Absorption and Variable Costing Income Statements

During the first month of operations ended July $31,$ YoSan Inc. manufactured $9,900$ flat panel televisions, of which $9,100$ were sold. Operating data for the month are summarized as follows:

Line Item DescriptionAmountAmountSales$$1,410,500$Manufacturing costs:$$ Direct materials$$722,700$ Direct labor$217,800$ Variable manufacturing cost$188,100$ Fixed manufacturing cost$89,1001,217,700$Selling and administrative expenses:$$ Variable$$109,200$ Fixed$50,200159,400$

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 $31$Line Item DescriptionAmountAmount

Contribution marginGross profitInventory, July $31$Manufacturing marginSalesSales

$SalesCost of goods sold:

Cost of goods manufacturedFixed manufacturing costsFixed selling and administrative expensesInventory, July $31$Total cost of goods soldCost of goods manufactured

$Cost of goods manufactured

Contribution marginCost of goods manufacturedFixed manufacturing costsInventory$,$ July $31$Total cost of goods soldInventory, July $31$

Inventory, July $31$

Fixed selling and administrative expensesGross profitInventory, July $31$Manufacturing marginTotal cost of goods soldTotal cost of goods sold

Total cost of goods sold

Gross profitInventory, July $31$Manufacturing marginSalesSelling and administrative expensesGross profit

$Gross profit

Contribution marginInventory, July $31$Selling and administrative expensesTotal cost of goods soldVariable selling and administrative expensesSelling and administrative expenses

Selling and administrative expenses

Operating incomeLoss from operationsOperating income

$Operating income

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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$)$

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 $31$Line Item DescriptionAmountAmount

Contribution marginDirect laborFixed manufacturing costsInventory$,$ July $31$SalesSales

$SalesVariable cost of goods sold:

Cost of goods soldCost of goods manufacturedManufacturing marginVariable cost of goods manufacturedVariable selling and administrative expensesVariable cost of goods manufactured

$Variable cost of goods manufactured

Contribution marginCost of goods soldFixed manufacturing costsInventory$,$ July $31$Inventory, July $31$

Inventory, July $31$

Fixed manufacturing costsSalesTotal variable cost of goods soldVariable cost of goods manufacturedVariable selling and administrative expensesTotal variable cost of goods sold

Total variable cost of goods sold

Contribution marginFixed manufacturing costsGross profitInventory, July $31$Manufacturing margin

$$-$ Select $-$

Fixed manufacturing costsFixed selling and administrative expensesInventory, July $31$Manufacturing marginVariable selling and administrative expenses

$-$ Select $-$

Contribution marginCost of goods manufacturedInventory, July $31$Manufacturing 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 $-$blank

Fixed selling and administrative expensesFixed manufacturing marginTotal fixed costsVariable cost of goods manufacturedVariable selling and administrative expenses

blank$-$ Select $-$

Operating incomeLoss from operations

$$-$ Select $-$

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$2.$ Sales $-$ variable cost of goods sold$*=$ Manufacturing margin; Manufacturing margin $-$ variable selling and administrative expenses $=$ Contribution margin; Contribution margin $-($fixed manufacturing costs $+$ fixed selling and administrative expenses$)=$ operating income

$*$Variable cost of goods sold $=$ Variable cost of goods manufactured $-[($Manufactured Units $-$ Sold units$)$ x $($variable manufacturing costs$/$manufactured units$)]$

Question Content Area

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

The operating income reported under fill in the blank $1$ of $4$

absorptionvariableabsorption

costing exceeds the operating income reported under fill in the blank $2$ of $4$

absorptionvariablevariable

costing, due to fill in the blank $3$ of $4$

fixedvariablefixed

manufacturing costs that are deferred to a future month under fill in the blank $4$ of $4$

absorptionvariableabsorption

costing