Income Statements under Absorption Costing and Variable Costing

Crazy Mountain Sports Inc. assembles and sells snowmobile engines. The company began operations on March 1 and operated at 100% of capacity during the first month. The following data summarize the results for March:

Line Item Description	Amount	Amount
Sales (12,500 units)		$6,250,000
Production costs (15,000 units):
Direct materials	$1,800,000
Direct labor	1,275,000
Variable factory overhead	225,000
Fixed factory overhead	600,000	3,900,000
Selling and administrative expenses:
Variable selling and administrative expenses	$125,000
Fixed selling and administrative expenses	45,000	170,000

Question Content Area

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

Line Item Description	Amount
Cost of goods soldDirect laborDirect materialsFixed factory overhead costsSalesSales	$Sales
Cost of goods soldProduction costsSalesSelling and administrative expensesVariable factory overheadCost of goods sold	Cost of goods sold
Cost of goods available for saleCost of goods soldGross profitProduction costsSalesGross profit	$Gross profit
Direct materialsFixed factory overhead costsProduction costsSelling and administrative expensesVariable factory overheadSelling and administrative expenses	Selling and administrative expenses
Operating incomeLoss from operationsOperating income	$Operating income

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

Line Item Description	Amount	Amount
Fixed factory overhead costsFixed selling and administrative expensesManufacturing marginProduction costsSalesSales		$Sales
Direct materialsFixed factory overhead costsManufacturing marginProduction costsVariable cost of goods soldVariable cost of goods sold		Variable cost of goods sold
Fixed factory overhead costsFixed selling and administrative expensesManufacturing marginProduction costsSalesManufacturing margin		$Manufacturing margin
Manufacturing marginProduction costsSalesVariable cost of goods soldVariable selling and administrative expensesVariable selling and administrative expenses		Variable selling and administrative expenses
Contribution marginLoss from operationsManufacturing marginOperating incomeSalesContribution margin		$Contribution margin
Fixed costs:
Direct laborDirect materialsFixed factory overhead costsProduction costsSalesFixed factory overhead costs	$Fixed factory overhead costs
Direct laborFixed selling and administrative expensesManufacturing marginProduction costsVariable selling and administrative expensesFixed selling and administrative expenses	Fixed selling and administrative expenses	blank
Contribution marginManufacturing marginOperating incomeSalesTotal fixed costsTotal fixed costs		Total fixed costs
Operating incomeLoss from operationsOperating income		$Operating income