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 (23,200 x $81) $1,879,200 Manufacturing costs (23,200 units): Direct materials 1,127,520 Direct labor 266,800 Variable factory overhead 125,280 Fixed factory overhead 148,480 Fixed selling and administrative expenses 40,400 Variable selling and administrative expenses 48,800 The company is evaluating a proposal to manufacture 25,600 units instead of 23,200 units, thus creating an ending inventory of 2,400 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 23,200 and 25,600 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 23,200 Units Manufactured 25,600 Units Manufactured 23,200 Units Manufactured 25,600 Units Manufactured Sales Cost of goods sold: Cost of goods manufactured Inventory, October 31 Total cost of goods sold Gross profit Selling and administrative expenses QOID 0000 Operating income a. 2. Prepare an estimated income statement, comparing operating results if 23,200 and 25,600 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 23,200 Units Manufactured 25,600 Units Manufactured Sales Variable cost of goods sold: Variable cost of goods manufactured Inventory, October 31 Total variable cost of goods sold Manufacturing margin DI b. Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead Fixed selling and administrative expenses OO 0000 Op de 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 overhead cost over a number of units. Thus, the cost of goods sold is 1. The difference can also be explained by the amount of overhead cost included in the inventory