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W3 Assignment 2

1. PR.06-01B
2. PR.06-02B
3. PR.06-05B

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   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:

   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, 2016
   		$
   Variable cost of goods sold:
   	$
   		$
   		$
   Fixed costs:
   	$
   		$

   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 costing exceeds the income from operations reported under costing by the difference between the two, due to manufacturing costs that are deferred to a future month under costing.

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Answer 1

Ans. 1	YoSan Inc.
	Absorption Costing Income Statement
	For the Month Ended July 31
	PARTICULARS		Amount
	Sales		$2,150,000
	Cost of goods sold :
	Cost of goods manufactured	$1,824,000
	Less: Ending inventory	-$304,000
	Cost of goods sold		$1,520,000
	Gross margin		$630,000
	Less: Total Selling and administrative expenses		-$300,000
	Net operating income		$330,000
	*Working Notes:
	Ending inventory units = Units manufactured - Units sold
	2,400 - 2,000
	400 units
	Unit product cost = Total manufacturing cost / Units manufactured
	$1,824,000 / 2,400
	$760.00	per unit
	Ending inventory (cost)   =   Ending inventory units * Unit product cost
	400 * $760
	$304,000
Ans. 2	YoSan Inc.
	Variable Costing Income Statement
	For the Month Ended July 31
	PARTICULARS		Amount
	Sales		$2,150,000
	Variable Cost of goods sold :
	Cost of goods manufactured	$1,536,000
	Less: Ending inventory	-$256,000
	Variable cost of goods sold		$1,280,000
	Manufacturing margin		$870,000
	Less: Variable selling and administrative expenses		-$204,000
	Contribution margin		$666,000
	Fixed costs:
	Fixed manufacturing costs	$288,000
	Fixed selling and administrative expenses	$96,000
	Total fixed costs		$384,000
	Operating income		$282,000
	*Calculations:
	*Calculations for cost of goods manufactured:
	Direct materials	$960,000
	Direct labor	$420,000
	Variable factory overhead	$156,000
	Total variable cost of goods manufactured	$1,536,000
	Unit product cost = Total variable cost of goods manufactured / Units manufactured
	$1,536,000 / 2,400
	$640.00	per unit
	Ending inventory (cost)   =   Ending inventory units * Unit product cost
	400 * $640
	$256,000
Ans. 3	The income from operations reported under absorption costing exceeds the income from
	operations reported under variable costing by the difference betweeen the two, due to
	fixed manufacturing costs that are deferred to a future month under variable costing.