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 (17,600 x $60)	$1,056,000
Manufacturing costs (17,600 units):
Direct materials	642,400
Direct labor	151,360
Variable factory overhead	70,400
Fixed factory overhead	84,480
Fixed selling and administrative expenses	23,000
Variable selling and administrative expenses	27,800

The company is evaluating a proposal to manufacture 19,200 units instead of 17,600 units, thus creating an ending inventory of 1,600 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 17,600 and 19,200 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
	17,600 Units Manufactured	19,200 Units Manufactured
	$fill in the blank	$fill in the blank
Cost of goods sold:
	$fill in the blank 0bcec2f6b00201e_5	$fill in the blank 0bcec2f6b00201e_6
	fill in the blank 0bcec2f6b00201e_8	fill in the blank 0bcec2f6b00201e_9
	$fill in the blank	$fill in the blank
	$fill in the blank	$fill in the blank
	fill in the blank	fill in the blank
	$fill in the blank	$fill in the blank

a. 2. Prepare an estimated income statement, comparing operating results if 17,600 and 19,200 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
	17,600 Units Manufactured	19,200 Units Manufactured
	$fill in the blank	$fill in the blank
Variable cost of goods sold:
	$fill in the blank	$fill in the blank
	fill in the blank	fill in the blank
	$fill in the blank	$fill in the blank
	$fill in the blank	$fill in the blank
	fill in the blank	fill in the blank
	$fill in the blank	$fill in the blank
Fixed costs:
	$fill in the blank	$fill in the blank
	fill in the blank	fill in the blank
Total fixed costs	$fill in the blank	$fill in the blank
	$fill in the blank	$fill in the blank

b. What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement?

The increase in income from operations under absorption costing is caused by the allocation of ______ (fixed factory/variable) overhead cost over a _______ (fewer/larger) number of units. Thus, the cost of goods sold is _____(less/more) . The difference can also be explained by the amount of_____(fixed factory/variable) overhead cost included in the_____ ( beginning/ending) inventory.