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.

Question

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 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 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 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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