Prior to the first month of operations ending October 31, Marshall Inc. estimate
ID: 2508998 • Letter: P
Question
Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results:
1
Sales (28,800 × $90)
$2,592,000.00
2
Manufacturing costs (28,800 units):
3
Direct materials
1,209,600.00
4
Direct labor
288,000.00
5
Variable factory overhead
115,200.00
6
Fixed factory overhead
221,760.00
7
Fixed selling and administrative expenses
29,400.00
8
Variable selling and administrative expenses
35,400.00
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:
1
Sales (28,800 × $90)
$2,592,000.00
2
Manufacturing costs (28,800 units):
3
Direct materials
1,209,600.00
4
Direct labor
288,000.00
5
Variable factory overhead
115,200.00
6
Fixed factory overhead
221,760.00
7
Fixed selling and administrative expenses
29,400.00
8
Variable selling and administrative expenses
35,400.00
Explanation / Answer
Marshall Inc. Unit Product Cost & Sold Present Propsoal Beginning Inventory 0 Production 28800 36000 Sales 28800 28800 Ending Inventory 0 7200 Unit Product Cost under absorption costing Present Proposal Direct Material=($1209600/28800) $ 42.00 $ 42.00 Direct Labor=($288000/28800) $ 10.00 $ 10.00 Variable Manufacturing Overhead=($115200/28800) $ 4.00 $ 4.00 Fixed Manufacturing Overhead=($221760/28800 Units) in Present,($221760/36000) in Proposal $ 7.70 $ 6.16 Unit Product Cost $ 63.70 $ 62.16 Income Statement under Absorption costing Year Present Proposal Sales=(28800*$90) $ 2,592,000.00 $ 2,592,000.00 Cost of goods sold(28800*63.70) in Present and (28800*$62.16) in Proposal $ 1,834,560.00 $ 1,790,208.00 Gross Margin $ 757,440.00 $ 801,792.00 Less: Selling & Administerative Expenses=($29400+$35400) $ 64,800.00 $ 64,800.00 Net Operating Income $ 692,640.00 $ 736,992.00 Present Proposal Direct Material $ 42.00 $ 42.00 Direct Labor $ 10.00 $ 10.00 Variable Manufacturing Overhead $ 4.00 $ 4.00 Unit Product Cost $ 56.00 $ 56.00 Income Statement under Variable Costing Present Proposed Sales=(28800*$90) $ 2,592,000.00 $ 2,592,000.00 Variable Expenses Variable Cost of goods sold(28800*$56) $ 1,612,800.00 $ 1,612,800.00 Variable Selling & Administerative expenses $ 35,400.00 $ 35,400.00 Cotribution Margin $ 943,800.00 $ 943,800.00 Fixed Expenses Fixed Manufacturing Expenses $ 221,760.00 $ 221,760.00 Fixed Selling & Administerative Expenses $ 29,400.00 $ 29,400.00 Net Operating Profit $ 692,640.00 $ 692,640.00 Reconciliation Year Present Proposed Net Income under Absorption Costing $ 692,640.00 $ 692,640.00 Add: Fixed Manufacturing Overhead Cost in Inventory of Proposal=(Stock * Fixed Manufacturing Cost)=7200*$6.16 $ 44,352.00 Net Income underAbsorption Costing $ 692,640.00 $ 736,992.00 Difference arises dur tofixed cost of Inventory which is in hand(36000-28800)*$6.16
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