Prior to the first month of operations ending July 31, 2016, Muzenski Industries Inc. estimated the following operating results:

1	Sales (28,800 $75)	2,160,000.00
2	Manufacturing costs (28,800 units):
3	Direct materials	1,267,200.00
4	Direct labor	230,400.00
5	Variable factory overhead	115,200.00
6	Fixed factory overhead	224,640.00
7	Fixed selling and administrative expenses	28,800.00
8	Variable selling and administrative expenses	36,000.00

The company is evaluating a proposal to manufacture 36,000 units instead of 28,800 units, thus creating an ending inventory of 7,200 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.

Required:

A.

Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required.

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?

Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in the variable costing format. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required.

Question not attempted.

Score: 0/143

Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in the variable costing format. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required.

Question not attempted.

Score: 0/143

Muzenski Industries Inc.

Variable Costing Estimated Income Statement

1		28,800 Units Manufactured	36,000 Units Manufactured
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3	Variable cost of goods sold:
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Recall that under variable costing, fixed factory overhead costs are not a part of the cost of goods manufactured. Instead, fixed factory overhead costs are treated as a period expense. Therefore, recast the income statement such that Net sales - Variable cost of products sold = Manufacturing margin; Manufacturing margin - variable selling and administrative expenses = Contribution margin; Contribution margin - (Fixed manufacturing costs + Fixed selling and administrative expenses) = Income from operations. Remember that the variable cost of manufacturing will be the same at both levels after adjusting for ending inventory. Thus manufacturing margin should also be the same for both levels.