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: $2,329,600 Sales (25,600 x $91) Manufacturing costs (25,600 units): Direct materials 1,400,320 332,800 Direct labor Variable factory overhead Fixed factory overhead 153,600 184,320 50,100 Fixed selling and administrative expenses 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 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. 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 or enter"0" Marshall Inc. Absorption Costing Income Statement For the Month Ending October 31 25,600 Units Manufactured $2,329,600 Sales 28,800 Units Manufactured $ 2,329,600 Cost of goods sold: Cost of goods manufactured $ 2,071,040 Inventory, October 31 $ 2,329,920 320 x $2,329,600 x Total cost of goods sold $2,071,040 s 258,560 Gross profit Selling and administrative expenses 110,700 Income from operations $ 147,860 a. 2. Prepare an estimated income statement, comparing operating results if 25,600 and 28,800 units are manufactured in the variable costing format. If an amount box does not require an entry leave it blank or enter"0". Marshall Inc. Variable Costing Income Statement For the Month Ending October 31 25,600 Units Manufactured 28,800 Units Manufactured Variable cost of goods sold: Fixed costs: Total fixed costs 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? number of units. Thus, the cost of goods sold is The The increase in income from operations under absorption costing is caused by the allocation of difference can also be explained by the amount of overhead cost included in the overhead cost over a inventory