Absorption and Variable Costing Income Statements

During the first month of operations ended July 31, YoSan Inc. manufactured 9,800 flat panel televisions, of which 9,100 were sold. Operating data for the month are summarized as follows:

Sales		$1,456,000
Manufacturing costs:
Direct materials	$735,000
Direct labor	215,600
Variable manufacturing cost	186,200
Fixed manufacturing cost	98,000	1,234,800
Selling and administrative expenses:
Variable	$118,300
Fixed	54,400	172,700

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 operating income reported in (1) and (2).

The operating income reported under costing exceeds the operating income reported under costing, due to manufacturing costs that are deferred to a future month under costing.