Absorption and Variable Costing Income Statements

During the first month of operations ended July $31,$ YoSan Inc. manufactured $12,400$ flat panel televisions, of which $11,400$ were sold. Operating data for the month are summarized as follows:

Sales $$1,653,000$

Manufacturing costs:

Direct materials $$843,200$

Direct labor $248,000$

Variable manufacturing cost $210,800$

Fixed manufacturing cost $111,6001,413,600$

Selling and administrative expenses:

Variable $$136,800$

Fixed $62,900199,700$

Required:

Question Content Area

$1.$ Prepare an income statement based on the absorption costing concept.

YoSan Inc.

Absorption Costing Income Statement

For the Month Ended July $31$

Sales

$Sales

$1,653,000$

Cost of goods sold:

Cost of goods manufactured

$Cost of goods manufactured

Inventory, July $31$

Inventory, July $31$

Gross profit

Gross profit

Selling and administrative expenses

$Selling and administrative expenses

$-$ Select $-$

Income from operations

$Income from operations

Question Content Area

$2.$ Prepare an income statement based on the variable costing concept.

YoSan Inc.

Variable Costing Income Statement

For the Month Ended July $31$

Sales

$Sales

$1,653,000$

Variable cost of goods sold:

Variable cost of goods manufactured

$Variable cost of goods manufactured

Inventory, July $31$

Inventory, July $31$

Total variable cost of goods sold

Total variable cost of goods sold

Manufacturing margin

$Manufacturing margin

Variable selling and administrative expenses

Variable selling and administrative expenses

Contribution margin

$Contribution margin

Fixed costs:

Fixed manufacturing costs

$Fixed manufacturing costs

Fixed selling and administrative expenses

Fixed selling and administrative expenses

$62,900$

blank

Total fixed costs

blank Total fixed costs

Income from operations

$Income from operations

Question Content Area

$3.$ Explain the reason for the difference in the amount of income from operations reported in $(1)$ and $(2).$

The income from operations reported under

absorption

costing exceeds the income from operations reported under

variable

costing by the difference between the two, due to

fixed

manufacturing costs that are deferred to a future month under

absorption

costing.