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 (13,500 units)				$1,215,000
Production costs (17,000 units):
Direct materials		$566,100
Direct labor		272,000
Variable factory overhead		136,000
Fixed factory overhead		90,100		1,064,200
Selling and administrative expenses:
Variable selling and administrative expenses		$165,000
Fixed selling and administrative expenses		63,900		228,900

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