Absorption and Variable Costing Income Statements During the first month of operations ended July 31, YoSan Inc. manufactured 11,700 flat panel televisions, of which 10,900 were sold. Operating data for the month are summarized as follows: Sales $1,362,500 Manufacturing costs: Direct materials $690,300 Direct labor 210,600 Variable manufacturing cost 175,500 Fixed manufacturing cost 93,600 1,170,000 Selling and administrative expenses: Variable $109,000 Fixed 50,100 159,100 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 1,362,500 Cost of goods sold: Cost of goods manufactured 1,170,000 Inventory, July 31 80,000 Total cost of goods sold 1,090,000 Gross profit 272,500 Selling and administrative expenses 159,100 Operating income 113,400 2. Prepare an income statement based on the variable costing concept. YoSan Inc. Variable Costing Income Statement For the Month Ended July 31 Sales Variable cost of goods sold: Variable cost of goods manufactured 1,075,800 x Inventory, July 31 73,559 x 1,362,500 109,000 Total variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses 93,600 50,100 Total fixed costs 143,700 Operating income 3. Explain the reason for the difference in the amount of operating income reported in (1) and (2). The operating income reported under absorption costing exceeds the operating income reported under variable manufacturing costs that are deferred to a future month under absorption costing. costing, due to fixed