Question

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	200,000.00	1,370,000.00

	Required:
a.	Prepare an income statement according to the absorption costing concept.*
b.	Prepare an income statement according to the variable costing concept.*
c.	What is the reason for the difference in the amount of income from operations reported in (a) and (b)? * Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. Enter all amounts as positive numbers.

Answer 1

Income Statement
Absorption costing		in $
Sales		9500000
Less: cost of good sold (180*38000)		6840000
Gross Profit		2660000
Less: Selling and adminsitrative expenses
Variable selling and administrative expenses	$1,170,000.00
Fixed selling and administrative expenses	200000	$1,370,000
Income from operations		$1,290,000
ans b
Income Statement
Variable costing		in $
Sales		9500000
Less: Variable cost of good sold (165*38000)	6270000
Less: Variable selling and administrative expenses	$1,170,000.00	$7,440,000
Contribution margin		$2,060,000
Less: fixed expenses
Fixed factory overhead	660,000.00
Fixed selling and administrative expenses	200000	$860,000
Income from operations		$1,200,000
ans c
The difference in amount of income from operations is the fixed factory overhead has been
deferred in ending inventory as per absorption costing
15*(44000-38000)	90000	this is the difference
working
	Absorption costing	Variable costing
Manifacturing cost per unit
Direct materials	$4,400,000.00	$4,400,000.00
Direct labor	1,760,000.00	1,760,000.00
Variable factory overhead	1,100,000.00	1,100,000.00
Fixed factory overhead	660,000.00
Total	$7,920,000.00	$7,260,000.00
No. of units produced	44,000	44,000
Cost per unit	$180.00	$165.00
If any doubt please comment.