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 (15,500 units) $1,705,000 Production costs (20,000 units): Direct materials $814,000 Direct labor 390,000 Variable factory overhead 196,000 Fixed factory overhead 130,000 1,530,000 Selling and administrative expenses: Variable selling and administrative expenses $237,200 Fixed selling and administrative expenses 91,800 329,000 If required, round interim per-unit calculations to the nearest cent.

a. Prepare an income statement according to the absorption costing concept. Shawnee Motors Inc. Absorption Costing Income Statement For the Month Ended August 31 Sales $ 1,705,000 Cost of goods sold $ $

b. Prepare an income statement according to the variable costing concept. Shawnee Motors Inc. Variable Costing Income Statement For the Month Ended August 31 $ $ $ Fixed costs: $ $

c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)? Under the method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under , 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 income statement will have a higher income from operations than will the variable costing income statement.

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a b c Difference is due the part of fixed manufacturing c... View the full answer