Prior to the first month of operations ending January 31, Lemke Inc. estimated the following operating results:

Line Item Description	Amount
Sales (25,000 × $80)	$2,000,000
Manufacturing costs (25,000 units):
Direct materials	450,000
Direct labor	750,000
Variable factory overhead	50,000
Fixed factory overhead	300,000
Fixed selling and administrative expenses	75,000
Variable selling and administrative expenses	200,000

The company is evaluating a proposal to manufacture 30,000 units instead of 25,000 units, thus creating an ending inventory of 5,000 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.

Questions

a. 1. Prepare an estimated income statement, comparing operating results if 25,000 and 30,000 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank.

Lemke Inc.
Absorption Costing Income Statement
For the Month Ending January 31

Line Item Description	25,000 Units Manufactured	30,000 Units Manufactured
Sales	2000000	2000000
Cost of goods sold:
Cost of goods manufactured
Inventory, January 31	0
Total cost of goods sold
Gross profit
Selling and administrative expenses
Operating income

a. 2. Prepare an estimated income statement, comparing operating results if 25,000 and 30,000 units are manufactured in the variable costing format. If an amount box does not require an entry leave it blank.

Lemke Inc.
Variable Costing Income Statement
For the Month Ending January 31

Line Item Description	25,000 Units Manufactured	30,000 Units Manufactured
Sales	$Sales	$Sales
Variable cost of goods sold:
Variable cost of goods manufactured
Inventory, January 31
Total variable cost of goods sold
Manufacturing margin
Variable selling and administrative expenses
Contribution margin
Fixed costs:
Fixed factory overhead
Fixed selling and administrative expenses
Total fixed costs
Operating income