income reporting, absorption costing, and managerial ethics Pool Pro produces and sells liquid chlorine for swimming pools. The company annually produces and sells 300,000 gallons of its chlorine. Because of this year's cool summer, projected demand for its product is only 250,000 gallons. Sales (250,000 gallons at $8 per gallon $2,000,000, cogs: 250,000@$6.80 per gallon, gross profit of $300,000 with an income of 0. Direct Materials is $1.00 per gallon, Direct Labor is .60 per gallon, variable overhead is .40 per gallon, and fixed overhead is ($1,200,000/250,000 gallons) = $4.80 per gallon. Selling and admin expenses of $100,000 per year. management will not earn a bonus unless a positive income is reported. they choose to produce 300,000 gallons even though they will only sell 250,000 gallons and storing the 50,000 gallons. My question is: Is my income statement correct? Income Statement under Absorption Costing Sales: ($250,000 * $8.00) 2,000,000 COGS: (250,000 * $4.00) 1,000,000 Gross Profit 1,000,000 Selling/Admin Exp($200,000 + $100,000) 300,000 Income $ 700,000
income reporting, absorption costing, and managerial ethics
Pool Pro produces and sells liquid chlorine for swimming pools. The company annually produces and sells 300,000 gallons of its chlorine. Because of this year's cool summer, projected demand for its product is only 250,000 gallons. Sales (250,000 gallons at $8 per gallon $2,000,000, cogs: 250,000@$6.80 per gallon, gross profit of $300,000 with an income of 0.
Direct Materials is $1.00 per gallon, Direct Labor is .60 per gallon, variable overhead is .40 per gallon, and fixed overhead is ($1,200,000/250,000 gallons) = $4.80 per gallon.
Selling and admin expenses of $100,000 per year. management will not earn a bonus unless a positive income is reported. they choose to produce 300,000 gallons even though they will only sell 250,000 gallons and storing the 50,000 gallons.
My question is: Is my income statement correct?
Income Statement under Absorption Costing
Sales: ($250,000 * $8.00) 2,000,000
COGS: (250,000 * $4.00) 1,000,000
Gross Profit 1,000,000
Selling/Admin Exp($200,000 + $100,000) 300,000
Income $ 700,000
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