Question

Absorption and Variable Costing Income Statements

During the first month of operations ended July 31, YoSan Inc. manufactured 10,600 flat panel televisions, of which 9,800 were sold. Operating data for the month are summarized as follows:

Sales		$1,715,000
Manufacturing costs:
Direct materials	$869,200
Direct labor	265,000
Variable manufacturing cost	222,600
Fixed manufacturing cost	116,600	1,473,400
Selling and administrative expenses:
Variable	$137,200
Fixed	63,100	200,300

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		$

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

Variable costing income statement :
Particulars			Amount ($)
Sales			$ 1,715,000.00
Less : variable expense
Variable cost of goods sold :
Beginning inventory		0
Add : variable manfacturing overheads		$1,254,400
Goods available for sale		1254400
Less : ending inventory		0
Variable cost of goods sold			1254400
Manfacturing margin			$ 460,600.00
Less :Variable selling and admin expenditure		137200	137200
Contribution margin			$ 323,400.00
Less : Fixed expenses
Fixed manfacturing overhead		116600
Fixed selling and admin OH		63100	179700
Net income			143700
Note :
variable manfacturing overheads :
Direct materials	$803,600
Direct labor	245,000
Variable manufacturing cost	205,800
variable manfacturing overheads	$1,254,400
Income statement under absorption costing :
Particulars			Amount ($)
Sales (9800 units)			$ 1,715,000.00
Cost of goods sold :
Beginning inventory		0
Add : cost of goods manfactured		$1,473,400
Goods available for sale		1473400
Less : ending inventory		$ (111,200.00)
			$ 1,362,200.00
Gross margin			$ 352,800.00
Less : selling and administrative expense
Variable		$ 137,200.00
Fixed		$    63,100.00	$    200,300.00
Net income			$ 152,500.00
Note :
Computation of cost of goods manfactured :
Direct materials	$869,200
Direct labor	265,000
Variable manufacturing cost	222,600
Fixed manufacturing cost	116,600
cost of goods manfactured	$1,473,400
Computation of ending inventory : (800 units)
Direct materials	65600
Direct labor	20000
Variable manufacturing cost	16800
Fixed manufacturing cost	8800
Ending inventory	$ 111,200.00