Question

1. During the first month of operations ended July 31, YoSan Inc. manufactured 8,800 flat panel televisions, of which 8,300 were sold. Operating data for the month are summarized as follows:

   Sales		$1,494,000
   Manufacturing costs:
   Direct materials	$748,000
   Direct labor	220,000
   Variable manufacturing cost	193,600
   Fixed manufacturing cost	96,800	1,258,400
   Selling and administrative expenses:
   Variable	$116,200
   Fixed	53,500	169,700

   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 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.

Check My Work

Answer 1

Absorption Costing
Sales		$1,494,000.00
Product Cost
Direct materials		$748,000.00
Direct labor		$220,000.00
Variable manufacturing cost		$193,600.00
Fixed manufacturing cost		$91,300.00
Period Cost
Variable Selling and Admin Exp		$116,200.00
Fixed Selling and Admin Expenses		$53,500.00
Net income		$71,400.00

Working Notes: Calculation of Fixed Manufacturing Cost for Absorption Costing Under Absorption Costing: Fixed Manufacturing Cost is a product cost , Therefore its calculated along with no of units sold: =96800/8800 . No of units produced: $ 11 per unit Cost per unit X no of units sold : 8300: X 11 per unit : $ 91300

Variable Costing
Sales		$1,494,000.00
Product Cost
Direct materials		$748,000.00
Direct labor		$220,000.00
Variable manufacturing cost		$193,600.00
Variable Selling Admin Cost		$116,200.00
Period Cost
Fixed manufacturing cost		$96,800.00
Fixed Selling Admin Cost		$53,500.00
Net income		$65,900.00

Difference between income between Absorption Costing and Variable Costing are due to Treatment of Fixed Manufacturing Costs because variable costing and absorption costing have different objectives concerning the importance of the information presented on the income statement. Absorption costing will have higher net income because costs are all sitting in inventory whereas variable costing will have lower net income because not as many costs end up in inventory compared to cost of goods sold.