During the first month of operations ended July 31, Head Gear Inc. manufactured 25,600 hats, of which 24,100 were sold. Operating data for the month are summarized as follows: Line Item Description Amount Amount Sales $226,540 Manufacturing costs: Direct materials $138,240 Direct labor 35,840 Variable manufacturing cost 17,920 Fixed manufacturing cost 15,360 207,360 Selling and administrative expenses: Variable $12,050 Fixed 8,800 20,850 During August, Head Gear Inc. manufactured 22,600 hats and sold 24,100 hats. Operating data for August are summarized as follows: Line Item Description Amount Amount Sales $226,540 Manufacturing costs: Direct materials $122,040 Direct labor 31,640 Variable manufacturing cost 15,820 Fixed manufacturing cost 15,360 184,860 Selling and administrative expenses: Variable $12,050 Fixed 8,800 20,850 Required: Question Content Area 1a. Prepare income statement for July using the absorption costing concept. Head Gear Inc.Absorption Costing Income StatementFor the Month Ended July 31 Line Item Description Amount Amount $- Select - Cost of goods sold: $- Select - - Select - - Select - $- Select - - Select - $- Select - Question Content Area 1b. Prepare income statement for August using the absorption costing concept. Head Gear Inc.Absorption Costing Income StatementFor the Month Ended August 31 Line Item Description Amount Amount $- Select - Cost of goods sold: $- Select - - Select - - Select - $- Select - - Select - $- Select - Question Content Area 2a. Prepare income statement for July using the variable costing concept. Head Gear Inc.Variable Costing Income StatementFor the Month Ended July 31 Line Item Description Amount Amount $- Select - Variable cost of goods sold: $- Select - - Select - - Select - $- Select - - Select - $- Select - Fixed costs: $- Select - - Select - blank blank - Select - $- Select -

During the first month of operations ended July 31, Head Gear Inc. manufactured 25,600 hats, of which 24,100 were sold. Operating data for the month are summarized as follows: Line Item Description Amount Amount Sales $226,540 Manufacturing costs: Direct materials $138,240 Direct labor 35,840 Variable manufacturing cost 17,920 Fixed manufacturing cost 15,360 207,360 Selling and administrative expenses: Variable $12,050 Fixed 8,800 20,850 During August, Head Gear Inc. manufactured 22,600 hats and sold 24,100 hats. Operating data for August are summarized as follows: Line Item Description Amount Amount Sales $226,540 Manufacturing costs: Direct materials $122,040 Direct labor 31,640 Variable manufacturing cost 15,820 Fixed manufacturing cost 15,360 184,860 Selling and administrative expenses: Variable $12,050 Fixed 8,800 20,850 Required: Question Content Area 1a. Prepare income statement for July using the absorption costing concept. Head Gear Inc.Absorption Costing Income StatementFor the Month Ended July 31 Line Item Description Amount Amount $- Select - Cost of goods sold: $- Select - - Select - - Select - $- Select - - Select - $- Select - Question Content Area 1b. Prepare income statement for August using the absorption costing concept. Head Gear Inc.Absorption Costing Income StatementFor the Month Ended August 31 Line Item Description Amount Amount $- Select - Cost of goods sold: $- Select - - Select - - Select - $- Select - - Select - $- Select - Question Content Area 2a. Prepare income statement for July using the variable costing concept. Head Gear Inc.Variable Costing Income StatementFor the Month Ended July 31 Line Item Description Amount Amount $- Select - Variable cost of goods sold: $- Select - - Select - - Select - $- Select - - Select - $- Select - Fixed costs: $- Select - - Select - blank blank - Select - $- Select -

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 3PB: Absorption and variable costing income statements for two months and analysis During the first month...

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Line Item Description	Amount	Amount
Sales		$226,540
Manufacturing costs:
Direct materials	$138,240
Direct labor	35,840
Variable manufacturing cost	17,920
Fixed manufacturing cost	15,360	207,360
Selling and administrative expenses:
Variable	$12,050
Fixed	8,800	20,850

Line Item Description	Amount	Amount
Sales		$226,540
Manufacturing costs:
Direct materials	$122,040
Direct labor	31,640
Variable manufacturing cost	15,820
Fixed manufacturing cost	15,360	184,860
Selling and administrative expenses:
Variable	$12,050
Fixed	8,800	20,850

Question Content Area

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

Head Gear Inc.Absorption Costing Income StatementFor the Month Ended July 31

Line Item Description	Amount	Amount
		$- Select -
Cost of goods sold:
	$- Select -
	- Select -
		- Select -
		$- Select -
		- Select -
		$- Select -

Question Content Area

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

Head Gear Inc.Absorption Costing Income StatementFor the Month Ended August 31

Line Item Description	Amount	Amount
		$- Select -
Cost of goods sold:
	$- Select -
	- Select -
		- Select -
		$- Select -
		- Select -
		$- Select -

Question Content Area

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

Head Gear Inc.Variable Costing Income StatementFor the Month Ended July 31

Line Item Description	Amount	Amount
		$- Select -
Variable cost of goods sold:
	$- Select -
	- Select -
		- Select -
		$- Select -
		- Select -
		$- Select -
Fixed costs:
	$- Select -
	- Select -	blank
	blank	- Select -
		$- Select -

Question Content Area

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

Head Gear Inc.Variable Costing Income StatementFor the Month Ended August 31

Line Item Description	Amount	Amount
		$- Select -
Variable cost of goods sold:
	$- Select -
	- Select -
		- Select -
		$- Select -
		- Select -
		$- Select -
Fixed costs:
	$- Select -
	- Select -	blank
	blank	- Select -
		$- Select -

Question Content Area

3a. For July, operating income reported under fill in the blank 1 of 3

costing is less than fill in the blank 2 of 3

costing due to part of fill in the blank 3 of 3

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 operating income 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:
fill in the blank 1 of 1

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 fill in the blank 1 of 3

under the variable costing concept. The difference in operating income reported under the absorption costing concept is due to allocating fill in the blank 2 of 3

to the fill in the blank 3 of

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