Blazer Chemical produces and sells an Ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 19,000 tons of its granular. Because of this year's mild winter, projected demand for its product is only 15,200 tons. Based on projected production and sales of 15,200 tons, the company estimates the following income using absorption costing Sales (15,200 tons at $80 per ton) Cost of goods sold (15,200 tons at $60 per ton) Gross profit Selling and administrative expenses) Incone $1,216,000 912,000 304,000 304,000 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 ($608,000/15,200 tons) $13 per ton $ 4 per ton $3 per ton $40 per toni Selling and administrative expenses consist of variable selling and administrative expenses of $6 per ton and fixed selling and administrative expenses of $212,800 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 19,000 ton level even though it expects to sell only 15,200 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 19,000 tons and sales of 15,200 tons. Can the company report a positive Income by increasing production to 19,000 tons and storing the 3,800 tons of excess production in Inventory? 2. By how much does Income Increase by when producing 19.000 tons and storing 3,800 tons in Inventory compared to only producing 15,200 tons? Complete this question by entering your answers in the tabs below.
Blazer Chemical produces and sells an Ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 19,000 tons of its granular. Because of this year's mild winter, projected demand for its product is only 15,200 tons. Based on projected production and sales of 15,200 tons, the company estimates the following income using absorption costing Sales (15,200 tons at $80 per ton) Cost of goods sold (15,200 tons at $60 per ton) Gross profit Selling and administrative expenses) Incone $1,216,000 912,000 304,000 304,000 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 ($608,000/15,200 tons) $13 per ton $ 4 per ton $3 per ton $40 per toni Selling and administrative expenses consist of variable selling and administrative expenses of $6 per ton and fixed selling and administrative expenses of $212,800 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 19,000 ton level even though it expects to sell only 15,200 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 19,000 tons and sales of 15,200 tons. Can the company report a positive Income by increasing production to 19,000 tons and storing the 3,800 tons of excess production in Inventory? 2. By how much does Income Increase by when producing 19.000 tons and storing 3,800 tons in Inventory compared to only producing 15,200 tons? Complete this question by entering your answers in the tabs below.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Blazer Chemical produces and sells an Ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells
19,000 tons of its granular. Because of this year's mild winter, projected demand for its product is only 15,200 tons. Based on projected
production and sales of 15,200 tons, the company estimates the following income using absorption costing.
Sales (15,200 tons at $80 per ton)
Cost of goods sold (15,288 tons at $60 per ton)
Gross profit
Selling and administrative expenses)
Incone
$ 1,216,000
912,000
304,000
384,000
$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
$13 per ton
$ 4 per ton
Fixed overhead ($608,000/15,200 tons).
$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 $212,800 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 19,000 ton level even though it expects to sell only 15,200 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 19,000 tons and sales of 15,200 tons. Can the
company report a positive income by increasing production to 19,000 tons and storing the 3,800 tons of excess production in
inventory?
2. By how much does Income Increase by when producing 19.000 tons and storing 3,800 tons In Inventory compared to only
producing 15,200 tons?
Complete this question by entering your answers in the tabs below.
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