Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending January 31, Lemke Inc. estimated the following operating results: Sales (30,400 x $106) Manufacturing costs (30,400 units): Direct materials Direct labor $3,222,400 1,939,520 459,040 Variable factory overhead 215,840 Fixed factory overhead 255,360 Fixed selling and administrative expenses 69,500 Variable selling and administrative 84,000 expenses The company is evaluating a proposal to manufacture 33,600 units instead of 30,400 units, thus creating an ending inventory of 3,200 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. a. 1. Prepare an estimated income statement, comparing operating results if 30,400 and 33,600 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank. Lemke Inc. Absorption Costing Income Statement For the Month Ending January 31 Line Item Description 30,400 Units 33,600 Units Manufactured Manufactured Previous Submit Test for Grading tv A For the Month Ending January 31 Line Item Description 30,400 Units 33,600 Units Manufactured Manufactured Variable cost of goods sold: Fixed costs: Total fixed costs 10000 0000002 b. What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement? The increase in operating income under absorption costing is caused by the allocation of L overhead cost over a number of units. Thus, the cost of goods sold is The difference can also be explained by the amount of L cost included in the U Inventory. overhead Previous