Absorption and Variable Costing Income Statements

During the first month of operations ended July 31, YoSan Inc. manufactured 11,300 flat panel televisions, of which 10,500 were sold. Operating data for the month are summarized as follows:

Sales		$1,837,500
Manufacturing costs:
Direct materials	$926,600
Direct labor	282,500
Variable manufacturing cost	237,300
Fixed manufacturing cost	124,300	1,570,700
Selling and administrative expenses:
Variable	$147,000
Fixed	67,600	214,600

Required:

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

YoSan Inc. Absorption Costing Income Statement For the Month Ended July 31

Contribution marginGross profitInventory, July 31Manufacturing marginSalesSales		$Sales
Cost of goods sold:
Cost of goods manufacturedFixed manufacturing costsFixed selling and administrative expensesInventory, July 31Total cost of goods soldCost of goods manufactured	$Cost of goods manufactured
Contribution marginCost of goods manufacturedFixed manufacturing costsInventory, July 31Total cost of goods soldInventory, July 31	Inventory, July 31
Fixed selling and administrative expensesGross profitInventory, July 31Manufacturing marginTotal cost of goods soldTotal cost of goods sold		Total cost of goods sold
Gross profitInventory, July 31Manufacturing marginSalesSelling and administrative expenses		$- Select -
Contribution marginInventory, July 31Selling and administrative expensesTotal cost of goods soldVariable selling and administrative expenses		- Select -
Operating incomeLoss from operations		$- Select -

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1. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = operating income

*(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)

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

YoSan Inc. Variable Costing Income Statement For the Month Ended July 31

Contribution marginDirect laborFixed manufacturing costsInventory, July 31Sales		$- Select -
Variable cost of goods sold:
Cost of goods soldCost of goods manufacturedManufacturing marginVariable cost of goods manufacturedVariable selling and administrative expenses	$- Select -
Contribution marginCost of goods soldFixed manufacturing costsInventory, July 31	- Select -
Fixed manufacturing costsSalesTotal variable cost of goods soldVariable cost of goods manufacturedVariable selling and administrative expenses		- Select -
Contribution marginFixed manufacturing costsGross profitInventory, July 31Manufacturing margin		$- Select -
Fixed manufacturing costsFixed selling and administrative expensesInventory, July 31Manufacturing marginVariable selling and administrative expenses		- Select -
Contribution marginCost of goods manufacturedInventory, July 31Manufacturing marginTotal variable cost of goods sold		$- Select -
Fixed costs:
Fixed contribution marginFixed manufacturing costsFixed salesTotal variable cost of goods soldVariable cost of goods manufactured	$- Select -
Fixed selling and administrative expensesFixed manufacturing marginTotal variable cost of goods soldVariable cost of goods manufacturedVariable selling and administrative expenses	- Select -
Fixed selling and administrative expensesFixed manufacturing marginTotal fixed costsVariable cost of goods manufacturedVariable selling and administrative expenses		- Select -
Operating incomeLoss from operations		$- Select -

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

The operating income reported under

absorptionvariable

costing exceeds the operating income reported under

absorptionvariable

costing, due to

fixedvariable

manufacturing costs that are deferred to a future month under

absorptionvariable

costing.