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Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending January 3 1 , Lemke Inc. estimated the following
Estimated Income Statements, using Absorption and Variable Costing
Prior to the first month of operations ending January Lemke Inc. estimated the following operating results:
Sales $
$
Manufacturing costs units:
Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
Fixed selling and administrative expenses
Variable selling and administrative
expenses
Lemke Inc.
Absorption Costing Income Statement
For the Month Ending January
Lemke Inc.
Variable Costing Income Statement
For the Month Ending January
Fixed costs:
s
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 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.
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