During the first month of operations ended July 31, WesternCreations Company produced 80,000 designer cowboy hats, of which72,000 were sold. Operating data for the month are summarized asfollows:
1
Sales
$4,320,000.00
2
Manufacturing costs:
3
Direct materials
$1,600,000.00
4
Direct labor
1,440,000.00
5
Variable manufacturing cost
240,000.00
6
Fixed manufacturing cost
320,000.00
3,600,000.00
7
Selling and administrative expenses:
8
Variable
$144,000.00
9
Fixed
25,000.00
169,000.00
During August, Western Creations produced 64,000 designer cowboyhats and sold 72,000 cowboy hats. Operating data for August aresummarized as follows:
1
Sales
$4,320,000.00
2
Manufacturing costs:
3
Direct materials
$1,280,000.00
4
Direct labor
1,152,000.00
5
Variable manufacturing cost
192,000.00
6
Fixed manufacturing cost
320,000.00
2,944,000.00
7
Selling and administrative expenses:
8
Variable
$144,000.00
9
Fixed
25,000.00
169,000.00
Required: 1. Using the absorption costingconcept, prepare income statements for (a) July and (b)August.* 2. Using the variable costingconcept, prepare income statements for (a) July and (b)August.* 3a. Explain the reason for thedifferences in the amount of income from operations in (1) and (2)for July. 3b. Explain the reason for thedifferences in the amount of income from operations in (1) and (2)for August. 4. Based on your answers to (1)and (2), did Western Creations Company operate more profitably inJuly or in August? Explain. * Refer to the lists of Labels and Amount Descriptions forthe exact wording of the answer choices for text entries. Be sureto complete the statement heading. A colon (:) will automaticallyappear if required. Enter Inventory, July 31 as a negative numberusing a minus sign. If a net loss is incurred, enter that amount asa negative number using a minus sign.
1a. Using the absorption costing concept, prepare incomestatements for July. Refer to the lists of Labels and AmountDescriptions for the exact wording of the answer choices for textentries. Be sure to complete the statement heading. A colon (:)will automatically appear if required. Enter Inventory, July 31 asa negative number using a minus sign. If a net loss is incurred,enter that amount as a negative number using a minus sign.
Score: 12/68
Western Creations Company
Absorption Costing Income Statement july
Western Creations Company
Absorption costing income statement August
Western Creations Company
Variable Costing Income Statement July
Western Creations Company
Variable Costing Income Statement August
3a. Explain the reason for the differences in the amount ofincome from operations in (1) and (2) for July.
For July, income from operations reported underabsorption/variable? costing exceeds that reportedunder absorption/variable? costing due to part ofvariable/fixed? manufacturing costs that areexpended on the variable/absorption? costingincome statement, but not on theabsorption/variable? costing income statement.
During the first month of operations ended July 31, WesternCreations Company produced 80,000 designer cowboy hats, of which72,000 were sold. Operating data for the month are summarized asfollows:
1 | Sales | $4,320,000.00 | |
2 | Manufacturing costs: | ||
3 | Direct materials | $1,600,000.00 | |
4 | Direct labor | 1,440,000.00 | |
5 | Variable manufacturing cost | 240,000.00 | |
6 | Fixed manufacturing cost | 320,000.00 | 3,600,000.00 |
7 | Selling and administrative expenses: | ||
8 | Variable | $144,000.00 | |
9 | Fixed | 25,000.00 | 169,000.00 |
During August, Western Creations produced 64,000 designer cowboyhats and sold 72,000 cowboy hats. Operating data for August aresummarized as follows:
1 | Sales | $4,320,000.00 | |
2 | Manufacturing costs: | ||
3 | Direct materials | $1,280,000.00 | |
4 | Direct labor | 1,152,000.00 | |
5 | Variable manufacturing cost | 192,000.00 | |
6 | Fixed manufacturing cost | 320,000.00 | 2,944,000.00 |
7 | Selling and administrative expenses: | ||
8 | Variable | $144,000.00 | |
9 | Fixed | 25,000.00 | 169,000.00 |
| Required: | ||||||||||
| 1. | Using the absorption costingconcept, prepare income statements for (a) July and (b)August.* | |||||||||
| 2. | Using the variable costingconcept, prepare income statements for (a) July and (b)August.* | |||||||||
| 3a. | Explain the reason for thedifferences in the amount of income from operations in (1) and (2)for July. | |||||||||
| 3b. | Explain the reason for thedifferences in the amount of income from operations in (1) and (2)for August. | |||||||||
| 4. | Based on your answers to (1)and (2), did Western Creations Company operate more profitably inJuly or in August? Explain.
