a. 1. Prepare an estimated income statement, comparing operating results if 24,800 and 27,200 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 24,800 Units Manufactured 27,200 Units Manufactured $ $ Cost of goods sold: $ $ $ $ $ $ $ $ a. 2. Prepare an estimated income statement, comparing operating results if 24,800 and 27,200 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 24,800 Units Manufactured 27,200 Units Manufactured $ $ Variable cost of goods sold: $ $ $ $ $ $ $ $ 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 overhead cost over a number of units. Thus, the cost of goods sold is . The difference can also be explained by the amount of overhead cost included in the inventory.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Estimated Income Statements, using Absorptionand 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 |
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 ending inventory of 2,400 units. Manufacturing the additional units will not change sales, unit variable
a. 1. Prepare an estimated income statement, comparing operating results if 24,800 and 27,200 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 | ||
| 24,800 Units Manufactured | 27,200 Units Manufactured | |
| $ | $ | |
| Cost of goods sold: | ||
| $ | $ | |
| $ | $ | |
| $ | $ | |
| $ | $ |
a. 2. Prepare an estimated income statement, comparing operating results if 24,800 and 27,200 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 | ||
| 24,800 Units Manufactured | 27,200 Units Manufactured | |
| $ | $ | |
| Variable cost of goods sold: | ||
| $ | $ | |
| $ | $ | |
| $ | $ | |
| $ | $ | |
| 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 overhead cost over a number of units. Thus, the cost of goods sold is . The difference can also be explained by the amount of overhead cost included in the inventory.
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