Question

2

televisions of which 2.000 were sold. Operating data for the month are summarized as follow Absorption and Variable Casting Income Statements During the first month of operations ended July 31, YoSan Inc, manufactured 2.400 Sales $2,150,000 Manufacturing costs Direct materials $960,000 Direct labor 420.000 Variable manufacturing cost 156.000 Fred manufacturing cost 288,000 1,824,000 Selling and administrative expenses Variable $204.000 Fooed 96,000 300.000 Required: 1. Prepare an income statement based on the absorption costing concept Yorban Inc. Absorption Costing Income Statement For the Month Ended July 31 Cost of goods sold

Answer 1

Solution

YoSan Inc

1. Absorption Costing Income Statement

YoSan Inc
Absorption Costing Income Statement
For the Month Ended July 31
Sales		$2,150,000
Cost of Goods Sold:
Cost of goods produced	$1,824,000
Less: ending inventory	$304,000	$1,520,000
Gross Margin		$630,000
Selling and administrative expenses:
variable	$204,000
Fixed	$96,000	$300,000
Net Income		$330,000

Computation of ending inventory value –

Cost of production per unit = $1,824,000/2,400 = $760

Ending inventory = $760 x (2,400 – 2,000) = $304,000

1. Variable costing income statement:

YoSan Inc
Variable Costing Income Statement
For the Month of July 31
Sales		$2,150,000
Variable cost of goods sold:
Direct materials	$800,000
Direct labor	$350,000
Variable manufacturing cost	$130,000
total variable cost of goods sold		$1,280,000
Gross Margin		$870,000
Less: variable selling and administration expenses		$204,000
Contribution Margin		$666,000
Fixed costs:
Manufacturing costs	$288,000
Selling and administration costs	$96,000
total fixed cost		$384,000
Net Income		$282,000

Computations:

Direct material cost of goods sold = 960,000 x 2,000/2,400 = $800,000

Direct labor = 420,000 x 2,000/2,400 = $350,000

Variable manufacturing cost = 156,000 x 2,000/2,400 = $130,000

For both the absorption costing and variable costing income statements, the selling and administration variable cost is assumed to be computed for 2,000 sales units.

2. Reason for the difference in the amount of income from operations reported in (1) and (2):

The income from operations reported under Absorption Costing exceeds the income from operations under the Variable costing by the difference between the two, due the presence of fixed manufacturing costs are that are deferred to a future date under the variable costing method.

Difference in operating income between absorption costing and variable costing = 330,000 – 282,000 = $48,000

Fixed overhead deferral = 400 units x (288,000/2,400) = $48,000