Absorption and Variable Costing Income Statements

During the first month of operations ended July 31, YoSan Inc. manufactured 10,600 flat panel televisions, of which 9,900 were sold. Operating data for the month are summarized as follows:

Sales		$1,683,000
Manufacturing costs:
Direct materials	$848,000
Direct labor	254,400
Variable manufacturing cost	212,000
Fixed manufacturing cost	106,000	1,420,400
Selling and administrative expenses:
Variable	$138,600
Fixed	63,800	202,400

Required:

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

YoSan Inc.
Absorption Costing Income Statement
For the Month Ended July 31
Sales		$
Cost of goods sold:
Cost of goods manufactured	$
Inventory, July 31
Total cost of goods sold
Gross profit		$
Selling and administrative expenses
Operating income		$

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

YoSan Inc.
Variable Costing Income Statement
For the Month Ended July 31
		$
Variable cost of goods sold:
	$
		$
		$
Fixed costs:
	$
		$

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

The operating income reported under costing exceeds the operating income reported under costing, due to manufacturing costs that are deferred to a future month under costing.