Question

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

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:
	$
		$

Answer 1

Req 1:
Construct The Absorption Costing Unit Product Cost
				Aug
Direct Material				33.30
Direct labour				16.00
Variable Manufacturing overheads				8.00
Fixed Manufacturing overheads				5.30
Absorption costing unit prroduct cost				62.60
Construct the Absorption Costing Income Statement
				Aug
Sales				$855,000
Cost of Goods sold				594700
Gross Margin				$260,300
Selling and distribution expense				161,500
Net operating income				98,800
Req 2
Compute the Variable costing Unit Product cost
				Aug
Direct Material				33.30
Direct labour				16.00
Variable Manufacturing overheads				8.00
Variable costing unit prroduct cost				57.30
Construct The Variable Costing Income Statement
				Aug
Sales					855,000
Less: Variable cost
variable cost of goods sold				544,350
Variable selling expense				116,400	660,750
Contribution margin					194,250
Fixed expense:
Fixed Manufacturing overheads					63,600
Fixed selling expense					45,100
Net operating Income					85,550