During the first month of operations ended May 31, Big Sky Creations Company produced 40,000 designer cowboy boots, of which 36,000 were sold. Operating data for the month are summarized as follows:

During June, Big Sky Creations produced 32,000 designer cowboy boots and sold 36,000 cowboy boots. Operating data for June are summarized as follows:

Instructions

1. Using the absorption costing concept, prepare income statements for (a) May and (b) June. 

2. Using the variable costing concept, prepare income statements for (a) May and (b) June.

3. a. Explain the reason for the differences in operating income in (1) and (2) for May.

b. Explain the reason for the differences in operating income in (1) and (2) for June.

4. Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain.

Transcribed Image Text:

Sales ... Manufacturing costs: $4,500,000 $ 960,000 2,000,000 Direct materials... Direct labor ... Variable manufacturing cost Fixed manufacturing cost ... Selling and administrative expenses: Variable ... Fixed 520,000 120,000 3,600,000 $ 72,000 152,000 80,000 Sales Manufacturing costs: Direct materials . Direct labor Variable manufacturing cost Fixed manufacturing cost ... Selling and administrative expenses: $4,500,000 $ 768,000 1,600,000 416,000 2,904,000 120,000 $ 72,000 Variable Fixed... 80,000 152,000