Absorption and Variable Costing Income Statements

During the first month of operations ended July 31, YoSan Inc. manufactured 2,400 flat panel televisions, of which 2,000 were sold. Operating data for the month are summarized as follows:

Sales		$2,150,000
Manufacturing costs:
Direct materials	$960,000
Direct labor	420,000
Variable manufacturing cost	156,000
Fixed manufacturing cost	288,000	1,824,000
Selling and administrative expenses:
Variable	$204,000
Fixed	96,000	300,000

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

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 sold	$
Contribution marginCost of goods manufacturedFixed manufacturing costsInventory, July 31Total cost of goods sold
Fixed selling and administrative expensesGross profitInventory, July 31Manufacturing marginTotal cost of goods sold		- Select -
Gross profitInventory, July 31Manufacturing marginSalesSelling and administrative expenses		$- Select -
Contribution marginCost of goods soldInventory, July 31Selling and administrative expensesVariable selling and administrative expenses		- Select -
Income from operationsLoss from operations		$- Select -

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, 2016

Contribution marginFixed manufacturing costsGross profitManufacturing marginSales		$- 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 costsFixed selling and administrative expensesInventory, 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 manufacturedFixed selling and administrative expensesInventory, July 31Manufacturing margin		$- 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 -
Income from operationsLoss from operations		$- Select -

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

absorptionvariable

costing exceeds the income from operations reported under

absorptionvariable

costing by the difference between the two, due to

fixedvariable

manufacturing costs that are deferred to a future month under

absorptionvariable

costing.