Estimated Income Statements, using Absorption and Variable Costing

Prior to the first month of operations ending January $31,$ Lemke Inc. estimated the following operating results:

Sales $(24,000$$$83)$

$$1,992,000$

Manufacturing costs $(24,000$ units$)$:

Direct materials

Direct labor

Variable factory overhead

Fixed factory overhead

$1,204,800$

$285,600$

$132,000$

Fixed selling and administrative expenses $,43,100$

Variable selling and administrative $,52,100$

expenses

Lemke Inc.

Absorption Costing Income Statement

For the Month Ending January $31$

Lemke Inc.

Variable Costing Income Statement

For the Month Ending January $31$

Fixed costs:

s

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 operating income under absorption costing is caused by the allocation of number of units. Thus, the cost of goods sold is $.$ The difference can also be explained by the amount of overhead cost included in the inventory.