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Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending January 31, Lemke Inc. estimated the following operating results: The company is evaluating a proposal to manufacture 21,600 units instead of 19,200 units, thus creating an ending inventory of 2,400 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. a. 1. Prepare an estimated income statement, comparing operating results if 19,200 and 21,600 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank. a. 2. Prepare an estimated income statement, comparing operating results if 19,200 and 21,600 units are manufactured in the variable costing format. If an amount box does not require an entry leave it blank. Lemke Inc. Variable Costing Income Statement For the Month Ending January 31 b. What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement? The increase in operating income under absorption costing is caused by the allocation of overhead cost over a the cost of goods sold is inventory

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