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    Income statement using the contribution approach

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    1.Smith Company has been producing and selling 100,000 units per year. They have excess capacity. The following budget was prepared for the next year:

    Selling price per unit $12.50
    Variable cost per unit:
    Direct materials $5.00
    Direct labor 3.00
    Overhead 1.00
    Selling and administrative .25

    Fixed costs in total:
    Overhead $80,000
    Selling and administrative 35,000

    Required:
    a.Prepare an income statement using the contribution approach.

    b.Prepare an income statement using the absorption approach.

    2.Carter Company, a manufacturer of windows, has prepared the following list of accounts and their balances:

    Advertising $7,200
    Assemblers' wages 16,840
    Depreciation of machinery 1,840
    Factory utilities 11,120
    Lathe operators' wages 13,280
    Machinery repairs 4,520
    Corporate office salaries 22,760
    Purchases of glue 320
    Purchases of nails 160
    Purchases of oak 50,000
    Purchases of pine 19,800
    Supervisors' salaries 38,280

    There were no beginning or ending inventories. Calculate the following:
    a.Direct materials used

    b.Direct labor

    c.Factory overhead

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    https://brainmass.com/business/finance/income-statement-using-the-contribution-approach-187061

    Solution Preview

    1.Smith Company has been producing and selling 100,000 units per year. They have excess capacity. The following budget was prepared for the next year:

    Selling price per unit $12.50
    Variable cost per unit:
    Direct materials $5.00
    Direct labor 3.00
    Overhead 1.00
    Selling and administrative .25 ...

    Solution Summary

    Response explains the prepration of Income statement using the contribution approach and absorption approach

    $2.19

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