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 (16,800 x $58)	$974,400
Manufacturing costs (16,800 units):
Direct materials	588,000
Direct labor	139,440
Variable factory overhead	65,520
Fixed factory overhead	77,280
Fixed selling and administrative expenses	21,000
Variable selling and administrative expenses	25,400

The company is evaluating a proposal to manufacture 18,400 units instead of 16,800 units, thus creating an ending inventory of 1,600 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 16,800 and 18,400 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
	16,800 Units Manufactured	18,400 Units Manufactured
	$	$
	$	$
	$	$
	$	$
	$	$

a. 2. Prepare an estimated income statement, comparing operating results if 16,800 and 18,400 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
	16,800 Units Manufactured	18,400 Units Manufactured
	$	$
Variable cost of goods sold:
Variable cost of goods manufactured	$	$
	$	$
	$	$
	$	$
Fixed costs:
	$	$
Total fixed costs	$	$
	$	$

b. What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement?

The increase in income from operations under absorption costing is caused by the allocation of fixed factory  overhead cost over a fewer  number of units. Thus, the cost of goods sold is less . The difference can also be explained by the amount of fixed factory  overhead cost included in the beginning  inventory.

Answer 1

	A1
		16800	18400
	Particulars	Units Manufactured	Units Manufactured		Per Unit Manufactuing Cost
	Sales (16,800 x $58)	974,400	1067200		58
	Manufacturing costs:
	Direct materials	588,000	644000		35
	Direct labor	139,440	152720		8.3
	Variable factory overhead	65,520	71760		3.9
	Fixed factory overhead	77,280	77,280		77,280	Will not change as quantity increases
	Fixed selling and administrative expenses	21,000	21,000		21,000	Will not change as quantity increases
	Variable selling and administrative expenses	25,400	27819.05		1.51
	Income	57,760	72,621
	Overhead recovery rates
	Fixed factory overhead (amount / units produced	5	4.2
	Fixed selling and administrative expenses (amount / units produced	1	1
	A2
		16800	18400
	Particulars	Units Manufactured	Units Manufactured
	Variable cost of goods sold:	792960	792960
	(Note1)
	Variable cost of goods manufactured	792960	868480
	(Note2)
	Fixed costs:
	Fixed Factory Overhead	77280	77280
	Total fixed costs	77280	77280
	Note1
		16800	18400
		Units Manufactured	Units Manufactured
	Variable cost of goods sold:
	Opening Inventory	0	0
Add:	Variable cost of goods manufactured	792960	868480
Less:	Closing Inventory	0	75520 (1600*47.2)
	Total	792960	792960
	Note2
	Variable cost of goods manufactured
	Direct materials	588000	644000
	Direct labor	139440	152720
	Variable factory overhead	65520	71760
	Total	792960	868480
	Per Unit Cost	47.2	47.2
	ekkarill92 Next > < Previous Related Solutions Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending... 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 (40,000 × $90) $3,600,000 Manufacturing costs (40,000 units): Direct materials 1,440,000 Direct labor 480,000 Variable factory overhead 240,000 Fixed factory overhead 120,000 Fixed selling and administrative expenses 75,000 Variable selling and administrative expenses 200,000 The company is evaluating a proposal to manufacture 50,000 units instead of 40,000 units, thus creating an ending inventory of... Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending... 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 (12,800 x $45) $576,000 Manufacturing costs (12,800 units): Direct materials 350,720 Direct labor 83,200 Variable factory overhead 38,400 Fixed factory overhead 46,080 Fixed selling and administrative expenses 12,500 Variable selling and administrative expenses 15,200 The company is evaluating a proposal to manufacture 14,400 units instead of 12,800 units, thus creating an ending inventory of... Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending... 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 (27,200 x $96) $2,611,200 Manufacturing costs (27,200 units): Direct materials 1,572,160 Direct labor 372,640 Variable factory overhead 174,080 Fixed factory overhead 206,720 Fixed selling and administrative expenses 56,200 Variable selling and administrative expenses 68,000 The company is evaluating a proposal to manufacture 30,400 units instead of 27,200 units, thus creating an ending inventory of... Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending... 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... Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending... 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 (28,000 x $98) $2,744,000 Manufacturing costs (28,000 units): Direct materials 1,660,400 Direct labor 392,000 Variable factory overhead 184,800 Fixed factory overhead 218,400 Fixed selling and administrative expenses 59,400 Variable selling and administrative expenses 71,900 The company is evaluating a proposal to manufacture 31,200 units instead of 28,000 units, thus creating an ending inventory of... Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending... Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending April 30, 2016, Jadelis Industries Inc. estimated the following operating results: Sales (24,000 x $83) $1,992,000 Manufacturing costs (24,000 units): Direct materials 1,204,800 Direct labor 285,600 Variable factory overhead 132,000 Fixed factory overhead 158,400 Fixed selling and administrative expenses 43,100 Variable selling and administrative expenses 52,100 The company is evaluating a proposal to manufacture 26,400 units instead of 24,000 units, thus creating an ending... Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending... 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 (26,400 x $93) $2,455,200 Manufacturing costs (26,400 units): Direct materials 1,483,680 Direct labor 351,120 Variable factory overhead 163,680 Fixed factory overhead 195,360 Fixed selling and administrative expenses 53,100 Variable selling and administrative expenses 64,300 The company is evaluating a proposal to manufacture 29,600 units instead of 26,400 units, thus creating an Inventory, October 31... Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending... 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 (27,200 x $96) $2,611,200 Manufacturing costs (27,200 units): Direct materials 1,572,160 Direct labor 372,640 Variable factory overhead 174,080 Fixed factory overhead 206,720 Fixed selling and administrative expenses 56,200 Variable selling and administrative expenses 68,000 The company is evaluating a proposal to manufacture 30,400 units instead of 27,200 units, thus creating an ending inventory of... Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending... 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... Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending... 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 (19,200 x $68) $1,305,600 Manufacturing costs (19,200 units): Direct materials 787,200 Direct labor 186,240 Variable factory overhead 86,400 Fixed factory overhead 103,680 Fixed selling and administrative expenses 28,200 Variable selling and administrative expenses 34,100 The company is evaluating a proposal to manufacture 21,600 units instead of 19,200 units, thus creating an Inventory, October 31... ADVERTISEMENT Subjects Accounting Advanced Math Anatomy and Physiology Biology Chemistry Civil Engineering Computer Science Economics Electrical Engineering Finance History Math Mechanical Engineering Operations Management Physics Psychology Statistics and Probability Nursing Other ADVERTISEMENT Latest Questions 1) Alternative compiled code sequence using instructions in classes A, B, C. What is the average... An asset is purchased on January 1 for $48,700. It is expected to have a useful... Do we have any online or offline tool to convert c and cpp programs into MIPS... -what is the pH of HCl 0,1M and NaCl 0,1M mixed together solution? -What is the... function X=extractDWT(x_train,startS,endS,wStep,wRange) % x_train = input signal % startS   = from second % endS     = end... Do you agree that Social Loafing is similar to Theory X. Give an example to support... Computing Cost of Goods Sold and Ending Inventory. Bartov Corporation reports the following beginning inventory and... ADVERTISEMENT About @ 2020 WizEdu