EX 21-8 Estimated income statements, using absorption and variable costing Obj. 1,2 Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results: Sales (40,000 x $90) 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.... $3,600,000 1,440,000 480,000 240,000 120,000 75,000 200,000 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. Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement? b.
EX 21-8 Estimated income statements, using absorption and variable costing Obj. 1,2 Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results: Sales (40,000 x $90) 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.... $3,600,000 1,440,000 480,000 240,000 120,000 75,000 200,000 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. Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement? b.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:EX 21-8
Estimated income statements, using absorption and variable costing Obj. 1,2
Prior to the first month of operations ending October 31, Marshall Inc. estimated the following
operating results:
Sales (40,000 x $90)
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....
$3,600,000
1,440,000
480,000
240,000
120,000
75,000
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. Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 units
are manufactured in (1) the absorption costing format and (2) the variable costing format.
What is the reason for the difference in operating income reported for the two
levels of production by the absorption costing income statement?
b.
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