Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for August: Sales (19,500 units) $2,535,000
Production costs (25,000 units):
Direct materials $1,202,500
Direct labor 577,500
Variable factory overhead 287,500
Fixed factory overhead 192,500 2,260,000
Selling and administrative expenses:
Variable selling and administrative expenses $350,300
Fixed selling and administrative expenses 135,600 485,900

If required, round interim per-unit calculations to the nearest cent.

Required:
a. Prepare an income statement according to the absorption costing concept.
b. Prepare an income statement according to the variable costing concept.

a.Income statement according to the absorption costing concept.

Sales (19,500 units)                                                             $2,535,000

Less Cost of Goods Sold

Opening Stock                                             $0

Add Cost of Goods Manufactured       $2,260,000

Less Closing Stock                                 ($497,200)         ($1,762,800)

Gross Profit                                                                             $772,200

Less Expenses :

Variable selling and administrative expenses                   ($350,300 )

Fixed selling and administrative expenses                         ($135,600)

Net Income / Loss                                                                  $286,300

b.Income statement according to the variable costing concept.

Sales (19,500 units)                                                             $2,535,000

Less Cost of Goods Sold

Opening Stock                                             $0

Add Cost of Goods Manufactured       $2,067,500

Less Closing Stock                                 ($454,850)          ($1,612,650)

Contribution                                                                            $922,350

Less Expenses :

Fixed factory overhead                                                        ($192,500)

Variable selling and administrative expenses                   ($350,300 )

Fixed selling and administrative expenses                         ($135,600)

Net Income / Loss                                                                  $244,100

Explanation:

Absorption Costing

Cost of Goods Manufactured - Absorption Costing

Direct materials                      $1,202,500

Direct labor                               $577,500

Variable factory overhead       $287,500

Fixed factory overhead             $192,500    

Total                                       $2,260,000

Inventory = (25,000 - 19,500) / 25,000 ×   $2,260,000

                = $497,200

Variable Costing

Cost of Goods Manufactured - Variable Costing

Direct materials                      $1,202,500

Direct labor                               $577,500

Variable factory overhead       $287,500    

Total                                       $2,067,500

Inventory = (25,000 - 19,500) / 25,000 ×   $2,067,500

                = $454,850

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