Financial and Managerial Accounting: P20-1A During the first month of operations (Zap Electronics)

Financial and Managerial Accounting 
PROBLEM 20-1A Absorption and variable costing income statements 
During the first month of operations ended September 30, 2008, Zap Electronics Inc. manufactured 7,400 modems, of which 6,950 were sold. Operating data for the month are summarized as follows: 
Sales 764,500 
Manufacturing costs: 
Direct materials 362,600 
Direct labor 111,000 
Variable manufacturing costs 96,200 
Fixed manufacturing costs 48,100 617,900 
Selling and administrative expense: 
Variable 59,075 
Fixed 27,800 86,875 

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).
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