Question

Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells snownmobile engines. 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 (2,000 units) $600,000 Production costs (2,400 units): Direct materials $300,000 Direct labor 115,200 Variable factory overhead 43,200 Fixed factory overhead 21,600 480,000 Selling and administrative expenses: Variable selling and administrative expenses $50,000 Fixed selling and administrative expenses 22,000 72,000 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

Answer 1

Shawnee Motors
Absorption costing income statement
For the Month Ended August 31
Sales	$   600,000
Cost of goods sold ($480,000/2,400*2,000)	$   400,000
Gross profit	$   200,000
Selling and administrative expense ($50,000+$22,000)	$     72,000
Income from operations	$   128,000

Shawnee Motors
Variable costing income statement
For the Month Ended August 31
Sales		$   600,000
Variable cost of goods sold (($300,000+$115,200+$43,200)/2,400*2,000)		$   382,000
Manufacturing margin		$   218,000
Variable selling and administrative expense		$     50,000
Contribution margin		$   168,000
Fixed cost
Fixed factory overhead	$   21,600
Fixed selling and administrative expense	$   22,000
Total fixed costs		$     43,600
Income from operations		$   124,400

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