Shawnee Motors Inc. assembles and sells snowmobile engines. 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: 1Sales (35,000 units) $10,500,000.002Production costs (41,000 units): 3Direct materials$4,100,000.00 4Direct labor2,255,000.00 5Variable factory overhead1,025,000.00 6Fixed factory overhead615,000.007,995,000.007Selling and administrative expenses: 8Variable selling and administrative expenses$1,140,000.00 9Fixed selling and administrative expenses225,000.001,365,000.00 Required:a.Prepare an income statement according to the absorption costing concept.*b.Prepare an income statement according to the variable costing concept.*c.What is the reason for the difference in the amount of income from operations reported in (a) and (b)? * Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. Enter all amounts as positive numbers.

Answered: Shawnee Motors Inc. assembles and sells…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Shawnee Motors Inc. assembles and sells snowmobile engines. 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:

1	Sales (35,000 units)		$10,500,000.00
2	Production costs (41,000 units):
3	Direct materials	$4,100,000.00
4	Direct labor	2,255,000.00
5	Variable factory overhead	1,025,000.00
6	Fixed factory overhead	615,000.00	7,995,000.00
7	Selling and administrative expenses:
8	Variable selling and administrative expenses	$1,140,000.00
9	Fixed selling and administrative expenses	225,000.00	1,365,000.00

Required:

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

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

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

* Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. Enter all amounts as positive numbers.

Expert Solution

Step 1

Variable costing means that inventory is valued at variable manufacturing cost and fixed cost is ignored. Absorption costing means that inventory is valued at total manufacturing cost including fixed manufacturing cost.

Variable cost is the cost which vary with the level of output where as fixed cost remain fixed what ever may be the level of output.

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