Saxon, Inc. Variable Costing Income Statement Review the income statements on the Absorption Statement and Variable Statement, then complete the following table. The company's sales price per unit is $75, and the number of units in ending inventory is 3,000 . There was no beginning inventory. and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decison-making in operating income, such increases deciding whether absorption or variable costing reporting would be more useful. All costs are controllable in the long run by someone within a business, For a given level of management, costs may be controllable costs or noncontrollable costs. The production manager for Saxon, Inc, is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Varlable Statement, he notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company's capadity for manufacturing, in the coming year. He reasons that this will boost operating income and satisfy the company's owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1).(4) that follow. If the answer is zero, enter " 0 ". 1. Use the income statements on the Absorption Statement and Varlable statement to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels, 2. What is the change in opetating income from producing 10,000 additional units under absorption costing? 2. What is the change in operating income from producing 10,000 additional units under absorption costing? 3. What is the change in operating income from producing 10,000 additional units under variable costing? 4. What would be your recommendation to the production manager? a. Do not produce the extra 10,000 units. The increase in operating income under absorption costing is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, finaring, and obsolescence costs. b. Produce the extra 10,000 units. Operating income will be increased, and the production manager will recelve praise for creating higher profits. c. Do not produce the extra 10,000 units. Operating income does not change under absorptn costing when the additional units are produced. d. Produce the extra 10,000 units, It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold
