Answer:
a.
<u>Estimated income statement, comparing operating results if 20,000 and 22,400 units are manufactured</u>
20,000 22,400
Sales (20,000 x $71) $1,420,000 $1,420,000
Less Cost of Goods Sold ($1,260,000) ($1,248,000)
<em>Opening Stock $ 0 $0</em>
<em>Add Cost of Goods Manufactured $1,260,000 $1,397,760</em>
<em>Less Closing Stock $0 ($149,760</em>)
Gross Profit $160,000 $172,000
Less Expenses
Selling and administrative expenses
Fixed ($30,500
) ($30,500
)
Variable ($36,800) ($36,800)
Net Income / (Loss) $92,700 $104,700
a. Reasons
Variable Production Costs have increased for the Manufacture of 22,400 units.
Fixed assets have been deferred in Inventory for the Manufacture of 22,400 units.
Explanation:
<u>Cost of Goods Manufactured</u>
Manufacturing costs (20,000 units):
Direct materials 852,000
Direct labor 202,000
Variable factory overhead 94,000
Fixed factory overhead 112,000
Total 1,260,000
<u>Cost of Goods Manufactured</u>
Manufacturing costs (22,400 units):
Direct materials (852,000 / 20,000 × 22,400) = $954,240
Direct labor (202,000 / 20,000 × 22,400) = $226,240
Variable factory overhead (94,000 / 20,000 × 22,400) = $105,280
Fixed factory overhead = $112,000
Total = $1,397,760
Closing Inventory = $1,397,760 / 22,400 × 2,400
= $149,760