Problem - Estimated Income Statements

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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?

Reference no: EM132685846

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