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 (21,600 x $75) $1,620,000
Manufacturing costs (21,600 units):
Direct materials 984,960
Direct labor 233,280
Variable factory overhead 108,000
Fixed factory overhead 129,600
Fixed selling and administrative expenses 35,300
Variable selling and administrative expenses 42,600

The company is evaluating a proposal to manufacture 24,000 units instead of 21,600 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.

Required:
a. Prepare an estimated income statement, comparing operating results if 21,600 and 24,000 units are manufactured in the absorption costing format.
b. Prepare an estimated income statement, comparing operating results if 21,600 and 24,000 units are manufactured in the variable costing format.

Answer 1

Answer:

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 (21,600 x $75) $1,620,000

Manufacturing costs (21,600 units):

Direct materials 984,960

Direct labor 233,280

Variable factory overhead 108,000

Fixed factory overhead 129,600

Fixed selling and administrative expenses 35,300

Variable selling and administrative expenses 42,600 .

Explanation:

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