During the first month of operations ended March 31, IceBox Fridgeration Company manufactured 46,000 mini refrigerators, of which 42,000 were sold. Operating data for the month are summarized as follows:
1 Sales $9,660,000.00
2 Manufacturing costs:
3 Direct materials $3,220,000.00
4 Direct labor 4,290,000.00
5 Variable manufacturing cost 412,500.00
6 Fixed manufacturing cost 2,475,000.00 9,157,500.00
7 Selling and administrative expenses:
8 Variable $450,000.00
9 Fixed 1,125,000.00 1,575,000.00
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 operating income reported in (1) and (2).