Question

1. Absorption and Variable Costing Income Statements

   During the first month of operations ended July 31, YoSan Inc. manufactured 9,900 flat panel televisions, of which 9,100 were sold. Operating data for the month are summarized as follows:

   Sales		$1,638,000
   Manufacturing costs:
   Direct materials	$841,500
   Direct labor	247,500
   Variable manufacturing cost	217,800
   Fixed manufacturing cost	108,900	1,415,700
   Selling and administrative expenses:
   Variable	$127,400
   Fixed	58,600	186,000

   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
   		$
   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

Ans. 1	YoSan Inc.
	Absorption Costing Income Statement
	For the Month Ended July 31
	PARTICULARS		Amount
	Sales		$1,638,000
	Cost of goods sold :
	Cost of goods manufactured	$1,415,700
	Less: Ending inventory	-$114,400
	Cost of goods sold		$1,301,300
	Gross margin		$336,700
	Less: Total Selling and administrative expenses		-$186,000
	Net operating income		$150,700
	*Working Notes:
	Ending inventory units = Units manufactured - Units sold
	9,900 - 9,100
	800 units
	Unit product cost = Total manufacturing cost / Units manufactured
	$1,415,700 / 9,900
	$143.00	per unit
	Ending inventory (cost)   =   Ending inventory units * Unit product cost
	800 * $143
	$114,400
Ans. 2	YoSan Inc.
	Variable Costing Income Statement
	For the Month Ended July 31
	PARTICULARS		Amount
	Sales		$1,638,000
	Variable Cost of goods sold :
	Cost of goods manufactured	$1,306,800
	Less: Ending inventory	-$105,600
	Variable cost of goods sold		$1,201,200
	Manufacturing margin		$436,800
	Less: Variable selling and administrative expenses		-$127,400
	Contribution margin		$309,400
	Fixed costs:
	Fixed manufacturing costs	$108,900
	Fixed selling and administrative expenses	$58,600
	Total fixed costs		$167,500
	Operating income		$141,900
	*Calculations:
	*Calculations for cost of goods manufactured:
	Direct materials	$841,500
	Direct labor	$247,500
	Variable manufacturing cost	$217,800
	Total variable cost of goods manufactured	$1,306,800
	Unit product cost = Total variable cost of goods manufactured / Units manufactured
	$1,306,800 / 9,900
	$132.00	per unit
	Ending inventory (cost)   =   Ending inventory units * Unit product cost
	800 * $132
	$105,600
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.