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    Crystal Glass Company

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    Crystal Glass is a producer of heirloom-quality glassware. The company has a solid reputation and is widely regarded as a model corporate citizen. You have recently been hired as a staff accountant at a time when the company is experiencing rapid growth and is looking for a substantial increase in the line of credit at the local bank. They also are planning on trying to take the company public in the next three to five years. At the present time the company is a closely held family business. One of your first jobs is to review the current month's income statement for accuracy. The income statement appears as follows:

    Crystal Glass, Inc Statement of Income For the year ended October 31, 2009

    Sales revenue $12,008,450
    Variable costs $8,475,361
    Contribution margin $3,533,089
    Fixed costs $1,845,902
    Net Income $1,687,187

    You are given the following additional information:

    Variable Costs:
    Manufacturing $6,356,521
    S&A $2,118,840

    Fixed Costs:
    Manufacturing $1,476,722
    S&A $369,180
    Beginning inventory 250,000 units
    Production 2009 500,000 units
    Sales 2009 600,000 units

    A. What type of costing method is used by Crystal Glass?
    B. Does the method comply with GAAP? If not, what costing method should be used? What would net income be?
    C. Could the statements be misleading to the bank? Why or why not?
    D. What are your options as the new staff accountant? Who are the stakeholders impacted?

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    Solution Summary

    Defining the type of costing, Variable or Absorption, with comments, guidance, examples and clear explanation.