Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells20,000 tons of its granular. Because of this year's mild winter, projected demand for its product is only 15,000 tons. Based onprojected production and sales of 15,000 tons, the company estimates the following income using absorption costing.Sales (15,000 tons at $80 per ton)Cost of goods sold (15,000 tons at $60 per ton)Gross profitSelling and administrative expensesIncomeIts product cost per ton follows and consists mainly of fixed overhead because its automated production process uses expensiveequipment.Direct materials.Direct laborVariable overheadFixed overhead ($600,000/15,000 tons)Selling and administrative expenses consist of variable selling and administrative expenses of $6 per ton and fixed selling andadministrative expenses of $210,000 per year. The company's president will not earn a bonus unless a positive income is reported.The controller mentions that because the company has large storage capacity, it can report a positive income by setting production atthe usual 20,000 ton level even though it expects to sell only 15,000 tons. The president is surprised that the company can reportincome by producing more without increasing sales.Required:1. Prepare an income statement using absorption costing based on production of 20,000 tons and sales of 15,000 tons. Can thecompany report a positive income by increasing production to 20,000 tons and storing the 5,000 tons of excess production ininventory?2. By how much does income increase by when producing 20,000 tons and storing 5,000 tons in inventory compared to onlyproducing 15,000 tons?Complete this question by entering your answers in the tabs below.Required 1 Required 2$ 13 per ton$ 4 per ton$3 per ton$ 40 per tonBLAZER CHEMICALIncome Statement (Absorption Costing)Prepare an income statement using absorption costing based on production of 20,000 tons and sales of 15,000 tons. Can thecompany report a positive income by increasing production to 20,000 tons and storing the 5,000 tons of excess production ininventory?Did the company report a positive income?$ 1,200,000900,000300,000300,000$< Required 100Required 2 > Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells20,000 tons of its granular. Because of this year's mild winter, projected demand for its product is only 15,000 tons. Based onprojected production and sales of 15,000 tons, the company estimates the following income using absorption costing.Sales (15,000 tons at $80 per ton)Cost of goods sold (15,000 tons at $60 per ton)Gross profitSelling and administrative expensesIncomeIts product cost per ton follows and consists mainly of fixed overhead because its automated production process uses expensiveequipment.Direct materials.Direct laborVariable overheadFixed overhead ($600,000/15,000 tons)$ 13 per ton$ 4 per ton$3 per ton$ 40 per tonSelling and administrative expenses consist of variable selling and administrative expenses of $6 per ton and fixed selling andadministrative expenses of $210,000 per year. The company's president will not earn a bonus unless a positive income is reported.The controller mentions that because the company has large storage capacity, it can report a positive income by setting production atthe usual 20,000 ton level even though it expects to sell only 15,000 tons. The president is surprised that the company can reportincome by producing more without increasing sales.$ 1,200,000900,000300,000300,000Required:1. Prepare an income statement using absorption costing based on production of 20,000 tons and sales of 15,000 tons. Can thecompany report a positive income by increasing production to 20,000 tons and storing the 5,000 tons of excess production ininventory?2. By how much does income increase by when producing 20,000 tons and storing 5,000 tons in inventory compared to onlyproducing 15,000 tons?Complete this question by entering your answers in the tabs below.Required 1 Required 2< Required 1By how much does income increase by when producing 20,000 tons and storing 5,000 tons in inventory compared to onlyproducing 15,000 tons?Increase in incomeRequired 2 >

Required: 1. Prepare an income statement using absorption costing based on production of 20,000 tons and sales of 15,000 tons. Can the company report a positive income by increasing production to 20,000 tons and storing the 5,000 tons of excess production in inventory? 2. By how much does income increase by when producing 20,000 tons and storing 5,000 tons in inventory compared to only producing 15,000 tons?

Required: 1. Prepare an income statement using absorption costing based on production of 20,000 tons and sales of 15,000 tons. Can the company report a positive income by increasing production to 20,000 tons and storing the 5,000 tons of excess production in inventory? 2. By how much does income increase by when producing 20,000 tons and storing 5,000 tons in inventory compared to only producing 15,000 tons?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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