Question

ncome Statements under Absorption Costing and Variable Costing Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July: Sales (4,000 units) $2,600,000 Production costs (4,350 units): Direct materials $1,218,000 Direct labor 522,000 Variable factory overhead 87,000 Fixed factory overhead 130,500 1,957,500 Selling and administrative expenses: Variable selling and administrative expenses $60,000 Fixed selling and administrative expenses 25,000 85,000 a. Prepare an income statement according to the absorption costing conce

Answer 1

The student's question is about preparing an income statement using absorption costing for a company's operations over the month of July. The provided financial data allows for the calculation of sales, cost of goods sold, and selling and administrative expenses to derive the operating income.

Step-by-step explanation:

The student is asking for an income statement prepared under the absorption costing method for Gallatin County Motors Inc. for the month of July. Absorption costing includes all manufacturing costs in the cost of a product, meaning both variable and fixed manufacturing overhead are absorbed by the produced units. The income statement should reflect the cost of goods sold based on the number of units sold and should also account for the inventory at the end of the period. The student provided the necessary financial data to calculate this.

Here is a simplified representation of the income statement:

Sales (4,000 units x selling price)

Less: Cost of Goods Sold (costs assigned to units sold)

Gross Margin (Sales - Cost of Goods Sold)

Less: Selling and Administrative Expenses (both variable and fixed)

Operating Income (Gross Margin - Selling and Administrative Expenses)

Answer 2

Income statement according to the absorption costing

Sales 2,600,000

Less Cost of Goods Sold

Opening Stock 0

Add Cost of Goods Manufactured

Direct materials 1,218,000

Direct labor 522,000

Variable factory overhead 87,000

Fixed factory overhead 130,500

Less Closing Stock (1,957,500/4,350)×350 (157,500) 1,800,000

Gross Profit 800,000

Less Period Costs :

Selling and administrative expenses:

Variable selling and administrative expenses (60,000)

Fixed selling and administrative expenses (25,000)

Net Income 715,000

Step-by-step explanation:

Product/Manufacturing Cost - Absorption Costing = Direct Materials + Direct Labor + Variable Overheads + Fixed Overheads

Period Cost - Absorption Costing = All Non - Manufacturing Costs