Question

Absorption and Variable Costing Income Statements

During the first month of operations ended July 31, YoSan Inc. manufactured 11,900 flat panel televisions, of which 10,900 were sold. Operating data for the month are summarized as follows:

Sales		$1,798,500
Manufacturing costs:
Direct materials	$928,200
Direct labor	273,700
Variable manufacturing cost	238,000
Fixed manufacturing cost	119,000	1,558,900
Selling and administrative expenses:
Variable	$141,700
Fixed	65,200	206,900

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
Income from operations		$

Feedback

1. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = income from operations
*(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)

Learning Objective 1 and Learning Objective 2.

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

YoSan Inc.
Variable Costing Income Statement
For the Month Ended July 31
Sales		$
Variable cost of goods sold:
Variable cost of goods manufactured	$
Inventory, July 31
Total variable cost of goods sold
Manufacturing margin		$
Variable selling and administrative expenses
Contribution margin		$
Fixed costs:
Fixed manufacturing costs	$
Fixed selling and administrative expenses
Total fixed costs
Income from operations		$.

Answer 1

Answer 1:

Ending inventory = (Manufactured Units - Sold units) x (total manufacturing costs/manufactured units) = (11900 - 10900) * 1,558,900 / 11900

= $131,000

Income statement based on the absorption costing concept:

YoSan Inc. Absorption Costing Income Statement For the Month Ended July 31 Sales $1,798,500 1,00 $131,000 Inventory, July 31 Total cost of goods sold Gross profit Selling and administrative expenses Income from operations $1,427,900 $370,600 $206,900 $163,700

Answer 2:

Variable cost of goods manufactured =  Direct materials + Direct labor +  Variable manufacturing cost

= 928200 + 273700 + 238000

= $1,439,900

Inventory, July 31 = (11900 - 10900) * 1439900 / 11900

= $121,000

Income statement based on the variable costing concept:

YoSan Inc Variable Costing Income Statement For the Month Ended July 31 Sales Variable cost of goods sold Variable cost of goods manufactured Invento Total variable cost of goods sold Manufact Variable selling and administrative expenses Contribution margin Fixed costs Fixed manufactu Fixed selling and administrative expenses Total fixed costs Income from operations $1,798,500 $1,439,900 $121,000 31 $1,318,900 $479,600 $141,700 $337,900 margin $119,000 S65,200 costs $184,200 $153,700