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 (26,400 x $93)	$2,455,200
Manufacturing costs (26,400 units):
Direct materials	1,483,680
Direct labor	351,120
Variable factory overhead	163,680
Fixed factory overhead	195,360
Fixed selling and administrative expenses	53,100
Variable selling and administrative expenses	64,300

The company is evaluating a proposal to manufacture 29,600 units instead of 26,400 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 26,400 and 29,600 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank.

Marshall Inc.
Absorption Costing Income Statement
For the Month Ending October 31
	26,400 Units Manufactured	29,600 Units Manufactured
Sales
Cost of goods sold:
Cost of goods manufactured
Inventory, October 31
Total cost of goods sold
Gross profit
Selling and administrative expenses
Operating income

a. 2. Prepare an estimated income statement, comparing operating results if 26,400 and 29,600 units are manufactured in the variable costing format. If an amount box does not require an entry leave it blank.

Marshall Inc.
Variable Costing Income Statement
For the Month Ending October 31
	26,400 Units Manufactured	29,600 Units Manufactured
Sales
Variable cost of goods sold:
Variable cost of goods sold
Fixed costs:
Fixed factory overhead
Fixed selling and administrative expenses
Total fixed costs
Operating income