allatin 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 (17,500 units)   $2,450,000   Production costs (23,000 units):     Direct materials $1,191,400     Direct labor 572,700     Variable factory overhead 285,200     Fixed factory overhead 190,900   2,240,200   Selling and administrative expenses:     Variable selling and administrative expenses $347,200     Fixed selling and administrative expenses 134,400   481,600   If required, round interim per-unit calculations to the nearest cent. a.  Prepare an income statement according to the absorption costing concept. Gallatin County Motors Inc. Absorption Costing Income Statement For the Month Ended July 31 Fill in the blank fill in the blank Fill in the blank fill in the blanck Fill in the blanck $fill in the blank b8ace2fd404cf9c_6 fill in the blank fill in the blank b8ace2fd404cf9c_8 fill in the blanck $fill in the blank b8ace2fd404cf9c_10 b.  Prepare an income statement according to the variable costing concept. Gallatin County Motors Inc. Variable Costing Income Statement For the Month Ended July 31     $fill in the blank 2fc00cf4e079057_2     fill in the blank 2fc00cf4e079057_4     $fill in the blank 2fc00cf4e079057_6     fill in the blank 2fc00cf4e079057_8     $fill in the blank 2fc00cf4e079057_10 Fixed costs:       $fill in the blank 2fc00cf4e079057_12     fill in the blank 2fc00cf4e079057_14       fill in the blank 2fc00cf4e079057_16     $fill in the blank 2fc00cf4e079057_18 c.  What is the reason for the difference in the amount of operating income reported in (a) and (b)? Under the  (Fill in thek) blan method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under   (fill in the blank)   , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory increases, the  (fill in the blank)  income statement will have a higher operating income.

Question

12. Income 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 (17,500 units)   $2,450,000  
Production costs (23,000 units):    
Direct materials $1,191,400    
Direct labor 572,700    
Variable factory overhead 285,200    
Fixed factory overhead 190,900   2,240,200  
Selling and administrative expenses:    
Variable selling and administrative expenses $347,200    
Fixed selling and administrative expenses 134,400   481,600  

If required, round interim per-unit calculations to the nearest cent.

a.  Prepare an income statement according to the absorption costing concept.

Gallatin County Motors Inc.
Absorption Costing Income Statement
For the Month Ended July 31
Fill in the blank fill in the blank
Fill in the blank fill in the blanck
Fill in the blanck $fill in the blank b8ace2fd404cf9c_6
fill in the blank fill in the blank b8ace2fd404cf9c_8
fill in the blanck $fill in the blank b8ace2fd404cf9c_10

b.  Prepare an income statement according to the variable costing concept.

Gallatin County Motors Inc.
Variable Costing Income Statement
For the Month Ended July 31
    $fill in the blank 2fc00cf4e079057_2
    fill in the blank 2fc00cf4e079057_4
    $fill in the blank 2fc00cf4e079057_6
    fill in the blank 2fc00cf4e079057_8
    $fill in the blank 2fc00cf4e079057_10
Fixed costs:    
  $fill in the blank 2fc00cf4e079057_12  
  fill in the blank 2fc00cf4e079057_14  
    fill in the blank 2fc00cf4e079057_16
    $fill in the blank 2fc00cf4e079057_18

c.  What is the reason for the difference in the amount of operating income reported in (a) and (b)?

Under the  (Fill in thek) blan method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under   (fill in the blank)   , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory increases, the  (fill in the blank)  income statement will have a higher operating income.

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