Dillon Sounds Inc. assembles and sells CD players. The company began operations

Question

Dillon Sounds Inc. assembles and sells CD players. The company began operations on May 1, 2008, and operated at 100% of capacity during the first month. The following data summarize the results for May:
Sales (12,000 units)..........................................$2,160,000
Production costs (14,000 units):
Direct Materials...............................$896,000
Direct Labor....................................448,000
Variable factory overhead....................235,200
Fixed factory overhead.......................145,600 1,724,800
Selling and administrative expenses:
Variable selling and administrative expenses..$300,000
Fixed selling and administrative expenses.......100,000 400,000

(a) Prepare an income statement according to the absorption costing concept.
(b) Prepare an income statement according to the variable costing concept.
(c) What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

Explanation / Answer

Profit

Under Absorption costing sale 2160000 Cost of production Less Varaible 235200 Material 896000 laobor 448000 0 1579200 Less Fixed factory (works) 145600 1724800 less: Variable& fixed selling Expenses 400000 Net profit 35200

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