Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results: Sales (12,800 x $45) $576,000 Manufacturing costs (12,800 units): Direct materials 350,720 Direct labor 83,200 Variable factory overhead 38,400 Fixed factory overhead 46,080 Fixed selling and administrative expenses 12,500 Variable selling and administrative expenses 15,200 The company is evaluating a proposal to manufacture 14,400 units instead of 12,800 units, thus creating an ending inventory of 1,600 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 12,800 and 14,400 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank. Marshall Inc. Absorption Costing Income Statement For the Month Ending October 31 12,800 Units Manufactured 14,400 Units Manufactured Cost of goods sold: Marshall Inc. Variable Costing Income Statement For the Month Ending October 31 12,800 Units Manufactured 14,400 Units Manufactured Variable cost of goods sold: Fixed costs: Total fixed costs 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 income from operations under absorption costing is caused by the allocation of overhead cost over a number of units. Thus, the cost of goods sold is The difference can also be explained by the amount of overhead cost included in the Inventory