Absorption and Variable Costing Income Statements

During the first month of operations ended July 31, YoSan Inc. manufactured 11,800 flat panel televisions, of which 10,900 were sold. Operating data for the month are summarized as follows:

Sales		$1,689,500
Manufacturing costs:
Direct materials	$861,400
Direct labor	259,600
Variable manufacturing cost	224,200
Fixed manufacturing cost	106,200	1,451,400
Selling and administrative expenses:
Variable	$130,800
Fixed	60,200	191,000

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
		$
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.