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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 (20,000 units) Production costs (26,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses Fixed selling and administrative expenses $962,000 462,800 231,400 153,400 $280,500 108,600 $2,000,000 1,809,600 389,100

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 (20,000 units) Production costs (26,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses Fixed selling and administrative expenses $962,000 462,800 231,400 153,400 $280,500 108,600 $2,000,000 1,809,600 389,100

Managerial Accounting
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 2E: Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on...
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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 Sales Cost of goods sold Gross profit Selling and administrative expenses Operating income 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 Sales Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead costs Fixed selling and administrative expenses Total fixed costs Operating income c. What is the reason for the difference in the amount of operating income reported in (a) and (b)? Under the absorption costing ✔method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under variable costing. 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 absorption costing ✔income statement will have a higher operating income. ✓, all
Transcribed Image Text: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 Sales Cost of goods sold Gross profit Selling and administrative expenses Operating income 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 Sales Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead costs Fixed selling and administrative expenses Total fixed costs Operating income c. What is the reason for the difference in the amount of operating income reported in (a) and (b)? Under the absorption costing ✔method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under variable costing. 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 absorption costing ✔income statement will have a higher operating income. ✓, all
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 (20,000 units) Production costs (26,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses Fixed selling and administrative expenses $962,000 462,800 231,400 153,400 1,809,600 $280,500 108,600 $2,000,000 If required, round interim per-unit calculations to the nearest cent. 389,100
Transcribed Image Text: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 (20,000 units) Production costs (26,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses Fixed selling and administrative expenses $962,000 462,800 231,400 153,400 1,809,600 $280,500 108,600 $2,000,000 If required, round interim per-unit calculations to the nearest cent. 389,100
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