $1,170,000.00 9 Fixed selling and administrative expenses...
Shawnee Motors Inc. assembles and sells snowmobile engines. The company began operations on August 1 and...
Shawnee Motors Inc. assembles and sells snowmobile engines. 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: 1 Sales (38,000 units) $9,500,000.00 2 Production costs (46,500 units): 3 Direct materials $4,650,000.00 4 Direct labor 1,860,000.00 5 Variable factory overhead 1,162,500.00 6 Fixed factory overhead 697,500.00 8,370,000.00 7 Selling and administrative expenses: 8 Variable selling and administrative expenses $1,250,000.00 9 Fixed selling and administrative expenses...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT