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Absorption and Variable Costing Income Statements for Two Months and Analysis

During the first month of operations ended May 31, 2016, T-shirt Express Company produced 27,200 designer T-shirts, of which 25,300 were sold. Operating data for the month are summarized as follows:

Sales			$227,700
Manufacturing costs:
Direct materials	$138,720
Direct labor	35,360
Variable manufacturing cost	16,320
Fixed manufacturing cost	13,600		204,000
Selling and administrative expenses:
Variable	$12,650
Fixed	9,230		21,880

During June, T-shirt Express Company produced 23,400 designer T-shirts and sold 25,300 T-shirts. Operating data for June are summarized as follows:

Sales			$227,700
Manufacturing costs:
Direct materials	$119,340
Direct labor	30,420
Variable manufacturing cost	14,040
Fixed manufacturing cost	13,600		177,400
Selling and administrative expenses:
Variable	$12,650
Fixed	9,230		21,880

1a. Prepare an income statement for May using the absorption costing concept. Enter all amounts as positive numbers.

T-shirt Express Company
Absorption Costing Income Statement
For the Month Ended May 31, 2016
Sales		$
Cost of goods sold:
Cost of goods manufactured	$
Less inventory, May 31
Cost of goods sold
Gross profit		$
Selling and administrative expenses
Income from operations		$

Feedback

1a. a. and b. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = income from operations. * (Manufactured Units - Sold units) x (total manufacturing costs/manufactured units) Sales - variable cost of goods sold* = Manufacturing margin; Manufacturing margin - variable selling and administrative expenses = Contribution margin; Contribution margin - (fixed manufacturing costs + fixed selling and administrative expenses) = income from operations. *Variable cost of goods sold = Variable cost of goods manufactured - [(Manufactured Units - Sold units) x (variable manufacturing costs/manufactured units)]

Learning Objective 1 and Learning Objective 2.

1b. Prepare an income statement for June using the absorption costing concept. Enter all amounts as positive numbers.

T-shirt Express Company
Absorption Costing Income Statement
For the Month Ended June 30, 2016
Sales		$
Cost of goods sold:
Inventory, June 1	$
Cost of goods manufactured
Cost of goods sold
Gross profit		$
Selling and administrative expenses
Income from operations		$

Feedback

Learning Objective 1 and Learning Objective 2.

2a. Prepare an income statement for May using the variable costing concept. Enter all amounts as positive numbers.

T-shirt Express Company
Variable Costing Income Statement
For the Month Ended May 31, 2016
Sales		$
Variable cost of goods sold:
Direct materials	$
Less contribution margin
Manufacturing margin
Gross profit		$
Direct labor
Fixed manufacturing costs		$
Fixed costs:
Fixed contribution margin	$
Fixed manufacturing margin
Loss from operations		$

Feedback

2a. a. and b. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = income from operations. * (Manufactured Units - Sold units) x (total manufacturing costs/manufactured units) Sales - variable cost of goods sold* = Manufacturing margin; Manufacturing margin - variable selling and administrative expenses = Contribution margin; Contribution margin - (fixed manufacturing costs + fixed selling and administrative expenses) = income from operations. *Variable cost of goods sold = Variable cost of goods manufactured - [(Manufactured Units - Sold units) x (variable manufacturing costs/manufactured units)]

Learning Objective 1 and Learning Objective 2.

2b. Prepare an income statement for June using the variable costing concept. Enter all amounts as positive numbers.

T-shirt Express Company
Variable Costing Income Statement
For the Month Ended June 30, 2016
		$
Variable cost of goods sold:
	$
		$
		$
Fixed costs:
	$
		$

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