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 (10,000 units) Production costs (13,000 units): $1,000,000 Direct materials Direct labor Variable factory overhead Fixed factory overhead $481,000 231,400 115,700 76,700 904,800 Selling and administrative expenses: Variable selling and administrative expenses $140,200 Fixed selling and administrative expenses 54,300 194,500 If required, round interim per-unit calculations to the nearest cent. Required:Prepare an income statement according to the absorption costing concept.

Answer 1

Shawnee Motors Inc.

Income Statement

For the month ended August 31, 202x

Sales revenue $1,000,000

- COGS ($696,000)

Gross profit $304,000

S&A expenses:

• Variable S&A expenses $140,200
• Fixed S&A expenses $54,300 ($194,500)

Operating profit $109,500

Step-by-step explanation:

Sales (10,000 units) $1,000,000

Production costs (13,000 units):

• Direct materials $481,000
• Direct labor $231,400
• Variable factory overhead $115,700
• Fixed factory overhead $76,700
• Total production costs $904,800

Selling and administrative expenses:

• Variable selling and administrative expenses $140,200
• Fixed selling and administrative expenses $54,300
• Total S&A expenses $194,500

COGS = (10,000 / 13,000) x $904,800 = $696,000