Instructions: Please make sure everything is correct if not correct and give cor
ID: 2406291 • Letter: I
Question
Instructions: Please make sure everything is correct if not correct and give correct calculation pls.
Absorption and Variable Costing Income Statements for Two Months and Analysis
During the first month of operations ended July 31, Head Gear Inc. manufactured 26,800 hats, of which 25,500 were sold. Operating data for the month are summarized as follows:
During August, Head Gear Inc. manufactured 24,200 designer hats and sold 25,500 hats. Operating data for August are summarized as follows:
Required:
1a. Prepare an income statement for July using the absorption costing concept. Enter all amounts as positive numbers.
1b. Prepare an income statement for August using the absorption costing concept. Enter all amounts as positive numbers.
2a. Prepare an income statement for July using the variable costing concept. Enter all amounts as positive numbers.
2b. Prepare an income statement for August using the variable costing concept. Enter all amounts as positive numbers.
3a. For July, income from operations reported under variable costing is less than absorption costing due to part of fixed manufacturing costs that are expensed.
3b. When large changes in inventory levels occur from one period to the next, it is possible for management to misinterpret such increases (or decreases) in income from operations as due to changes in:
costs.
prices.
sales volume.
"sales volume", "prices" and "costs" are correct.
None of these choices is correct.
The correct answer is:
d
4. Based on your answers to (1) and (2), did Head Gear Inc. operate more profitably in July or in August? Explain.
Head Gear Inc. was more profitable in July than Augustmore profitable in July than August under the variable costing concept. The difference in income reported under the absorption costing concept is due to allocating fixed manufacturing costs to the July 31 ending inventory .
Sales $183,600 Manufacturing costs: Direct materials $109,880 Direct labor 29,480 Variable manufacturing cost 13,400 Fixed manufacturing cost 10,720 163,480 Selling and administrative expenses: Variable $10,200 Fixed 7,450 17,650Explanation / Answer
income statement under absorbtion costing for the month of july,august
less:closeing inventory
?(26800-25500)units*163480%$/26800)
(7930)
(1300*6.1$)
income statement under veriable costing for the month of july,august
EXPLANATION ALREADY GIVEN IN QUESTION
particular july $ august $ Sales $183,600 $183,600 (-)cost of goods sold Direct materials $109,880 $99,220 Direct labor 29,480 26,620 Variable manufacturing cost 13,400 12,100 Fixed manufacturing cost 10,720 10,720 cost of goods manufactured 163480 148,660 add:opening stock of inventory nil 7930 cost of goods avilable for sale 163480 156590less:closeing inventory
?(26800-25500)units*163480%$/26800)
(7930)
(1300*6.1$)
nil cost of goods sold 155550 156590 gross profit (sales-c.o.g.s) 28050 27010 less:Selling and administrative expenses: veriable 10,200 10,200 fixed 7450 7450 net incomefrom oparetions 10400 9360