Absorption and Variable Costing Income Statements for Two Months and Analysis

During the first month of operations ended July 31, Head Gear Inc. manufactured 27,600 hats, of which 25,700 were sold. Operating data for the month are summarized as follows:

Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 27,600 hats, of which 25,700 were sold. Operating data for the month are summarized as follows: Sales $195,320 Manufacturing costs: Direct materials $118,680 Direct labor 30,360 13,800 Variable manufacturing cost Fixed manufacturing cost 13,800 176,640 Selling and administrative expenses: Variable $10,280 Fixed 7,500 17,780 During August, Head Gear Inc. manufactured 23,800 designer hats and sold 25,700 hats. Operating data for August are summarized as follows: Sales $195,320 Manufacturing costs: Direct materials $102,340 Direct labor 26,180 11,900 Variable manufacturing cost Fixed manufacturing cost 13,800 154,220 Selling and administrative expenses: Variable $10,280 Fixed 7,500 17,780 Required: 1a. Prepare an income statement for July using the absorption costing concept. Enter all amounts as positive numbers. Head Gear Inc. Absorption Costing Income Statement For the Month Ended July 31 Cost of goods sold: $ 1b. Prepare an income statement for August using the absorption costing concept. Enter all amounts as positive numbers. Head Gear Inc. Absorption Costing Income Statement For the Month Ended August 31 Cost of goods sold: $ $ 2a. Prepare an income statement for July using the variable costing concept. Enter all amounts as positive numbers. Head Gear Inc. Variable Costing Income Statement For the Month Ended July 31 Variable cost of goods sold: $ 171114 Fixed costs: 2b. Prepare an income statement for August using the variable costing concept. Enter all amounts as positive numbers. Head Gear Inc. Variable Costing Income Statement For the Month Ended August 31 Variable cost of goods sold: Fixed costs: costing is less than costing due to part of 3a. For July, income from operations reported under manufacturing costs that are expensed. 3b. When large changes in inventory levels occur from one period to the next, it is possible for management to misinterpret such increases (or decreases) in income from operations as due to changes in: a. costs. b. prices. C. sales volume. d. "sales volume", "prices" and "costs" are correct. e. None of these choices is correct. The correct answer is: 4. Based on your answers to (1) and (2), did Head Gear Inc. operate more profitably in July or in August? Explain. Head Gear Inc. was under the variable costing concept. The difference in income reported under the absorption costing concept is due to allocating to the