Absorption and Variable Costing Income Statements

During the first month of operations ended July 31, YoSan Inc. manufactured 11,900 flat panel televisions, of which 10,900 were sold. Operating data for the month are summarized as follows:

Sales		$1,798,500
Manufacturing costs:
Direct materials	$928,200
Direct labor	273,700
Variable manufacturing cost	238,000
Fixed manufacturing cost	119,000	1,558,900
Selling and administrative expenses:
Variable	$141,700
Fixed	65,200	206,900

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
		$
		$

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.