Absorption and Variable Costing Income Statements for Two Months and Analysis

During the first month of operations ended July 31, Head Gear Inc. manufactured 23,000 hats, of which 21,400 were sold. Operating data for the month are summarized as follows:

Sales			$179,760
Manufacturing costs:
Direct materials	$110,400
Direct labor	29,900
Variable manufacturing cost	13,800
Fixed manufacturing cost	11,500		165,600
Selling and administrative expenses:
Variable	$8,560
Fixed	6,250		14,810

During August, Head Gear Inc. manufactured 19,800 hats and sold 21,400 hats. Operating data for August are summarized as follows:

Sales			$179,760
Manufacturing costs:
Direct materials	$95,040
Direct labor	25,740
Variable manufacturing cost	11,880
Fixed manufacturing cost	11,500		144,160
Selling and administrative expenses:
Variable	$8,560
Fixed	6,250		14,810

Required:

1a. Prepare income statement for July using the absorption costing concept.

Head Gear Inc.
Absorption Costing Income Statement
For the Month Ended July 31
Sales		$
Cost of goods sold:
Cost of goods manufactured	$
Inventory, July 31
Total cost of goods sold
Gross profit		$
Selling and administrative expenses
Operating income		$

1b. Prepare income statement for August using the absorption costing concept.

Head Gear Inc.
Absorption Costing Income Statement
For the Month Ended August 31
Sales		$
Cost of goods sold:
Inventory, August 1	$
Cost of goods manufactured
Total cost of goods sold
Gross profit		$
Selling and administrative expenses
Operating income		$

2a. Prepare income statement for July using the variable costing concept.

Head Gear Inc.
Variable Costing Income Statement
For the Month Ended July 31
Sales		$
Variable cost of goods sold:
Variable cost of goods manufactured	$
Inventory, July 31
Total variable cost of goods sold
Manufacturing margin		$
Variable selling and administrative expenses
Contribution margin		$
Fixed costs:
Fixed manufacturing costs	$
Fixed selling and administrative expenses
Total fixed costs
Operating income		$

2b. Prepare income statement for August using the variable costing concept.

Head Gear Inc.
Variable Costing Income Statement
For the Month Ended August 31
Sales		$
Variable cost of goods sold:
Inventory, August 1	$
Variable cost of goods manufactured
Total variable cost of goods sold
Manufacturing margin		$
Variable selling and administrative expenses
Contribution margin		$
Fixed costs:
Fixed manufacturing costs	$
Fixed selling and administrative expenses
Total fixed costs
Operating income		$