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	1,209,600.00
4	Direct labor	316,800.00
5	Variable factory overhead	115,200.00
6	Fixed factory overhead	221,760.00
7	Fixed selling and administrative expenses	28,400.00
8	Variable selling and administrative expenses	34,900.00

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?

Please prepare statements in these formats:

Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in the absorption 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.

Muzenski Industries Inc.

Absorption Costing Estimated Income Statement

1		28,800 Units Manufactured	36,000 Units Manufactured
2
3	Cost of goods sold:
4
5
6
7
8
9

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.

Muzenski Industries Inc.

Variable Costing Estimated Income Statement

1		28,800 Units Manufactured	36,000 Units Manufactured
2
3	Variable cost of goods sold:
4
5
6
7
8
9
10
11
12
13
14

Labels
Fixed costs
For the Month Ended July 31, 2016
July 31, 2016
Amount Descriptions
Contribution margin
Contribution margin ratio
Cost of goods manufactured
Cost of goods sold
Ending inventory
Fixed factory overhead
Fixed selling and administrative expenses
Gross profit
Income from operations
Loss from operations
Manufacturing margin
Planned contribution margin
Sales
Sales mix
Selling and administrative expenses
Total fixed costs
Variable cost of goods manufactured
Variable cost of goods sold
Variable selling and administrative expenses