Prior to the first month of operations ending July 31, 2016, Muzenski Industries
ID: 2421398 • Letter: P
Question
Prior to the first month of operations ending July 31, 2016, Muzenski Industries Inc. estimated the following operating results:
1
Sales (28,800 × $75)
2,160,000.00
2
Manufacturing costs (28,800 units):
3
Direct materials
1,267,200.00
4
Direct labor
230,400.00
5
Variable factory overhead
115,200.00
6
Fixed factory overhead
224,640.00
7
Fixed selling and administrative expenses
28,800.00
8
Variable selling and administrative expenses
36,000.00
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:
Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in 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 appear if required.
Question not attempted.
Score: 0/143
Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in 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 appear if required.
Question not attempted.
Score: 0/143
Muzenski Industries Inc.
Variable Costing Estimated Income Statement
1
28,800 Units Manufactured
36,000 Units Manufactured
2
3
Variable cost of goods sold:
4
5
6
7
8
9
10
11
12
13
14
Points:
0 / 34
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Recall that under variable costing, fixed factory overhead costs are not a part of the cost of goods manufactured. Instead, fixed factory overhead costs are treated as a period expense. Therefore, recast the income statement such that Net sales - Variable cost of products sold = Manufacturing margin; Manufacturing margin - variable selling and administrative expenses = Contribution margin; Contribution margin - (Fixed manufacturing costs + Fixed selling and administrative expenses) = Income from operations. Remember that the variable cost of manufacturing will be the same at both levels after adjusting for ending inventory. Thus manufacturing margin should also be the same for both levels.
1
Sales (28,800 × $75)
2,160,000.00
2
Manufacturing costs (28,800 units):
3
Direct materials
1,267,200.00
4
Direct labor
230,400.00
5
Variable factory overhead
115,200.00
6
Fixed factory overhead
224,640.00
7
Fixed selling and administrative expenses
28,800.00
8
Variable selling and administrative expenses
36,000.00
Explanation / Answer
Muzenski Industries Inc.
Variable costing estimated income statement:
Manufacturing margin
Absorption costing income statement:
The difference of $ 44,928 is because of fixed manufacturing overhead cost @ $ 6.24 per unit in 7,200 units of ending inventory.
28,800 units manufactured 36,000 units manufactured Net sales 2,160,000 2,160,000 Cost of goods manufactured @ $ 56 per unit 1,612,800 2,016,000 Less ending inventory Nil 403,200 Variable cost of goods sold 1,612,800 1,612,800Manufacturing margin
547,200 547,200 Less variable selling and administrative expenses 36,000 36,000 Contribution margin 511,200 511,200 Fixed manufacturing cost 224,640 224,640 Fixed selling and administrative expenses 28,800 28,800 Income from operations 257,760 257,760Related Questions
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