Reference no: EM132685846
Problem - Estimated Income Statements, using Absorption and Variable Costing
Prior to the first month of operations ending April 30, 2012, Jadelis Industries Inc. estimated the following operating results:
Sales (36,000 × $124.00) $4,464,000
Manufacturing costs (36,000 units):
Direct materials 2,736,000
Direct labor 648,000
Variable factory overhead 288,000
Fixed factory overhead 360,000
Fixed selling and administrative expenses 49,000
Variable selling and administrative expenses 59,200
The company is evaluating a proposal to manufacture 45,000 units instead of 36,000 units, thus creating an ending inventory of 9,000 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 results if 36,000 and 45,000 units are manufactured in (1) the absorption costing format. (2) the variable costing format.
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?