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 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 $ 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, 2016 $ 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.

Answer 1

1) YoSan Inc.

Income Statement

For the month ended July 31, 202x

Sales revenue $2,150,000

- Cost of goods sold $1,520,000

Gross profit $630,000

- S & A expenses $300,000

Operating profit $330,000

2) YoSan Inc.

Income Statement

For the month ended July 31, 202x

Sales revenue $2,150,000

- Variable costs:

• Direct materials $800,000
• Direct labor $350,000
• Variable manufacturing cost $130,000
• Variable S & A expenses $170,000 $1,450,000

Contribution margin $700,000

- Period costs:

• Fixed manufacturing cost $288,000
• Fixed S & A expenses $96,000 $384,000

Operating profit $316,000

3) When you prepare a variable costing income statement, the ending inventory of finished goods and WIP only includes variables costs. All fixed or period expenses are included during the period that they occur and are not carried over to the next period. I.e. the ending inventory (400 units) for next month will be lower under variable costing.