During the first month of operations ended July 31, 2010, Tri-State Bakers Inc. baked 7,000 cakes, of which 6,400 were sold. Operating data for the month are summarized as follows:

During August, Tri-State Bakers Inc. baked 5,800 cakes and sold 6,400 cakes. Operating data for August are summarized as follows:

Instructions
1. Using the absorption costing concept, prepare income statements for (a) July and
(b) August.
2. Using the variable costing concept, prepare income statements for (a) July and (b) August.
3. a. Explain the reason for the differences in the amount of income from operations in (1) and (2) for July.
b. Explain the reason for the differences in the amount of income from operations in (1) and (2) for August.
4. Based on your answers to (1) and (2), did Tri-State Bakers Inc. operate more profitably in July or in August?Explain.

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Sales $128,000 Baking costs: Direct materials Direct labor Variable manufacturing cost -.$53,900 25,900 14,000 18,200 112,000 Selling and administrative expenses: Variable Fixed $14,080 6,400 20,480 $128,000 Baking costs: Direct materials Direct labor Variable manufacturing cost.. Fixed manufacturing cost. . $44,660 21,460 11,600 18,200 95,920 Selling and administrative expenses: Variable .. Fixed .. $14,080 6,400 20,480