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 (13,500 units)				$2,160,000
Production costs (17,000 units):
Direct materials		$1,006,400
Direct labor		482,800
Variable factory overhead		241,400
Fixed factory overhead		161,500		1,892,100
Selling and administrative expenses:
Variable selling and administrative expenses		$293,300
Fixed selling and administrative expenses		113,500		406,800

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	$

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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
Total fixed costs
Income from operations		$

Answer 1

Solution

Shawnee Motors Inc.
Absorption Costing Income Statement
For the Month Ended August 31
Sales	$ 2,160,000.00
Cost of goods sold	$ 1,502,550.00
Gross profit	$    657,450.00
Selling and administrative expenses	$    406,800.00
Income from operations	$    250,650.00

Working

Cost Of Goods manufactured and cost of goods sold
Material Cost	$   1,006,400.00
Direct Labor	$       482,800.00
Total Factory Overheads	$       402,900.00
Total manufacturing cost	$   1,892,100.00
Cost per unit (1892100/17000)	$               111.30
Cost of Goods manufactured	$   1,892,100.00
Less: Cost of Unsold Finished Goods(3500 x 111.30)	$       389,550.00
Cost of Goods Sold	$   1,502,550.00

Requirement 2

Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
Sales		$2,160,000.00
Variable cost of goods sold		$1,374,300.00*
Manufacturing margin		$   785,700.00
Variable selling and administrative expenses		$   293,300.00
Contribution margin		$   492,400.00
Fixed costs:
Fixed factory overhead	$    161,500.00
Fixed selling and administrative expenses	$    113,500.00
Total fixed costs		$   275,000.00
Income from operations		$   217,400.00

*(1006400+482800+241400)/17000*13500