During the first month of operations ended July 31, Western Creations Company pr
ID: 2402424 • Letter: D
Question
During the first month of operations ended July 31, Western Creations Company produced 80,000 designer cowboy hats, of which 72,000 were sold. Operating data for the month are summarized as follows:
1
Sales
$4,320,000.00
2
Manufacturing costs:
3
Direct materials
$1,600,000.00
4
Direct labor
1,440,000.00
5
Variable manufacturing cost
240,000.00
6
Fixed manufacturing cost
320,000.00
3,600,000.00
7
Selling and administrative expenses:
8
Variable
$144,000.00
9
Fixed
25,000.00
169,000.00
During August, Western Creations produced 64,000 designer cowboy hats and sold 72,000 cowboy hats. Operating data for August are summarized as follows:
1
Sales
$4,320,000.00
2
Manufacturing costs:
3
Direct materials
$1,280,000.00
4
Direct labor
1,152,000.00
5
Variable manufacturing cost
192,000.00
6
Fixed manufacturing cost
320,000.00
2,944,000.00
7
Selling and administrative expenses:
8
Variable
$144,000.00
9
Fixed
25,000.00
169,000.00
* 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 required. Enter Inventory, July 31 as a negative number using a minus sign. If a net loss is incurred, enter that amount as a negative number using a minus sign.
1a. Using the absorption costing concept, prepare income statements for July. 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 required. Enter Inventory, July 31 as a negative number using a minus sign. If a net loss is incurred, enter that amount as a negative number using a minus sign.
Score: 12/68
Western Creations Company
Absorption Costing Income Statement july
Western Creations Company
Absorption costing income statement August
Western Creations Company
Variable Costing Income Statement July
Western Creations Company
Variable Costing Income Statement August
3a. Explain the reason for the differences in the amount of income from operations in (1) and (2) for July.
For July, income from operations reported under absorption/variable? costing exceeds that reported under absorption/variable? costing due to part of variable/fixed? manufacturing costs that are expended on the variable/absorption? costing income statement, but not on the absorption/variable? costing income statement.
1
Sales
$4,320,000.00
2
Manufacturing costs:
3
Direct materials
$1,600,000.00
4
Direct labor
1,440,000.00
5
Variable manufacturing cost
240,000.00
6
Fixed manufacturing cost
320,000.00
3,600,000.00
7
Selling and administrative expenses:
8
Variable
$144,000.00
9
Fixed
25,000.00
169,000.00
Explanation / Answer
1) Income statement under Absorption costing
JULY MONTH
Particulars Amount (in $)
sales 43,20,000
less : cost of goods sold
opening inventory nil
Add : cost of goods mfg. ( 80000*45) 36,00,000
less: closing inventory ( 8000*45) (3,60,000) (32,40,000)
Gross profit 10,80,000
less: marketing and selling expenses
Variable 144000
Fixed 25000 (169000)
Net profit 9,11,000
AUGUST MONTH
Particulars Amount (in $)
sales 43,20,000
less : cost of goods sold
opening inventory ( 8000*45) 3,60,000
Add : cost of goods mfg. ( 64000*46) 29,44,000
less: closing inventory NIL (33,04,000)
Gross profit 10,16,000
less: marketing and selling expenses
Variable 144000
Fixed 25000 (169000)
Net profit 8,47,000
2) Income statement under Variable costing
JULY MONTH
Particulars Amount (in $)
sales 43,20,000
less : cost of goods sold
opening inventory nil
Add : cost of goods mfg. ( 80000*41) 32,80,000
less: closing inventory ( 8000*41) (3,28,000) (29,52,000)
Gross contribution margin 13,68,000
less: variable selling expenses (144000)
Contribution margin 12,24,000
less: Fixed Expenses
mfg 3,20,000
selling 25000 (3,45,000)
Net profit 8,79,000
AUGUST MONTH
Particulars Amount (in $)
sales 43,20,000
less : cost of goods sold
opening inventory ( 8000*41) 3,28,000
Add : cost of goods mfg. ( 64000*41) 26,24,000
less: closing inventory NIL (29,52,000)
Gross contribution margin 13,68,000
less: variable selling expenses (144000)
Contribution margin 12,24,000
less: Fixed Expenses
mfg 3,20,000
selling 25000 (3,45,000)
Net profit 8,79,000
3) reasons for difference between both the methods in month of july and august are dur to difference in treatment of fixed mfg expenses.
a)In absorption costing closing stock is valued inculding fixed exp while in variable costing fixed expenses are not included in valuation of stock. accordingly difference is due to overabsorption of closing stock.
b)In absorption costing opening stock is valued inculding fixed exp while in variable costing fixed expenses are not included in valuation of stock. accordingly difference is due to underapsorption of opening stock.
4) according to absorption costing, july month is more profitable.according to variable costing both months profit is same.
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