Question

Absorption and Variable Costing Income Statements

During the first month of operations ended July 31, YoSan Inc. manufactured 10,000 flat panel televisions, of which 9,400 were sold. Operating data for the month are summarized as follows:

Sales		$1,128,000
Manufacturing costs:
Direct materials	$560,000
Direct labor	170,000
Variable manufacturing cost	140,000
Fixed manufacturing cost	70,000	940,000
Selling and administrative expenses:
Variable	$94,000
Fixed	43,200	137,200

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
Operating income		$

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
Operating income		$

Answer 1

1.

Direct materials	560,000
Direct labor	170,000
Variable manufacturing overhead	140,000
Fixed manufacturing cost	70,000
Cost of goods manufactured	$940,000

Cost of ending inventory, July 31 = Cost of goods manufactured x Ending inventory units / Number of units produced

= 940,000 x 600/10,000

= $56,400

YoSan Inc.
Absorption Costing Income Statement
For the Month Ended July 31
Sales		1,128,000
Cost of goods sold:
Cost of goods manufactured	940,000
Inventory, July 31	-56,400
Total cost of goods sold		-883,600
Gross profit		244,400
Selling and administrative expenses		-137,200
Operating income		$107,200

2.

Direct materials	560,000
Direct labor	170,000
Variable manufacturing overhead	140,000
Variable cost of goods manufactured	$870,000

Cost of ending inventory, July 31 = Cost of goods manufactured x Ending inventory units / Number of units produced

= 8700,000 x 600/10,000

= $52,200

YoSan Inc.
Variable Costing Income Statement
For the Month Ended July 31
Sales		1,128,000
Variable cost of goods sold:
Variable cost of goods manufactured	870,000
Inventory, July 31	-52,200
Total variable cost of goods sold		-817,800
Manufacturing margin		310,200
Variable selling and administrative expenses		-94,000
Contribution margin		216,200
Fixed costs:
Fixed manufacturing costs	70,000
Fixed selling and administrative expenses	43,200
Total fixed costs		-113,200
Operating income		$103,000

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