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:

Sales (24,800 x $86)	$2,132,800
Manufacturing costs (24,800 units):
Direct materials	1,282,160
Direct labor	302,560
Variable factory overhead	141,360
Fixed factory overhead	168,640
Fixed selling and administrative expenses	45,900
Variable selling and administrative expenses	55,500

The company is evaluating a proposal to manufacture 27,200 units instead of 24,800 units, thus creating an Inventory, October 31 of 2,400 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 24,800 and 27,200 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
	24,800 Units Manufactured	27,200 Units Manufactured
Sales	$	$
Cost of goods sold:
Cost of goods manufactured	$	$
Inventory, October 31
Total cost of goods sold	$	$
Gross profit	$	$
Selling and administrative expenses
Income from operations	$	$

a. 2. Prepare an estimated income statement, comparing operating results if 24,800 and 27,200 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
	24,800 Units Manufactured	27,200 Units Manufactured
Sales	$	$
Variable cost of goods sold:
Variable cost of goods manufactured	$	$
Inventory, October 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	$	$
Income from operations	$	$

Answer 1

Absorption costing income Statement
	24800		27200
	Manufactured		manufactured
Sales revenue	$2,132,800		$2,132,800
Cost of goods sold
Cost of goods manufactured	$1,894,720		$2,061,760
	(1282160+302560+141360)+168640)		((1282160+302560+141360)/24800*27200)+168640)
Invenry Oct31	$0		$181,920
			(2061760/27200*2400)
Total cost of goods sold	$1,894,720		$1,879,840
Gross profit	$238,080		$252,960
Less: Selling and admin expense
Variable S&A	$55,500		$55,500
Fixed S&A	$45,900		$45,900
Income from operations	$136,680		$151,560
Variable costing Income Statement
	24800		27200
	Manufactured		manufactured
Sales revenue	$2,132,800		$2,132,800
Variable cost of goods sold
Variable cost of goods manufactured	$1,726,080		$1,893,120
	(1282160+302560+141360)		((1282160+302560+141360)/24800*27200)
Invenry Oct31	$0		$167,040
			(1893120/27200*2400)
Total varriable cost of goods sold	$1,726,080		$1,726,080
Manufacturing margin	$406,720		$406,720
variable selling expense	$55,500		$55,500
Contribution margin	$351,220		$351,220
Fixed cost
Fixed manufacturing cost	$168,640		$168,640
Fixed selling and admin cost	$45,900		$45,900
Total fixed cost	$214,540		$214,540
Income from operations	$136,680		$136,680