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Income statement using the contribution approach

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

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