1. Use the income statements on the Absorption Statement and variable Statement to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unt variable costs, unit sales price, and the sales levels are the same at both production levels. Operating Income Original Production Original Production Additional 10,000 Additional 10,000 Level-Absorption Level-Variable Units-Absorption Units-Variable 2. What is the change in operating income from producing 10.000 additional units under absorption costing? 3. What is the change in operating income from producing 10,000 additional units under variable conting? 4. What would be your recommendation to the production manager a. Do not produce the extra 10,000 units. The Increase in operating income under absorption costing is due to fived manufacturing costs being held in invertory, and the additional entory will leaf to higher handling, storage, financing, and obsolescence costs. D. Produce the extra 10,000 units. Operating income will be increased, and the production manager will receive praise for creating higher profits c. Do not produce the extra 10,000 units Operating come does not change under absorption costing when the additional units are produced d. Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, event at the units are not sold are included in the cost of goods sold, Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Sales $1,125,000 Cost of goods sold: Cost of goods manufactured $800,000 Ending inventory (200,000) Total cost of goods sold (600,000) Gross profit $525,000 Selling and administrative expenses (275,000) Operating income $250,000 Variable Statement Under variable coating, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 Sales $1,125,000 $560,000 (140,000) Variable cost of goods sold: Variable cost of goods manufactured Ending inventory 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 Total fixed costs Operating income Method Comparison (420,000) $705,000 (210,000) $495,000 $240,000 65,000 (305,000) $190,000 Review the income statements on the Absorption Statement and Variable Statement, then complete the following table. The company's sales price per unit is $75, and the number of units in ending Inventory is 5,000. There was no beginning inventory TO
