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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 × $90) $3,600,000 Manufacturing costs (40,000 units): Direct materials 1,440,000 Direct labor 480,000 Variable factory overhead 240,000 Fixed factory overhead 120,000 Fixed selling and administrative expenses 75,000 Variable selling and administrative expenses 200,000 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.

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 × $90) $3,600,000 Manufacturing costs (40,000 units): Direct materials 1,440,000 Direct labor 480,000 Variable factory overhead 240,000 Fixed factory overhead 120,000 Fixed selling and administrative expenses 75,000 Variable selling and administrative expenses 200,000 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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 × $90) $3,600,000 Manufacturing costs (40,000 units): Direct materials 1,440,000 Direct labor 480,000 Variable factory overhead 240,000 Fixed factory overhead 120,000 Fixed selling and administrative expenses 75,000 Variable selling and administrative expenses 200,000 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. Marshall Inc. Absorption Costing Income Statement For the Month Ending October 31 40,000 Units Manufactured 50,000 Units Manufactured Sales v 3,600,000 $4 3,600,000 Cost of goods sold: Cost of goods manufactured v 2,280,000 2,820,000 Inventory, October 31 V 564,000 Total cost of goods sold v 2,280,000 2,256,000 Gross profit 1,320,000 24 1,344,000 Selling and administrative expenses 275,000 275,000 Operating income v 1,045,000 1,069,000
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 × $90) $3,600,000 Manufacturing costs (40,000 units): Direct materials 1,440,000 Direct labor 480,000 Variable factory overhead 240,000 Fixed factory overhead 120,000 Fixed selling and administrative expenses 75,000 Variable selling and administrative expenses 200,000 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. Marshall Inc. Absorption Costing Income Statement For the Month Ending October 31 40,000 Units Manufactured 50,000 Units Manufactured Sales v 3,600,000 $4 3,600,000 Cost of goods sold: Cost of goods manufactured v 2,280,000 2,820,000 Inventory, October 31 V 564,000 Total cost of goods sold v 2,280,000 2,256,000 Gross profit 1,320,000 24 1,344,000 Selling and administrative expenses 275,000 275,000 Operating income v 1,045,000 1,069,000
a. 2. Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 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 40,000 Units Manufactured 50,000 Units Manufactured Sales v $ Variable cost of goods sold: Variable cost of goods manufactured: $ Inventory, October 31 v Total variable cost of goods sold v %24 $ Manufacturing margin v %2$ %4 Variable selling and administrative expenses v Contribution margin v $ Fixed costs: Fixed factory overhead v $ Fixed selling and administrative expenses Total fixed costs Operating income v $4 Feedback 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 v overhead cost over a larger v number of units. Thus, the cost of goods sold is less v . The difference can also be explained by the amount of fixed factory v overhead cost included in the ending v inventory.
Transcribed Image Text:a. 2. Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 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 40,000 Units Manufactured 50,000 Units Manufactured Sales v $ Variable cost of goods sold: Variable cost of goods manufactured: $ Inventory, October 31 v Total variable cost of goods sold v %24 $ Manufacturing margin v %2$ %4 Variable selling and administrative expenses v Contribution margin v $ Fixed costs: Fixed factory overhead v $ Fixed selling and administrative expenses Total fixed costs Operating income v $4 Feedback 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 v overhead cost over a larger v number of units. Thus, the cost of goods sold is less v . The difference can also be explained by the amount of fixed factory v overhead cost included in the ending v inventory.
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