Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results: 1 Sales (28,800 × $80) $2,304,000.00 2 Manufacturing costs (28,800 units): 3 Direct materials 1,152,000.00 4 Direct labor 259,200.00 5 Variable factory overhead 172,800.00 6 Fixed factory overhead 244,800.00 7 Fixed selling and administrative expenses 29,400.00 8 Variable selling and administrative expenses 34,500.00 The company is evaluating a proposal to manufacture 36,000 units instead of 28,800 units, thus creating an ending inventory of 7,200 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. Required: a. Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if required. Round your unit cost to two decimal places and final answers to the nearest dollar amount. Enter all amounts as positive numbers. b. What is the reason for the difference in income from operations reported for the two levels of production by the absorption costing income statement?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results:

1	Sales (28,800 × $80)	$2,304,000.00
2	Manufacturing costs (28,800 units):
3	Direct materials	1,152,000.00
4	Direct labor	259,200.00
5	Variable factory overhead	172,800.00
6	Fixed factory overhead	244,800.00
7	Fixed selling and administrative expenses	29,400.00
8	Variable selling and administrative expenses	34,500.00

The company is evaluating a proposal to manufacture 36,000 units instead of 28,800 units, thus creating an ending inventory of 7,200 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.

Required:

Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if required. Round your unit cost to two decimal places and final answers to the nearest dollar amount. Enter all amounts as positive numbers.

What is the reason for the difference in income from operations reported for the two levels of production by the absorption costing income statement?

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