During the first month of operations ended May 31, Big Sky Creations Company produced 55,000 designer cowboy boots, of which 51,150 were sold. Operating data for the month are summarized as follows: 1 Sales $895,125.00 2 Manufacturing costs: 3 Direct materials $401,500.00 4 Direct labor 137,500.00 5 Variable manufacturing cost 60,500.00 6 Fixed manufacturing cost 55,000.00 654,500.00 7 Selling and administrative expenses: 8 Variable $40,920.00 9 Fixed 25,575.00 66,495.00 During June, Big Sky Creations produced 47,300 designer cowboy boots and sold 51,150 cowboy boots. Operating data for June are summarized as follows: 1 Sales $895,125.00 2 Manufacturing costs: 3 Direct materials $345,290.00 4 Direct labor 118,250.00 5 Variable manufacturing cost 52,030.00 6 Fixed manufacturing cost 55,000.00 570,570.00 7 Selling and administrative expenses: 8 Variable $40,920.00 9 Fixed 25,575.00 66,495.00 Required: 1. Using the absorption costing concept, prepare income statements for (a) May and (b) June.* 2. Using the variable costing concept, prepare income statements for (a) May and (b) June.* 3a. Explain the reason for the differences in operating income in (1) and (2) for May. 3b. Explain the reason for the differences in operating income in (1) and (2) for June. 4. Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain. * Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

Section: Chapter Questions

Problem 22E: Ellerson Company provided the following information for the last calendar year: During the year,...

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During the first month of operations ended May 31, Big Sky Creations Company produced 55,000 designer cowboy boots, of which 51,150 were sold. Operating data for the month are summarized as follows:

1	Sales		$895,125.00
2	Manufacturing costs:
3	Direct materials	$401,500.00
4	Direct labor	137,500.00
5	Variable manufacturing cost	60,500.00
6	Fixed manufacturing cost	55,000.00	654,500.00
7	Selling and administrative expenses:
8	Variable	$40,920.00
9	Fixed	25,575.00	66,495.00

During June, Big Sky Creations produced 47,300 designer cowboy boots and sold 51,150 cowboy boots. Operating data for June are summarized as follows:

1	Sales		$895,125.00
2	Manufacturing costs:
3	Direct materials	$345,290.00
4	Direct labor	118,250.00
5	Variable manufacturing cost	52,030.00
6	Fixed manufacturing cost	55,000.00	570,570.00
7	Selling and administrative expenses:
8	Variable	$40,920.00
9	Fixed	25,575.00	66,495.00

Required:

Using the absorption costing concept, prepare income statements for (a) May and (b) June.*

Using the variable costing concept, prepare income statements for (a) May and (b) June.*

3a.

Explain the reason for the differences in operating income in (1) and (2) for May.

3b.

Explain the reason for the differences in operating income in (1) and (2) for June.

Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain.

* Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative.

3a. Explain the reason for the differences in operating income in (1) and (2) for May.

For May, Operating income reported under ? costing exceeds that reported under ? costing due to part of manufacturing costs that are expensed on the ? costing income statement, but not on the costing income statement.

3b. Explain the reason for the differences in operating income in (1) and (2) for June.

For June, Operating income reported under ? costing is less than that reported under ? costing due to part of manufacturing costs from May that are expensed on the ? costing income statement, but not on the ? costing income statement.

4. Based on your answers to (1) and (2), did Big Sky Creations Company operate more profitably in May or in June? Explain.

Big Sky Creations Company was ? under the variable costing concept. The difference in operating income reported under the absorption costing concept is due to allocating ? to the ? .

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