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Prior to the first month of operations ending January 31, Lemke Inc. estimated the following operating results:

Line Item Description	Amount
Sales (20,000 $71)	$1,420,000
Manufacturing costs (20,000 units):
Direct materials	852,000
Direct labor	202,000
Variable factory overhead	94,000
Fixed factory overhead	112,000
Fixed selling and administrative expenses	30,500
Variable selling and administrative expenses	36,800

The company is evaluating a proposal to manufacture 22,400 units instead of 20,000 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.

Question Content Area

a. 1. Prepare an estimated income statement, comparing operating results if 20,000 and 22,400 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank.

Lemke Inc. Absorption Costing Income Statement For the Month Ending January 31

Line Item Description	20,000 Units Manufactured	22,400 Units Manufactured
Contribution marginFixed manufacturing costsInventory, January 31SalesSelling and administrative expensesContribution margin	$Contribution margin	$Contribution margin
Cost of goods sold:
Cost of goods manufacturedCost of goods soldFixed manufacturing costsInventory, January 31SalesCost of goods manufactured	$Cost of goods manufactured	$Cost of goods manufactured
Contribution marginCost of goods manufacturedFixed manufacturing costsInventory, January 31Selling and administrative expensesContribution margin	Contribution margin	Contribution margin
SalesSelling and administrative expensesTotal cost of goods manufacturedTotal cost of goods soldTotal fixed manufacturing costsSales	$Sales	$Sales
Fixed manufacturing costsFixed selling and administrative expensesGross profitInventory, January 31SalesFixed manufacturing costs	$Fixed manufacturing costs	$Fixed manufacturing costs
Contribution marginCost of goods soldInventory, January 31SalesSelling and administrative expensesContribution margin	Contribution margin	Contribution margin
Operating incomeOperating lossOperating income	$Operating income	$Operating income

a. 2. Prepare an estimated income statement, comparing operating results if 20,000 and 22,400 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

Line Item Description	20,000 Units Manufactured	22,400 Units Manufactured
Contribution marginFixed factory overheadSalesVariable cost of goods manufacturedVariable cost of goods soldSales	$Sales	$Sales
Variable cost of goods sold:
InventorySalesVariable cost of goods manufacturedVariable cost of goods soldVariable selling and administrative expensesVariable cost of goods manufactured	$Variable cost of goods manufactured	$Variable cost of goods manufactured
Contribution marginFixed factory overheadInventory, January 31Manufacturing marginSalesInventory, January 31	Inventory, January 31	Inventory, January 31
Contribution marginInventoryTotal variable cost of goods manufacturedTotal variable cost of goods soldTotal variable selling and administrative expensesTotal variable cost of goods sold	$Total variable cost of goods sold	$Total variable cost of goods sold
Contribution marginFixed factory overheadManufacturing marginSalesVariable cost of goods manufacturedManufacturing margin	$Manufacturing margin	$Manufacturing margin
Contribution marginFixed factory overheadManufacturing marginVariable cost of goods soldVariable selling and administrative expensesVariable selling and administrative expenses	Variable selling and administrative expenses	Variable selling and administrative expenses
Contribution marginFixed factory overheadManufacturing marginSalesVariable cost of goods manufacturedContribution margin	$Contribution margin	$Contribution margin
Fixed costs:
Fixed factory overheadFixed inventoryFixed manufacturing marginFixed salesVariable selling and administrative expensesFixed factory overhead	$Fixed factory overhead	$Fixed factory overhead
Fixed contribution marginFixed inventoryFixed selling and administrative expensesVariable cost of goods soldVariable selling and administrative expensesFixed selling and administrative expenses	Fixed selling and administrative expenses	Fixed selling and administrative expenses
Total fixed costs	$Total fixed costs	$Total fixed costs
Operating incomeOperating lossOperating income	$Operating income	$Operating income

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