Absorption and Variable Costing Income Statements

During the first month of operations ended July 31, YoSan Inc. manufactured 9,000 flat panel televisions, of which 8,400 were sold. Operating data for the month are summarized as follows:

Sales		$1,302,000
Manufacturing costs:
Direct materials	$657,000
Direct labor	198,000
Variable manufacturing cost	171,000
Fixed manufacturing cost	81,000	1,107,000
Selling and administrative expenses:
Variable	$100,800
Fixed	46,400	147,200

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 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.

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