Income Statements under Absorption Costing and Variable CostingCrazy Mountain Sports Inc. assembles and sells snowmobile engines. The company began operations on March 1 and operated at 100% of capacity during the first month. The following data summarize the results for March:Line Item DescriptionAmountAmountSales (12,500 units) $6,250,000Production costs (15,000 units): Direct materials$1,800,000 Direct labor1,275,000 Variable factory overhead225,000 Fixed factory overhead600,0003,900,000Selling and administrative expenses: Variable selling and administrative expenses$125,000 Fixed selling and administrative expenses45,000170,000Question Content Areaa. Prepare an income statement according to the absorption costing concept.Crazy Mountain Sports Inc.Absorption Costing Income StatementFor the Month Ended March 31Line Item DescriptionAmount $- Select - - Select - $- Select - - Select - $- Select - Question Content Areab. Prepare an income statement according to the variable costing concept.Crazy Mountain Sports Inc.Variable Costing Income StatementFor the Month Ended March 31Line Item DescriptionAmountAmount $- Select - - Select - $- Select - - Select - $- Select -Fixed costs: $- Select - - Select -blank - Select - $- Select - Question Content Areac. What is the reason for the difference in the amount of operating income reported in (a) and (b)?Under the fill in the blank 1 of 3 method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under fill in the blank 2 of 3 , 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 3 of 3 income statement will have a higher operating income.

The company's financial performance over a specific time period is explained in the income…

Answered: Mountain Sports Inc. assembles and…

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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Line Item Description	Amount	Amount
Sales (12,500 units)		$6,250,000
Production costs (15,000 units):
Direct materials	$1,800,000
Direct labor	1,275,000
Variable factory overhead	225,000
Fixed factory overhead	600,000	3,900,000
Selling and administrative expenses:
Variable selling and administrative expenses	$125,000
Fixed selling and administrative expenses	45,000	170,000

Question Content Area

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

Crazy Mountain Sports Inc.Absorption Costing Income StatementFor the Month Ended March 31

Line Item Description	Amount
	$- Select -
	- Select -
	$- Select -
	- Select -
	$- Select -

Question Content Area

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

Crazy Mountain Sports Inc.Variable Costing Income StatementFor the Month Ended March 31

Line Item Description	Amount	Amount
		$- Select -
		- Select -
		$- Select -
		- Select -
		$- Select -
Fixed costs:
	$- Select -
	- Select -	blank
		- Select -
		$- Select -

Question Content Area

c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?
Under the fill in the blank 1 of 3

method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under fill in the blank 2 of 3

, 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 3 of 3

income statement will have a higher operating income.

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