Income Statements under Absorption Costing and Variable Costing Gallatin County Motors Inc. assembles and sells

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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 (18,000 units) $1,620,000 Production costs (23,000 units): Direct materials $765,900 Direct labor 368,000 Variable factory overhead 184,000 Fixed factory overhead 121,900 1,439,800 Selling and administrative expenses: Variable selling and administrative expenses $223,200 Fixed selling and administrative expenses 86,400 309,600 If required, round interim per-unit calculations to the nearest cent. 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 a. Prepare an Income statement according to the absorption costing concept. Gallatin County Motors Inc. Absorption Costing Income Statement For the

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a. Gallatin County Motors Inc. Absorption costing income statement For the Month ended July 31 Sales $ 1,620,000 Cost of goods sold [1,439,800/23,000*18,000] 1,126,800 Gross profit 493,200 Selling and administrative expenses 309,600 Operating income 183,600 b. Gallatin County Motors Inc. Variable costing income statement For the Month ended July 31 Sales $ 1,620,000 Variable cost of goods sold [note-1] 1,031,400 Manufacturing margin 588,600 Variable Selling and administrative expenses 223,200 Contribution margin 365,400 Fixed costs: Fixed factory overhead costs 121,900 Fixed Selling and administrative expenses 86,400 Total Fixed costs 208,300 Operating income 157,100 Note-1: Variable cost of goods sold: Direct material 765,900 Direct labor 368,000 Variable factory overhead 184,000 Variable cost for 23,000 units 1,317,900 Variable cost for 18,000 units [1,317,900/23,000*18,000] 1,031,400 c. Under the absorption costing method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under variable costing , 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 absorption costing income statement will have a higher Operating income.

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Income Statements under Absorption Costing and Variable Costing Gallatin County Motors Inc

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a. Gallatin County Motors Inc. Absorption costing income statement For the Month ended July 31
Sales	$ 1,620,000
Cost of goods sold [1,439,800/23,000*18,000]	1,126,800
Gross profit	493,200
Selling and administrative expenses	309,600
Operating income	183,600

b. Gallatin County Motors Inc. Variable costing income statement For the Month ended July 31
Sales	$ 1,620,000
Variable cost of goods sold [note-1]	1,031,400
Manufacturing margin	588,600
Variable Selling and administrative expenses	223,200
Contribution margin	365,400
Fixed costs:
Fixed factory overhead costs	121,900
Fixed Selling and administrative expenses	86,400
Total Fixed costs	208,300
Operating income	157,100

Note-1: Variable cost of goods sold:
Direct material	765,900
Direct labor	368,000
Variable factory overhead	184,000
Variable cost for 23,000 units	1,317,900
Variable cost for 18,000 units [1,317,900/23,000*18,000]	1,031,400