Question

During the first month of operations ended July 31, YoSan Inc. manufactured 12,300 flat panel televisions, of which 11,400 were sold. Operating data for the month are summarized as follows:

Sales		$1,710,000
Manufacturing costs:
Direct materials	$873,300
Direct labor	258,300
Variable manufacturing cost	221,400
Fixed manufacturing cost	110,700	1,463,700
Selling and administrative expenses:
Variable	$136,800
Fixed	62,900	199,700

Required:

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

YoSan Inc.
Absorption Costing Income Statement
For the Month Ended July 31
		$
Cost of goods sold:
	$
		$
		$

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.

Answer 1

Solution 1:

YoSan Inc.
Absorption Costing Income Statement
For the Month Ended July 31
Sales		$1,710,000.00
Cost of goods sold:
Cost of goods manufactured	$1,463,700.00
Less: Ending inventory	$107,100.00
Cost of goods sold		$1,356,600.00
Gross Profit		$353,400.00
Selling and administrative expenses		$199,700.00
Net operating income		$153,700.00

Solution 2:

YoSan Inc.
Variable Costing Income Statement
For the Month Ended July 31
Sales		$1,710,000.00
Variable cost of goods sold:
Variable manufacturing costs	$1,353,000.00
Less: Ending inventory	$99,000.00
Variable cost of goods sold		$1,254,000.00
Manufacturing margin		$456,000.00
Variable selling and administrative expenses		$136,800.00
Contribution margin		$319,200.00
Fixed costs:
Fixed manufacturing overhead	$110,700.00
Fixed selling and admminstrative expenses	$62,900.00
Total fixed costs		$173,600.00
Net operating income		$145,600.00

solution 3:

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