Question

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 labor420,000 Variable manufacturing cost156,000 Fixed manufacturing cost288,0001,824,000 Selling and administrative expenses: Variable$204,000 Fixed96,000300,000 Required: 1. Prepare an income statement based on the absorption costing concept.

Answer 1

To prepare the income statement using the absorption costing method, calculate the cost of goods sold by accounting for both direct and indirect manufacturing costs, subtract this from sales to determine the gross profit, and then subtract selling and administrative expenses to find the net income.

Step-by-step explanation:

Income Statement Based on Absorption Costing

The income statement for YoSan Inc. based on the absorption costing concept for the month ended July 31 can be prepared as follows:

• Sales (2,000 units x $2,150,000 / 2,400 units): $1,791,667
• Cost of Goods Sold:
• Direct materials used (2,000 units x $960,000 / 2,400 units): $800,000
• Direct labor (2,000 units x $420,000 / 2,400 units): $350,000
• Variable manufacturing cost (2,000 units x $156,000 / 2,400 units): $130,000
• Fixed manufacturing cost: $288,000

Total Cost of Goods Sold: $1,568,000

Gross Profit: $223,667 (Sales - Cost of Goods Sold)

Selling and Administrative Expenses:

• Variable: $204,000
• Fixed: $96,000

Total Selling and Administrative Expenses: $300,000

Net Income: -$76,333 (Gross Profit - Selling and Administrative Expenses)

Note: The cost of goods sold includes all costs of production related to the units sold, including both variable and fixed manufacturing costs. Unsold inventory costs are not included in the cost of goods sold, remaining in inventory on the balance sheet.