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 (27,200 x $96) Manufacturing costs (27,200 units): $2,611,200 Direct materials 1,572,160 Direct labor 372,640 Variable factory overhead 174,080 Fixed factory overhead 206,720 Fixed selling and administrative expenses 56,200 Variable selling and administrative expenses 68,000 The company is evaluating a proposal to manufacture 30,400 units instead of 27,200 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 27,200 and 30,400 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank. Lemke Inc. Absorption Costing Income Statement For the Month Ending January 31 Line Item Description Sales Cost of goods sold: 27,200 Units Manufactured 2,611,200 30,400 Units Manufactured 2,611,200 Cost of goods manufactured 2,325,600 $ 2,303,840 X 285,600 X 307,360 X 56,200 X $ 56,200 X 68,000 X $ 68,000 X 161,400 X 183,160 X LA a. 2. Prepare an estimated income statement, comparing operating results if 27,200 and 30,400 units are manufactured in the variable costing format. If an amount box does not require an entry leave it blank. Lemke Inc. Variable Costing Income Statement For the Month Ending January 31 Line Item Description Sales Variable cost of goods sold: Inventory X Fixed factory overhead Inventory Contribution margin x Manufacturing margin x Fixed factory overhead Fixed costs: Fixed inventory Fixed selling and administrative expenses Total fixed costs Operating income 27,200 Units 30,400 Units Manufactured Manufactured 000000000 10000000 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 overhead cost over a units. Thus, the cost of goods sold is inventory. The difference can also be explained by the amount of number of overhead cost included in the