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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 x $90) $3,600,000 Manufacturing costs (40,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Fixed selling and administrative expenses Variable selling and administrative expenses The company is evaluating a proposal to manufacture 50,000 units instead of 40,000 units, thus creating an ending inventory of 10,000 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 40,000 and 50,000 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank. Sales Cost of goods sold: Cost of goods manufactured Inventory, October 31 Total cost of goods sold Gross profit ✓ ✓ ✓ 1,440,000 480,000 240,000 120,000 75,000 200,000 Marshall Inc. Absorption Costing Income Statement For the Month Ending October 31 40,000 Units Manufactured $ ✓ 3,600,000 $ ✓ 2,280,000 2,280,000 $ ✓ 1,320,000 50,000 Units Manufactured $ ✓ 3,600,000 $ √ 2,820,000 564,000 $ ✓ 2,256,000 $ ✓ 1,344,000

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 x $90) $3,600,000 Manufacturing costs (40,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Fixed selling and administrative expenses Variable selling and administrative expenses The company is evaluating a proposal to manufacture 50,000 units instead of 40,000 units, thus creating an ending inventory of 10,000 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 40,000 and 50,000 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank. Sales Cost of goods sold: Cost of goods manufactured Inventory, October 31 Total cost of goods sold Gross profit ✓ ✓ ✓ 1,440,000 480,000 240,000 120,000 75,000 200,000 Marshall Inc. Absorption Costing Income Statement For the Month Ending October 31 40,000 Units Manufactured $ ✓ 3,600,000 $ ✓ 2,280,000 2,280,000 $ ✓ 1,320,000 50,000 Units Manufactured $ ✓ 3,600,000 $ √ 2,820,000 564,000 $ ✓ 2,256,000 $ ✓ 1,344,000

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter7: Variable Costing For Management analysis
Section: Chapter Questions
Problem 8E: Estimated income statements, using absorption and variable costing Prior to the first month of...
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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 x $90) $3,600,000 Manufacturing costs (40,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Fixed selling and administrative expenses Variable selling and administrative expenses The company is evaluating a proposal to manufacture 50,000 units instead of 40,000 units, thus creating an ending inventory of 10,000 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 40,000 and 50,000 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank. Sales Cost of goods sold: Cost of goods manufactured Inventory, October 31 Total cost of goods sold Gross profit ✓ ✓ ✓ 1,440,000 480,000 240,000 120,000 75,000 200,000 Marshall Inc. Absorption Costing Income Statement For the Month Ending October 31 40,000 Units Manufactured $ ✓ 3,600,000 $ ✓ 2,280,000 2,280,000 $ ✓ 1,320,000 50,000 Units Manufactured $ ✓ 3,600,000 $ √ 2,820,000 564,000 $ ✓ 2,256,000 $ ✓ 1,344,000
Transcribed Image Text: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 x $90) $3,600,000 Manufacturing costs (40,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Fixed selling and administrative expenses Variable selling and administrative expenses The company is evaluating a proposal to manufacture 50,000 units instead of 40,000 units, thus creating an ending inventory of 10,000 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 40,000 and 50,000 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank. Sales Cost of goods sold: Cost of goods manufactured Inventory, October 31 Total cost of goods sold Gross profit ✓ ✓ ✓ 1,440,000 480,000 240,000 120,000 75,000 200,000 Marshall Inc. Absorption Costing Income Statement For the Month Ending October 31 40,000 Units Manufactured $ ✓ 3,600,000 $ ✓ 2,280,000 2,280,000 $ ✓ 1,320,000 50,000 Units Manufactured $ ✓ 3,600,000 $ √ 2,820,000 564,000 $ ✓ 2,256,000 $ ✓ 1,344,000
Fixed costs: Fixed factory overhead Variable cost of goods sold X Total fixed costs Operating income $ ✓ 120,000 75,000 $ ✓ 195,000 $ ✓ 1,045,000 $ ✓ 120,000 75,000 $ ✓ 195,000 $ X 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 larger ✓ 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 ending ✓
Transcribed Image Text:Fixed costs: Fixed factory overhead Variable cost of goods sold X Total fixed costs Operating income $ ✓ 120,000 75,000 $ ✓ 195,000 $ ✓ 1,045,000 $ ✓ 120,000 75,000 $ ✓ 195,000 $ X 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 larger ✓ 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 ending ✓
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