The Independence Company had the following manufacturing data for the year 2009


5-A1
The Independence Company had the following manufacturing data for the year 2009 (in thousands of dollars):
Beginning and ending inventories                                                                        None
Direct material used                                                                                              $400
Direct Labor                                                                                                              300
Supplies                                                                                                                        20
Utilities-variable portion                                                                                           40
Utilities-fixed portion                                                                                                 15
Indirect Labor-variable portion                                                                                 90
Indirect Labor-fixed portion                                                                                       50
Depreciation                                                                                                                200
Property Taxes                                                                                                               20
Supervisory salaries                                                                                                       60

Selling expenses were $300,000 (including $80,000 that were variable) and general administrative expenses were $144,000 (including $25,000 that were variable). Sales were $2.2 million.
Direct labor and supplies are regarded as variable costs.
1.      Prepare two income statements, one using the contribution approach and one using that absorption approach.

2.      Suppose that all variable cost fluctuate directly in proportion to sales and that fixed costs are unaffected over a very wide range of sales. What would operating income have been if sales had been $2.0 million instead of $2.2 million? Which income statement did you use to help obtain your answer? Why?

        AFTER PAYMENT ENTER PASSWORD : "shiv" TO UNLOCK THE SOLUTION

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