Instructions 1 Sales (28,800 x $75) 2Manufacturing costs (28,800 units) 3Direct
ID: 2342136 • Letter: I
Question
Instructions 1 Sales (28,800 x $75) 2Manufacturing costs (28,800 units) 3Direct materials 4 Direct labor 5 Variable factory overhead 6 Fixed factory overhead 7Fixed selling and administrative expenses 8 Variable slling and administrative expenses 2,160,000.00 1,324,800.00 316,800.00 144,000.00 216,000.00 29,400.00 35,500.00 The company is evaluating a proposal to manufacture 36,000 units instead of 28,800 units, thus creating an ending inventory of 7,200 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. Required: A. Prepare an estimated income statement, comparing operating resuits if 28,800 and 36,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading, "Less", "Plus" or colons (:) will automatically appearrequired. 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?Explanation / Answer
A
B.
the change is due to the fixed factory overhead which is now apportion to more number of units manufactured in the 2nd level.
Absorption cost approach Absorption cost approach Production - 28,800 units Production - 36,000 units Sale - 28,800 units Sale - 28,800 units Gross sales ($75 per unit) $ 2,160,000.00 $ 2,160,000.00 Cost of goods sold: cost of goods mfg $ 2,001,600.00 $ 2,448,000.00 less ending inventory $ - $ (489,600.00) Cost of goods sold: $ 2,001,600.00 $ 1,958,400.00 Gross profit (A) $ 158,400.00 $ 201,600.00 Less:- Selling and admin expenses (B) $ 64,900.00 $ 64,900.00 Net Income (C = A-B) $ 93,500.00 $ 136,700.00 Variable costing Estimated income statement Production - 28,800 units Production - 36,000 units Sale - 28,800 units Sale - 28,800 units Gross sales ($75 per unit) (A) $ 2,160,000.00 $ 2,160,000.00 variable cost of goods sold: cost of goods mfg ($62 per unit) $ 1,785,600.00 $ 2,232,000.00 less ending inventory $ - $ (489,600.00) variable cost of goods sold: (B) $ 1,785,600.00 $ 1,742,400.00 Planned cont margin (C )= (A-B) $ 374,400.00 $ 417,600.00 variable selling and admin exp $ 35,500.00 $ 35,500.00 Contribution margin $ 338,900.00 $ 382,100.00 Fixed selling and admin exp $ 29,400.00 $ 29,400.00 fixed factory overhead $ 216,000.00 $ 216,000.00 Total fixed costs (D) $ 245,400.00 $ 245,400.00 Income from operations $ 93,500.00 $ 136,700.00