Question
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:
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 (13,600 x $48) | $652,800 | ||
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 Inventory, October 31 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 or enter “0”.
Marshall Inc. | ||
Absorption Costing Income Statement | ||
For the Month Ending October 31 | ||
13,600 Units Manufactured | 15,200 Units Manufactured | |
$ | $ | |
Cost of goods sold: | ||
$ | $ | |
$ | $ | |
$ | $ | |
Income from operations | $ | $ |
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 or enter “0”.
Marshall Inc. | ||
Variable Costing Income Statement | ||
For the Month Ending October 31 | ||
13,600 Units Manufactured | 15,200 Units Manufactured | |
$ | $ | |
Variable cost of goods sold: | ||
$ | $ | |
$ | $ | |
$ | $ | |
$ | $ | |
Fixed costs: | ||
$ | $ | |
Total fixed costs | $ | $ |
$ | $ |
b. What is the reason for the difference in income from operations 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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a 1 Marshall Inc Absorption Costing Income Statement For the Month Ending October 31 13600 Units Man...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started