Question

1. 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
   Contribution margin Gross profit Inventory, July 31 Manufacturing margin Sales		$
   Cost of goods sold:
   Cost of goods manufactured Fixed manufacturing costs Fixed selling and administrative expenses Inventory, July 31 Total cost of goods sold	$
   Contribution margin Cost of goods manufactured Fixed manufacturing costs Inventory, July 31 Total cost of goods sold
   Fixed selling and administrative expenses Gross profit Inventory, July 31 Manufacturing margin Total cost of goods sold
   Gross profit Inventory, July 31 Manufacturing margin Sales Selling and administrative expenses		$
   Contribution margin Cost of goods sold Inventory, July 31 Selling and administrative expenses Variable selling and administrative expenses
   Income from operations Loss from operations		$

   2. Prepare an income statement based on the variable costing concept.

   YoSan Inc.
   Variable Costing Income Statement
   For the Month Ended July 31, 2016
   Contribution margin Fixed manufacturing costs Gross profit Manufacturing margin Sales		$
   Variable cost of goods sold:
   Cost of goods sold Cost of goods manufactured Manufacturing margin Variable cost of goods manufactured Variable selling and administrative expenses	$
   Contribution margin Cost of goods sold Fixed manufacturing costs Fixed selling and administrative expenses Inventory, July 31
   Fixed manufacturing costs Sales Total Variable cost of goods sold Variable cost of goods manufactured Variable selling and administrative expenses
   Contribution margin Fixed manufacturing costs Gross profit Inventory, July 31 Manufacturing margin		$
   Fixed manufacturing costs Fixed selling and administrative expenses Inventory, July 31 Manufacturing margin Variable selling and administrative expenses
   Contribution margin Cost of goods manufactured Fixed selling and administrative expenses Inventory, July 31 Manufacturing margin		$
   Fixed costs:
   Fixed contribution margin Fixed manufacturing costs Fixed sales Total Variable cost of goods sold Variable cost of goods manufactured	$
   Fixed selling and administrative expenses Fixed manufacturing margin Total Variable cost of goods sold Variable cost of goods manufactured Variable selling and administrative expenses
   Fixed selling and administrative expenses Fixed manufacturing margin Total fixed costs Variable cost of goods manufactured Variable selling and administrative expenses
   Income from operations Loss from operations		$

   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

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

Answer 1