Absorption and Variable Costing Income Statements for Two Months and Analysis

During the first month of operations ended July 31, Head Gear Inc. manufactured 22,100 hats, of which 21,000 were sold. Operating data for the month are summarized as follows:

Sales			$168,000
Manufacturing costs:
Direct materials	$101,660
Direct labor	26,520
Variable manufacturing cost	13,260
Fixed manufacturing cost	11,050		152,490
Selling and administrative expenses:
Variable	$8,400
Fixed	6,130		14,530

During August, Head Gear Inc. manufactured 19,900 hats and sold 21,000 hats. Operating data for August are summarized as follows:

Sales			$168,000
Manufacturing costs:
Direct materials	$91,540
Direct labor	23,880
Variable manufacturing cost	11,940
Fixed manufacturing cost	11,050		138,410
Selling and administrative expenses:
Variable	$8,400
Fixed	6,130		14,530

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

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

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

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 168,000 Cost of goods sold: Cost of goods manufactured Inventory, July 31 Total cost of goods sold Gross profit () Selling and administrative expenses Operating income Head Gear Inc. Absorption Costing Income Statement For the Month Ended August 31 Sales 168,000 Cost of goods sold: Inventory, August 1 Cost of goods manufactured Total cost of goods sold Gross profit Selling and administrative expenses Operating income Variable Costing Income Statement For the Month Ended July 31 Sales 168,000 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 (ul. Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Operating income Variable Costing Income Statement For the Month Ended August 31 Sales 168,000 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