This posting addresses contribution/absorption approaches.
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Alaska 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
a. Prepare an income statement using the contribution approach.
b. Prepare an income statement using the absorption approach.
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Solution Summary
The solution shows the preparation of the income statements for Alaska Company using the contribution approach and the absorption approach.
Solution Preview
a. Prepare an income statement using the contribution approach.
Sales 1,250,000
Direct materials 500,000
Direct labor 300,000
Overhead 100,000
Selling and admin. ...
Purchase this Solution
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