Question

Instructions During the first month of operations ended July 31, Western Creations Company produced 55,500 designer cowboy hats, of which 51,350 were sold. Operating data for the month are summarized as follows: $924,300.00 1 Sales 2 Manufacturing costs: 3Direct materials $416,250.00 111,000.00 55,500.00 55,500.00 Direct labor 5 Variable manufacturing cost 6Fixed manufacturing cost 7Selling and administrative expenses: 8 Variable 9 Fixed 638,250.00 $30,810.00 25,675.00 56,485.00

Answer 1

1(a) Income statement for Period ended on 31, July -Absorption costing
Particular		Amount
Sales		$924,300
Less: cost of good sold		$590,525
(638250/55500*51350)
Gross Profit		$333,775
Less: Selling and administrative expenses		$56,485
Net operating Income		$277,290
			2(a) Income statement for Period ended on 31, July -Variable costing
Particular		Amount
Sales		$924,300
Less: variable expenses
Variable cost of good sold	$539,175
(582750/55500*51350)
Variable selling & Administrative exp	$30,810
Total variable expenses		$569,985
Contribution margin		$354,315
Less: Fixed expenses
Fixed manufacturing cost	$55,500
Fixed selling & Administrative exp	$25,675
Totl fixed expenses		$81,175
Net Operating Income		$273,140
1(b) Income statement for the period ended on August 31 -Absorption costing
Particular		Amount
Sales		$924,300
Less: cost of good sold		$598,825
(638250/55500*4150)+551100
Gross Profit		$325,475
Less: Selling and administrative expenses		$56,485
Net operating Income		$268,990
			2(b) Income statement for the period ended on August 31 -Variable costing
Sales		$924,300
Less: variable expenses
Variable cost of good sold	$539,175
(582750/55500*4150)+495600
Variable selling & Administrative exp	$30,810
Total variable expenses		$569,985
Contribution margin		$354,315
Less: Fixed expenses
Fixed manufacturing cost	$55,500
Fixed selling & Administrative exp	$25,675
Totl fixed expenses		$81,175
Net Operating Income		$273,140
Answer-3(a)
The difference in July is due to fixed manufacturing cost deferred in ending inventory as goods sold was less than goods produced
			Net Operating Income as per absrption costing	$277,290
			Net Operating Income as per variable costing	$273,140
Differnce in Net operating income	$4,150
Ending Inventory as per absorption costing	$47,725
(638250/55500*4150)
Ending Inventory as per variable costing	43575
(582750/55500*4150)
Differnce in Net operating income	$4,150
Solution for 3(b)
The difference in August is due to fixed manufacturing cost in beginning inventory as goods sold was more than goods produced
			Net Operating Income as per absrption costing	$268,990
Net Operating Income as per variable costing	$273,140
Differnce in Net operating income	($4,150)
Solution for 4: More profitable in April as good sold were more in April