Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 21,000 tons of its granular. Because of this year's mild winter, projected demand for its product is only 16,800 tons. Based on projected production and sales of 16,800 tons, the company estimates the following income using absorption costing. Sales (16,800 tons at $80 per ton) Cost of goods sold (16,800 tons at $60 per ton) Gross profit Selling and administrative expenses Income $ 1,344,000 1,008,000 336,000 336,000 $ 0 Its product cost per ton follows and consists mainly of fixed overhead because its automated production process uses expensive equipment. Direct materials Direct labor Variable overhead Fixed overhead ($672,000/16,800 tons) $ 13 per ton $ 4 per ton $ 3 per ton $ 40 per ton Selling and administrative expenses consist of variable selling and administrative expenses of $6 per ton and fixed selling and administrative expenses of $235,200 per year. The company's president will not earn a bonus unless a positive income is reported. The controller mentions that because the company has large storage capacity, it can report a positive income by setting production at the usual 21,000 ton level even though it expects to sell only 16,800 tons. The president is surprised that the company can report Income by producing more without increasing sales. Required: 1. Prepare an income statement using absorption costing based on production of 21,000 tons and sales of 16,800 tons. Can the company report a positive income by increasing production to 21,000 tons and storing the 4,200 tons of excess production in inventory? 2. By how much does income increase by when producing 21,000 tons and storing 4,200 tons in inventory compared to only producing 16,800 tons? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare an income statement using absorption costing based on production of 21,000 tons and sales of 16,800 tons. Can the company report a positive income by increasing production to 21,000 tons and storing the 4,200 tons of excess production in inventory? Note: Round your answers to the nearest whole dollar. BLAZER CHEMICAL Income Statement (Absorption Costing)

Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 21,000 tons of its granular. Because of this year's mild winter, projected demand for its product is only 16,800 tons. Based on projected production and sales of 16,800 tons, the company estimates the following income using absorption costing. Sales (16,800 tons at $80 per ton) Cost of goods sold (16,800 tons at $60 per ton) Gross profit Selling and administrative expenses Income $ 1,344,000 1,008,000 336,000 336,000 $ 0 Its product cost per ton follows and consists mainly of fixed overhead because its automated production process uses expensive equipment. Direct materials Direct labor Variable overhead Fixed overhead ($672,000/16,800 tons) $ 13 per ton $ 4 per ton $ 3 per ton $ 40 per ton Selling and administrative expenses consist of variable selling and administrative expenses of $6 per ton and fixed selling and administrative expenses of $235,200 per year. The company's president will not earn a bonus unless a positive income is reported. The controller mentions that because the company has large storage capacity, it can report a positive income by setting production at the usual 21,000 ton level even though it expects to sell only 16,800 tons. The president is surprised that the company can report Income by producing more without increasing sales. Required: 1. Prepare an income statement using absorption costing based on production of 21,000 tons and sales of 16,800 tons. Can the company report a positive income by increasing production to 21,000 tons and storing the 4,200 tons of excess production in inventory? 2. By how much does income increase by when producing 21,000 tons and storing 4,200 tons in inventory compared to only producing 16,800 tons? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare an income statement using absorption costing based on production of 21,000 tons and sales of 16,800 tons. Can the company report a positive income by increasing production to 21,000 tons and storing the 4,200 tons of excess production in inventory? Note: Round your answers to the nearest whole dollar. BLAZER CHEMICAL Income Statement (Absorption Costing)

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 18E

See similar textbooks