Question

In: Accounting

Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...

Income Statements under Absorption and Variable Costing

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) $3,200,000
Production costs (26,000 units):
Direct materials $1,539,200
Direct labor 738,400
Variable factory overhead 369,200
Fixed factory overhead 247,000 2,893,800
Selling and administrative expenses:
Variable selling and administrative expenses $448,500
Fixed selling and administrative expenses 173,600 622,100

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
Sales $
Cost of goods sold
Gross profit $
Selling and administrative expenses
Income from operations $

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

Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
Sales $
Variable cost of goods sold
Manufacturing margin $
Variable selling and administrative expenses
Contribution margin $
Fixed costs:
Fixed factory overhead $
Fixed selling and administrative expenses
Income from operations
$

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

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 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 3200000
Cost of goods sold 2226000 =2893800/26000*20000
Gross profit 974000
Selling and administrative expenses 622100
Income from operations 351900
b
Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
Sales 3200000
Variable cost of goods sold 2036000 =(2893800-247000)/26000*20000
Manufacturing margin 1164000
Variable selling and administrative expenses 448500
Contribution margin 715500
Fixed costs:
Fixed factory overhead 247000
Fixed selling and administrative expenses 173600 420600
Income from operations 294900
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

Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...
Income Statements under Absorption and Variable Costing 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 (16,500 units) $2,640,000 Production costs (21,000 units): Direct materials $1,243,200 Direct labor 596,400 Variable factory overhead 298,200 Fixed factory overhead 199,500 2,337,300 Selling and administrative expenses: Variable selling and administrative expenses $362,300 Fixed selling and administrative expenses 140,200 502,500...
Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...
Income Statements under Absorption and Variable Costing 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 (8,500 units) $1,190,000 Production costs (11,000 units): Direct materials $569,800 Direct labor 273,900 Variable factory overhead 136,400 Fixed factory overhead 91,300 1,071,400 Selling and administrative expenses: Variable selling and administrative expenses $166,100 Fixed selling and administrative expenses 64,300 230,400...
Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...
Income Statements under Absorption and Variable Costing 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 (8,000 units) $1,120,000 Production costs (10,000 units): Direct materials $518,000 Direct labor 249,000 Variable factory overhead 124,000 Fixed factory overhead 83,000 974,000 Selling and administrative expenses: Variable selling and administrative expenses $151,000 Fixed selling and administrative expenses 58,400 209,400...
Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...
Income Statements under Absorption and Variable Costing 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) $2,200,000 Production costs (26,000 units): Direct materials $1,058,200 Direct labor 507,000 Variable factory overhead 254,800 Fixed factory overhead 169,000 1,989,000 Selling and administrative expenses: Variable selling and administrative expenses $308,300 Fixed selling and administrative expenses 119,300 427,600...
Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...
Income Statements under Absorption and Variable Costing 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 (17,500 units) $2,100,000 Production costs (23,000 units): Direct materials $1,021,200 Direct labor 489,900 Variable factory overhead 246,100 Fixed factory overhead 163,300 1,920,500 Selling and administrative expenses: Variable selling and administrative expenses $297,700 Fixed selling and administrative expenses 115,200 412,900...
Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...
Income Statements under Absorption and Variable Costing 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 (19,500 units) $2,535,000 Production costs (25,000 units): Direct materials $1,202,500 Direct labor 577,500 Variable factory overhead 287,500 Fixed factory overhead 192,500 2,260,000 Selling and administrative expenses: Variable selling and administrative expenses $350,300 Fixed selling and administrative expenses 135,600 485,900...
Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...
Income Statements under Absorption and Variable Costing 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 (9,500 units) $855,000 Production costs (12,000 units): Direct materials $399,600 Direct labor 192,000 Variable factory overhead 96,000 Fixed factory overhead 63,600 751,200 Selling and administrative expenses: Variable selling and administrative expenses $116,400 Fixed selling and administrative expenses 45,100 161,500...
Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...
Income Statements under Absorption and Variable Costing 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 (13,000 units) $1,560,000 Production costs (17,000 units): Direct materials $754,800 Direct labor 362,100 Variable factory overhead 181,900 Fixed factory overhead 120,700 1,419,500 Selling and administrative expenses: Variable selling and administrative expenses $220,000 Fixed selling and administrative expenses 85,200 305,200...
Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...
Income Statements under Absorption and Variable Costing 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 (18,500 units) $2,960,000 Production costs (24,000 units): Direct materials $1,420,800 Direct labor 681,600 Variable factory overhead 340,800 Fixed factory overhead 228,000 2,671,200 Selling and administrative expenses: Variable selling and administrative expenses $414,000 Fixed selling and administrative expenses 160,300 574,300...
Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The...
Income Statements under Absorption and Variable Costing 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 (19,500 units) $2,535,000 Production costs (25,000 units): Direct materials $1,202,500 Direct labor 577,500 Variable factory overhead 287,500 Fixed factory overhead 192,500 2,260,000 Selling and administrative expenses: Variable selling and administrative expenses $350,300 Fixed selling and administrative expenses 135,600 485,900...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT