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 (22,400 x $78)	$1,747,200
Manufacturing costs (22,400 units):
Direct materials	1,055,040
Direct labor	250,880
Variable factory overhead	116,480
Fixed factory overhead	138,880
Fixed selling and administrative expenses	37,800
Variable selling and administrative expenses	45,700

The company is evaluating a proposal to manufacture 24,800 units instead of 22,400 units, thus creating an ending inventory 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 22,400 and 24,800 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank.

Marshall Inc.
Absorption Costing Income Statement
For the Month Ending October 31
	22,400 Units Manufactured	24,800 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
Operating income	$	$

a. 2. Prepare an estimated income statement, comparing operating results if 22,400 and 24,800 units are manufactured in the variable costing format. If an amount box does not require an entry leave it blank.

Marshall Inc.
Variable Costing Income Statement
For the Month Ending October 31
	22,400 Units Manufactured	24,800 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	$	$
Operating income	$	$

Answer 1