Question

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) $1,200,000 Production costs (10,000 units): Direct materials $555,000 Direct labor 266,000 Variable factory overhead 133,000 Fixed factory overhead 89,000 1,043,000 Selling and administrative expenses: Variable selling and administrative expenses $161,700 Fixed selling and administrative expenses 62,600 224,300 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 ✓ $ 1,200,000 Cost of goods sold Gross profit ✓ Selling and administrative expenses Income from operations Feedback Check My Work 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 Faced selling and administrative expenses Total fixed costs Income from operations

Answer 1

Answer

1) Income statement according to absorption costing method

Shawnee Motors Inc.

Absorption Costing Income Statement

For the month Ended in August 31

Sales	$           1,200,000
Cost of goods sold (note 1)	$834,400
Gross profit	$              365,600
Selling and administrative expenses	$              224,300
Income from operations	$              141,300

Note 1)Calculation of cost of goods sold

Cost of goods sold
Direct material	555,000
Direct labor	266,000
Variable factory overhead	133,000
Fixed factory overhead	89,000
Total production cost (for 10,000 units)	1,043,000
Less Closing stock	(208,600)
Cost of goods sold	834,400

2) Income statement according to variable costing concept

Shawnee Motors Inc Variable Costing Income Statement For the Year Ended August 31
		Sales	$           1,200,000
Variable cost of goods sold (note 2)	$              763,200
Manufacturing margin	$              436,800
Variable selling and administrative expenses	$              161,700
Contribution margin                                              (A)	$              275,100
Fixed costs
Fixed factory overhead	$                 89,000
Fixed selling and administrative expenses	$                 62,600
Total fixed costs                                                  (B)	$              151,600
Income from operation                        (A)+(B)	$              123,500

Note 2

Cost of goods sold
Direct material	555,000
Direct labor	266,000
Variable factory overhead	133,000
Total production cost (for 10,000 units)	954,000
Less Closing stock	190800
Cost of goods sold	763,200