I need help with the questions below.

1.Both fixed and variable factory costs are included as a part of cost of goods sold when accounting for absorption costing.

True or False

2.Both fixed and variable factory costs are included as a part of cost of goods sold when accounting for variable costing.

True or False

3.When units manufactured are less than the number of units sold, the variable costing income from operations will be ________ that of absorption costing.

a. less than

b. greater than

c. equal to

d. None of these choices are correct.

Income Statements underAbsorptionandVariable Costing

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 (8,000 units) $1,040,000

Production costs (10,000 units):

Direct materials $481,000

Direct labor 231,000

Variable factory overhead 115,000

Fixed factory overhead 77,000 904,000

Selling and administrative expenses:

Variable selling and administrative expenses $140,100

Fixed selling and administrative expenses 54,200 194,300

If required, round interim per-unit calculations to the nearest cent.

a.Fix an income statement according to the absorption costing concept.

Shawnee Motors Inc.

Absorption Costing Income Statement

For the Month Ended August 31

_____________________ $ ___________________

(label: cost of goods, direct labor, direct materials, fixed factory overhead or sales)

_____________________ ___________________

(label: cost of goods sold, gross profits, sales, selling and administrative expenses, variable and administrative overhead)

_____________________ $ ___________________

(label: direct labor, direct materials, gross profit, fixed factory overhead, sales)

_____________________ ___________________

(label: cost of goods sold, fixed factory overhead, sales, selling and administrative expenses, variable fixed overhead)

_____________________ $ ___________________

(label: income from operations, lost from operations)

b.Fix an income statement according to the variable costing concept.

Shawnee Motors Inc.

Variable Costing Income Statement

For the Month Ended August 31

____________________ $ ____________________

(label: contribution margin, fixed selling and administrative expense, manufacturing margin, sales, or variable selling and administrative expenses)

____________________ _____________________

(label: fixed factory overhead, fixed selling and administrative expense, manufacturing margin, variable cost of goods sold, variable selling and administrative expenses)

____________________ $ ___________________

(label: contribution margin, manufacturing margin, sales, variable cost of goods sold, variable selling and administrative expenses)

____________________ ___________________

(label: fixed factory overhead, fixed selling and administrative expenses, manufacturing margin, variable cost of goods sold, variable selling and administrative expenses)

____________________ $ ___________________

(label: contribution margin, fixed selling and administrative expenses, manufacturing margin, sales, variable selling and administrative expenses)

Fixed costs:

__________________ $ ___________________

(label: contribution margin, fixed factory overhead, manufacturing margin, sales, and variable cost of goods sold)

__________________ ______________________

(label: fixed selling and administrative expenses, sales, variable cost of goods sold, variable selling and administrative expenses)

__________________ $____________________

(label: contribution margin, income from operations, manufacturing margins, sales, total fixed cost)

__________________ ______________________

(label: income from operation, loss from operation)

c.What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

Under the_______________________ (absorption costing/variable costing)

method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under_________________ (absorption costing/variable costing) , 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___________________________ (absorption costing/variable costing) income statement will have a higher income from operations than will the variable costing income statement.

Power Train Sports Inc. manufactures and sells two styles of All Terrain Vehicles (ATVs), the Mountain Monster and Desert Dragon, from a single

manufacturing facility. The manufacturing facility operates at 100% of capacity. The following per-unit information is available for the two products:

Mountain Monster Desert Dragon

Sales price

$5,200.00 $5,300.00

Variable cost of goods sold $3,240.00 $3,450.00

Manufacturing margin $1,960.00 $1,850.00

Variable selling expenses $712.00 $1,108.00

Contribution margin $1,248.00 $742.00

Fixed expenses $470.00 $320.00

Income from operations $778.00 $422.00

In addition, the following sales unit volume information for the period is as follows:

Mountain Monster Desert Dragon

Sales unit volume 4,800 4,650

Required:

a. Fix acontribution marginby product report. Calculate the contribution margin ratio for each. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

b. What advice would you give to the management of Power Train Sports Inc. regarding the relative profitability of the two products?

The Mountain Monster line provides the (larger/smaller or same) total contribution margin and the(larger/smaller or same) contribution margin ratio. If the sales mix were shifted more toward the (Mountain Monster/Desert Dragon)line, the overall profitability of the company would increase.