Question

During the first month of operations ended May 31, Big Sky Creations Company produced 56,000 designer cowboy boots, of which 52,450 were sold. Operating data for the month are summarized as follows:

1	Sales		$839,200.00
2	Manufacturing costs:
3	Direct materials	$425,600.00
4	Direct labor	123,200.00
5	Variable manufacturing cost	67,200.00
6	Fixed manufacturing cost	56,000.00	672,000.00
7	Selling and administrative expenses:
8	Variable	$31,470.00
9	Fixed	26,225.00	57,695.00

During June, Big Sky Creations produced 48,900 designer cowboy boots and sold 52,450 cowboy boots. Operating data for June are summarized as follows:X

1	Sales		$839,200.00
2	Manufacturing costs:
3	Direct materials	$371,640.00
4	Direct labor	107,580.00
5	Variable manufacturing cost	58,680.00
6	Fixed manufacturing cost	56,000.00	593,900.00
7	Selling and administrative expenses:
8	Variable	$31,470.00
9	Fixed	26,225.00	57,695.00

Absorption Costing Income Statement-June

1b. Using the absorption costing concept, prepare income statements for June. Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative.

Big Sky Creations Company

Absorption Costing Income Statement

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Labels: June 30, Cost of goods sold, Fixed costs, For the Month Ended June 30, For the Month Ended May 31, May 31, Variable cost of goods sold

Amount Descriptions:Contribution margin, Contribution margin ratio, Cost of goods manufactured, Fixed manufacturing costs, Fixed selling and administrative expenses, Gross profit, Operating income, Inventory, June 1, Inventory, May 31, Operating loss, Manufacturing margin, Planned contribution margin, Sales, Sales mix, Selling and administrative expenses, Total cost of goods sold, Total fixed costs, Total variable cost of goods sold, Variable cost of goods manufactured, Variable selling and administrative expenses

Big Sky Creations Company

Variable Costing Income Statement

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Answer 1

1 a & b Big Sky Creations Company Income Statement-Absorption Costing May June Sales $839,200 $839,200 Less: Cost of Goods Sold Beginning Inventory - Finished Goods $42,600 Cost of goods manufactured $672,000 $593,900 Less: Closing stock (3,550*$12) $42,600 Cost of Goods Sold $629,400 $636,500 Gross Profit $209,800 $202,700 Less: Operating expenses Selling and administrative expenses $57,695 $57,695 Operating Income $152,105 $145,005 2 a&b June $839,200 Big Sky Creations Company Income Statement- Variable Costing May Sales $839,200 Less : Variable expenses Beginning Inventory - Finished Goods Variable Cost of goods manufactured $616,000 Less: Closing stock (3,550*$11) $39,050 Variable cost of goods sold $576,950 Variable selling and administrative expenses $31,470 Contribution Margin $230,780 Less: Fixed Cost Manufacturing overhead $56,000 Selling and administrative expenses $26,225 Operating Income $148,555 $39,050 $537,900 $0 $576,950 $31,470 $230,780 $56,000 $26,225 $148,555 For May, Operating Income reported under Absorption costing is higher than that reported under Variable costing, due to part of fixed manufacturing cost included in closing inventory. In Variable costing income statement, fixed manufacturing overheads is charged to Income statement Hence income reported is lower compared to Absorption costing For June, Operating Income reported under Absorption costing is less than that reported under Variable costing, due to part of fixed manufacturing costs from May that are expensed on the Absorption Costing income statement, but not on the variable costing income statement Big sky company was equally profitable under the variable costing concept. The difference in operating income reported under the absorption costing concept is due to allocating fixed manufacturing overheads to the closing inventory