Problem - During the first month of operations ended May 31, 2012, Dorm Fridge Company manufactured 12,500 microwaves, of which 11,700 were sold. Operating data for the month are summarized as follows:

Sales                                                                           $2,106,000

Manufacturing costs:

Direct materials                            $1,050,000

Direct labor                                      312,500

Variable manufacturing cost               268,750

Fixed manufacturing cost                   137,500                1,768,750

Selling and administrative expenses:

Variable                                        $ 169,650

Fixed                                                 76,050                  245,700

Instructions

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).