Income statements under absorption costing and variable costing
Frigid Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1, 2016, and operated at 100% of capacity during the first month. The following data summarize the results for July:
Sales (35,000 units) ..................................................... $8,750,000
Production costs (42,500 units):
Direct materials ...................................................... $4,250,000
Direct labor .......................................................... 2,125,000
Variable factory overhead ............................................ 1,062,500
Fixed factory overhead ............................................... 637,500 8,075,000
Selling and administrative expenses:
|
Variable selling and administrative expenses ..........................
|
$1,150,000
|
|
|
Fixed selling and administrative expenses.............................
|
200,000
|
1,350,000
|
a. Prepare an income statement according to the absorption costing concept.
b. Prepare an income statement according to the variable costing concept.
c. What is the reason for the difference in the amount of income from opera- tions reported in (a) and (b)?