# During the first month of oper

During the first month of operations ended May 31, Big Sky Creations Company produced 40,000 designer cowboy boots, of which 36,000 were sold. Operating data for the month are summarized as follows:

 1 Sales \$4,500,000.00 2 Manufacturing costs: 3 Direct materials \$960,000.00 4 Direct labor 2,000,000.00 5 Variable manufacturing cost 520,000.00 6 Fixed manufacturing cost 120,000.00 3,600,000.00 7 Selling and administrative expenses: 8 Variable \$72,000.00 9 Fixed 80,000.00 152,000.00

During June, Big Sky Creations produced 32,000 designer cowboy boots and sold 36,000 cowboy boots. Operating data for June are summarized as follows:

 1 Sales \$4,500,000.00 2 Manufacturing costs: 3 Direct materials \$7,680,000.00 4 Direct labor 1,600,000.00 5 Variable manufacturing cost 416,000.00 6 Fixed manufacturing cost 120,000.00 2,904,000.00 7 Selling and administrative expenses: 8 Variable \$72,000.00 9 Fixed 80,000.00 152,000.00

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.

# During the first month of oper

During the first month of operations ended August 31, Kodiak Fridgeration Company manufactured 40,000 mini refrigerators, of which 36,000 were sold. Operating data for the month are summarized as follows:

 1 Sales \$8,280,000.00 2 Manufacturing costs: 3 Direct materials \$2,800,000.00 4 Direct labor 1,200,000.00 5 Variable manufacturing cost 800,000.00 6 Fixed manufacturing cost 440,000.00 5,240,000.00 7 Selling and administrative expenses: 8 Variable \$540,000.00 9 Fixed 216,000.00 756,000.00

Required:
1. Prepare an income statement based on the absorption costing concept.*
2. Prepare an income statement based on the variable costing concept.*
3. Explain the reason for the difference in the amount of income from operations reported in (1) and (2).

 * 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, August 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.

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