During the first month of operations ended May 31, Big Sky Creations Company produced 40,000 designer cowboy boots, of which 36,000 were sold. Operating data for the month are summarized as follows: 1 Sales $4,500,000.00 2 Manufacturing costs: 3 Direct materials $960,000.00 4 Direct labor 2,000,000.00 5 Variable manufacturing cost 520,000.00 6 Fixed manufacturing cost 120,000.00 3,600,000.00 7 Selling and administrative expenses: 8 Variable $72,000.00 9 Fixed 80,000.00 152,000.00 During June, Big Sky Creations produced 32,000 designer cowboy boots and sold 36,000 cowboy boots. Operating data for June are summarized as follows: 1 Sales $4,500,000.00 2 Manufacturing costs: 3 Direct materials $7,680,000.00 4 Direct labor 1,600,000.00 5 Variable manufacturing cost 416,000.00 6 Fixed manufacturing cost 120,000.00 2,904,000.00 7 Selling and administrative expenses: 8 Variable $72,000.00 9 Fixed 80,000.00 152,000.00 Required: 1. Using the absorption costing concept, prepare income statements for (a) May and (b) June.* 2. Using the variable costing concept, prepare income statements for (a) May and (b) June.* 3a. Explain the reason for the differences in operating income in (1) and (2) for May. 3b. Explain the reason for the differences in operating income in (1) and (2) for June. 4. Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain. * Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 3E: Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began...

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During the first month of operations ended May 31, Big Sky Creations Company produced 40,000 designer cowboy boots, of which 36,000 were sold. Operating data for the month are summarized as follows:

1	Sales		$4,500,000.00
2	Manufacturing costs:
3	Direct materials	$960,000.00
4	Direct labor	2,000,000.00
5	Variable manufacturing cost	520,000.00
6	Fixed manufacturing cost	120,000.00	3,600,000.00
7	Selling and administrative expenses:
8	Variable	$72,000.00
9	Fixed	80,000.00	152,000.00

During June, Big Sky Creations produced 32,000 designer cowboy boots and sold 36,000 cowboy boots. Operating data for June are summarized as follows:

1	Sales		$4,500,000.00
2	Manufacturing costs:
3	Direct materials	$7,680,000.00
4	Direct labor	1,600,000.00
5	Variable manufacturing cost	416,000.00
6	Fixed manufacturing cost	120,000.00	2,904,000.00
7	Selling and administrative expenses:
8	Variable	$72,000.00
9	Fixed	80,000.00	152,000.00

Required:

Using the absorption costing concept, prepare income statements for (a) May and (b) June.*

Using the variable costing concept, prepare income statements for (a) May and (b) June.*

3a.

Explain the reason for the differences in operating income in (1) and (2) for May.

3b.

Explain the reason for the differences in operating income in (1) and (2) for June.

Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain.

* Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative.

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