Task: Absorption and variable costing income statements for two months and analysis
Problem: During the first month of operations ended July 31, 2006, Sound Off Shirt Company produced 39,000 T-shirts, of which 36,000 were sold. Operating data for the month are summarized as follows:
Instructions:
1. Using the absorption costing concept, prepare income statements for (a) July and (b) August.
2. Using the variable costing concept, prepare income statements for (a) July and (15) August.
3.
a. Explain the reason for the differences in the amount of income from operations in (1) and (2) for July.
b. Explain the reason for the differences in the amount of income from operations in (1) and (2) for August.
4. Based upon your answers to (1) and (2), did Sound Off Shirt Company operate more profitably in July or in August? Explain.