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 (25,600 x $91) $2,329,600 Manufacturing costs (25,600 units): Direct materials 1,400,320 Direct labor 332,800 Variable factory overhead 153,600 Fixed factory overhead 184,320 Fixed selling and administrative expenses 50,100 Variable selling and administrative expenses 60,600 The company is evaluating a proposal to manufacture 28,800 units instead of 25,600 units, thus creating an ending inventory of 3,200 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 25,600 and 28,800 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank.
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 Absorption and Variable Costing
Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results:
| Sales (25,600 x $91) | $2,329,600 | |
| Manufacturing costs (25,600 units): | ||
| Direct materials | 1,400,320 | |
| Direct labor | 332,800 | |
| Variable factory overhead | 153,600 | |
| Fixed factory overhead | 184,320 | |
| Fixed selling and administrative expenses | 50,100 | |
| Variable selling and administrative expenses | 60,600 |
The company is evaluating a proposal to manufacture 28,800 units instead of 25,600 units, thus creating an ending inventory of 3,200 units. Manufacturing the additional units will not change sales, unit variable
a. 1. Prepare an estimated income statement, comparing operating results if 25,600 and 28,800 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank.
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