1A. Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results:

1	Sales (28,800 $80)	$2,304,000.00
2	Manufacturing costs (28,800 units):
3	Direct materials	1,267,200.00
4	Direct labor	316,800.00
5	Variable factory overhead	172,800.00
6	Fixed factory overhead	221,760.00
7	Fixed selling and administrative expenses	28,800.00
8	Variable selling and administrative expenses	35,800.00

The company is evaluating a proposal to manufacture 36,000 units instead of 28,800 units, thus creating an ending inventory of 7,200 units. Manufacturing the additional units will not change sales, unit variable factory overhead costs, total fixed factory overhead cost, or total selling and administrative expenses.

Required:

a.

Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if required. Round your unit cost to two decimal places and final answers to the nearest dollar amount. Enter all amounts as positive numbers.

b.

What is the reason for the difference in income from operations reported for the two levels of production by the absorption costing income statement?

1B. Head Pops Inc. manufactures two models of solar-powered, noise-canceling headphones: Sun Sound and Ear Bling models. The company is operating at less than full capacity. Market research indicates that 25,000 additional Sun Sound and 33,000 additional Ear Bling headphones could be sold. The income from operations by unit of product is as follows:

1		Sun Sound Headphones	Ear Bling Headphones
2	Sales price	$130.00	$145.00
3	Variable cost of goods sold	73.40	70.00
4	Manufacturing margin	$56.60	$75.00
5	Variable selling and administrative expenses	24.00	28.00
6	Contribution margin	$32.60	$47.00
7	Fixed manufacturing costs	14.00	10.00
8	Income from operations	$18.60	$37.00

Prepare an analysis indicating the increase or decrease in total profitability if 25,000 additional Sun Sound and 33,000 additional Ear Bling headphones are produced and sold, assuming that there is sufficient capacity for the additional production. Round your per-unit answers to two decimal places.