|
Related questions
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:
| 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 | 17,650 | ||
During August, Head Gear Inc. manufactured 24,200 designer hats and sold 25,500 hats. Operating data for August are summarized as follows:
| Sales | $183,600 | |||
| Manufacturing costs: | ||||
| Direct materials | $99,220 | |||
| Direct labor | 26,620 | |||
| Variable manufacturing cost | 12,100 | |||
| Fixed manufacturing cost | 10,720 | 148,660 | ||
| Selling and administrative expenses: | ||||
| Variable | $10,200 | |||
| Fixed | 7,450 | 17,650 | ||
Required:
1a. Prepare an income statement for July using the absorption costing concept. Enter all amounts as positive numbers.
| Head Gear Inc. | ||
| Absorption Costing Income Statement | ||
| For the Month Ended July 31 | ||
| $ | ||
| Cost of goods sold: | ||
| $ | ||
| $ | ||
| $ | ||
1b. Prepare an income statement for August using the absorption costing concept. Enter all amounts as positive numbers.
| Head Gear Inc. | ||
| Absorption Costing Income Statement | ||
| For the Month Ended August 31 | ||
| $ | ||
| Cost of goods sold: | ||
| $ | ||
| $ | ||
| $ | ||
2a. Prepare an income statement for July using the variable costing concept. Enter all amounts as positive numbers.
| Head Gear Inc. | ||
| Variable Costing Income Statement | ||
| For the Month Ended July 31 | ||
| $ | ||
| Variable cost of goods sold: | ||
| $ | ||
| $ | ||
| $ | ||
| Fixed costs: | ||
| $ | ||
| $ | ||
2b. Prepare an income statement for August using the variable costing concept. Enter all amounts as positive numbers.
| Head Gear Inc. | ||
| Variable Costing Income Statement | ||
| For the Month Ended August 31 | ||
| $ | ||
| Variable cost of goods sold: | ||
| $ | ||
| $ | ||
| $ | ||
| Fixed costs: | ||
| $ | ||
| $ | ||
3a. For July, income from operations reported under costing is less than costing due to part of 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:
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 under the variable costing concept. The difference in income reported under the absorption costing concept is due to allocating to the .
Denton Company manufactures and sells a single product. Cost data for the product are given:
| Variable costs per unit: | ||||
| Direct materials | $ | 3 | ||
| Direct labor | 10 | |||
| Variable manufacturing overhead | 3 | |||
| Variable selling and administrative | 1 | |||
| Total variable cost per unit | $ | 17 | ||
| Fixed costs per month: | ||||
| Fixed manufacturing overhead | $ | 63,000 | ||
| Fixed selling and administrative | 160,000 | |||
| Total fixed cost per month | $ | 223,000 | ||
The product sells for $46 per unit. Production and sales data for July and August, the first two months of operations, follow:
| Units Produced | Units Sold | |
| July | 21,000 | 17,000 |
| August | 21,000 | 25,000 |
The companyâs Accounting Department has prepared the following absorption costing income statements for July and August:
| July | August | ||||
| Sales | $ | 782,000 | $ | 1,150,000 | |
| Cost of goods sold | 323,000 | 475,000 | |||
| Gross margin | 459,000 | 675,000 | |||
| Selling and administrative expenses | 177,000 | 185,000 | |||
| Net operating income | $ | 282,000 | $ | 490,000 | |
Required:
1. Determine the unit product cost under:
a. Absorption costing.
b. Variable costing.
2. Prepare contribution format variable costing income statements for July and August.
3. Reconcile the variable costing and absorption costing net operating incomes.
Dozier Company produced and sold 1,000 units during its first month of operations. It reported the following costs and expenses for the month:
| Direct materials | $ | 82,000 | ||||
| Direct labor | $ | 41,500 | ||||
| Variable manufacturing overhead | $ | 20,200 | ||||
| Fixed manufacturing overhead | 31,900 | |||||
| Total manufacturing overhead | $ | 52,100 | ||||
| Variable selling expense | $ | 14,600 | ||||
| Fixed selling expense | 23,200 | |||||
| Total selling expense | $ | 37,800 | ||||
| Variable administrative expense | $ | 5,300 | ||||
| Fixed administrative expense | 27,600 | |||||
| Total administrative expense | $ | 32,900 | ||||
Required:
1. With respect to cost classifications for preparing financial statements:
a. What is the total product cost?
b. What is the total period cost?
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