The Iron City Company started business on January 1, 2017. Iron City manufactures a specialty honey beer, which it sells directly to state-owned distributors in Pennsylvania. Honey beer is produced and sold in six-packs, and in 2017, Iron City produced more six-packs than it was able to sell. In addition to variable and fixed manufacturing overhead, Iron City incurred direct materials costs of $880,000, direct manufacturing labor costs of $400,000, and fixed marketing and administrative costs of $295,000. For the year, Iron City sold a total of 180,000 six-packs for a sales revenue of $2,250,000. Iron City’s CFO is convinced that the firm should use an actual costing system but is debating whether to follow variable or absorption costing. The controller notes that Iron City’s operating income for the year would be $438,000 under variable costing and $461,000 under absorption costing. Moreover, the ending f inished-goods inventory would be valued at $7.15 under variable costing and $8.30 under absorption costing. Iron City incurs no variable nonmanufacturing expenses. Q. What is Iron City’s total contribution margin for 2017
The Iron City Company started business on January 1, 2017. Iron City manufactures a specialty honey beer, which it sells directly to state-owned distributors in Pennsylvania. Honey beer is produced and sold in six-packs, and in 2017, Iron City produced more six-packs than it was able to sell. In addition to variable and fixed manufacturing
Q. What is Iron City’s total contribution margin for 2017
Absorption Costing:
The absorption costing is the method of costing in which the enterprise accounts the indirect expenses or the overheads along with the direct costs.
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