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26 December, 08:06

ncome 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 (4,000 units) $2,600,000 Production costs (4,350 units) : Direct materials $1,218,000 Direct labor 522,000 Variable factory overhead 87,000 Fixed factory overhead 130,500 1,957,500 Selling and administrative expenses: Variable selling and administrative expenses $60,000 Fixed selling and administrative expenses 25,000 85,000 a. Prepare an income statement according to the absorption costing conce

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  1. 26 December, 10:13
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    Income statement according to the absorption costing

    Sales 2,600,000

    Less Cost of Goods Sold

    Opening Stock 0

    Add Cost of Goods Manufactured

    Direct materials 1,218,000

    Direct labor 522,000

    Variable factory overhead 87,000

    Fixed factory overhead 130,500

    Less Closing Stock (1,957,500/4,350) * 350 (157,500) 1,800,000

    Gross Profit 800,000

    Less Period Costs:

    Selling and administrative expenses:

    Variable selling and administrative expenses (60,000)

    Fixed selling and administrative expenses (25,000)

    Net Income 715,000

    Explanation:

    Product/Manufacturing Cost - Absorption Costing = Direct Materials + Direct Labor + Variable Overheads + Fixed Overheads

    Period Cost - Absorption Costing = All Non - Manufacturing Costs
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