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: $652,800 Sales (13,600 x $48) Manufacturing costs (13,600 units): Direct materials 393,040 Direct labor 92,480 Variable factory overhead 43,520 Fixed factory overhead 51,680 Fixed selling and administrative expenses 14,100 Variable selling and administrative expenses 17,000 The company is evaluating a proposal to manufacture 15,200 units instead of 13,600 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 13,600 and 15,200 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 13,600 Units Manufactured 15,200 Units Manufactured Sales Cost of goods sold: Cost of goods manufactured Inventory, October 31 Withi 01 $ Total cost of goods sold Gross profit Selling and administrative expenses $ Operating income a. 2. Prepare an estimated income statement, comparing operating results if 13,600 and 15,200 units are manufactured in the variable costing format. If an amount box does not require an entry leave it blank. a. 2. Prepare an estimated income statement, comparing operating results if 13,600 and 15,200 units are manufactured in the variable costing format. If an amount box does not require an entry leave it blank. Marshall Inc. Variable Costing Income Statement For the Month Ending October 31 13,600 Units Manufactured 15,200 Units Manufactured Sales Variable cost of goods sold: Variable cost of go Accounting numeric field Inventory, October 31 $ $ $ $ Total variable selling and administrative expenses Manufacturing margin Variable selling and administrative expenses $ $ Contribution margin QUUU! QU $ Fixed costs: Fixed factory overhead 000 QUI $ Fixed selling and administrative expenses Total fixed costs $ Operating income $ 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 fixed factory overhead cost over a larger number of units. Thus, the cost of goods sold is less The difference can also be explained by the amount of fixed factory overhead cost included in the ending inventory
