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problem: The Independence Corporation had the following manufacturing information for the year 2006 [in thousands of dollars].

Starting and ending inventories none

Direct material used $400

Direct labor 330

Supplies 20

Utilities-variable portion 40

Depreciation 200

Property taxes 20

Supervisory salaries 50

Utilities-fixed portion 12

Indirect labor-variable portion 90

Indirect labor-fixed portion 40

Selling expenses were $300,000 [including $60,000 that was variable] & general administrative expenses were $144,000 [including $23,000 that was variable]. Sales were $1.8 million. 

Direct labor & supplies are regarded as variable costs.

[A] Make two (2) income statements, one using the contribution approach & one using the absorption approach.

[B] Assume that all variable costs fluctuate directly in proportion to sales & that fixed costs are unaffected over a very wide range of sales. Estimate, what would operating income have been if sales had been $2.0 million instead of $1.8 million? Which income statement did you use to obtain your answer? describe your answer.

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  • Category:- Cost Accounting
  • Reference No.:- M923258

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