Estimated Income Statements using Absorption and Variable Co

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 (28,800 x $101) Manufacturing costs (28,800 units): $2,908,800 Direct materials Direct labor Variable factory overhead Fixed factory overhead Fixed selling and administrative expenses Variable selling and administrative expenses 1,751,040 414,720 192,960 230,400 62,700 75,800 The company is evaluating a proposal to manufacture 32,000 units instead of 28,800 units, thus creating an Inventory, October 31 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

Solution

Absorption costing income Statement 28800 units 32000 units manufactured manufactured Sales revenue 2908800 2908800 Cost of goods sold Cost of goods manufactured 2589120 2851200 (1751040+414720+192960)/28800*32000+ 230400 Inventory Oct31 0 285120 (2851200/32000*3200) Total cost of goods sold 2589120 2566080 Gross profit 319680 342720 Selling and admin expense 138500 138500 Income from operations 181180 204220 Variable costing Income Statement 28800 units 32000 units manufactured manufactured Sales revenue 2908800 2908800 Variable cost of goods sold Variable cost of goods manufactured 2358720 2620800 Inventory Oct31 0 262080 Total varriable cost of goods sold 2358720 2358720 Manufacturing margin 550080 550080 variable selling expense 75800 75800 Contribution margin 474280 474280 Fixed cost Fixed manufacturing cost 230400 230400 Fixed selling and admin cost 62700 62700 Total fixed cost 293100 293100 Income from operations 181180 181180