Question

Prior to the first month of operations ending October 31 Marshall Inc. estimated the following operating results:

Sales (20,000 x $71)	$1,420,000
Manufacturing costs (20,000 units):
Direct materials	852,000
Direct labor	202,000
Variable factory overhead	94,000
Fixed factory overhead	112,000
Fixed selling and administrative expenses	30,500
Variable selling and administrative expenses	36,800

The company is evaluating a proposal to manufacture 22,400 units instead of 20,000 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 20,000 and 22,400 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
	20,000 Units Manufactured	22,400 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	$	$

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a. 2. Prepare an estimated income statement, comparing operating results if 20,000 and 22,400 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
	20,000 Units Manufactured	22,400 Units Manufactured
Sales	$	$
Variable cost of goods sold:
Variable cost of goods manufactured	$	$
Inventory, October 31
	$	$
	$	$
	$	$
Fixed costs:
	$	$
Total fixed costs	$	$
	$	$

Answer 1

Marshall Inc.
Absorption Costing Income Statement
For the Month Ending October 31
	20,000 Units Manufactured	22,400 Units Manufactured
Sales	14,20,000	14,20,000
Cost of goods sold:	12,60,000	12,48,000
Cost of goods manufactured	12,60,000	13,97,760
Inventory, October 31	-	1,49,760
Total cost of goods sold	12,60,000	12,48,000
Gross profit	1,60,000	1,72,000
Selling and administrative expenses	67,300	67,300
Income from operations	92,700	1,04,700
Cost of goods sold:
Direct materials	8,52,000	9,54,240
Direct labor	2,02,000	2,26,240
Variable factory overhead	94,000	1,05,280
Fixed factory overhead	1,12,000	1,12,000
Cost of goods manufactured	12,60,000	13,97,760
Per unit costs	63.00	62.40
Cost of 20,000 units sold	12,60,000	12,48,000
Inventory	-	1,49,760

Marshall Inc.
Variable Costing Income Statement
For the Month Ending October 31
	20,000 Units Manufactured	22,400 Units Manufactured
Sales	14,20,000	14,20,000
Variable cost of goods sold:	11,84,800	11,84,800
Variable cost of goods manufactured	11,48,000	12,85,760
Inventory, October 31	-	1,37,760
Contribution	2,35,200	2,35,200
Fixed costs:
Overhead	1,12,000	1,12,000
Selling	30,500	30,500
Total fixed costs	1,42,500	1,42,500
Net income	92,700	92,700