Can someone please help me with this question Problem 19-5A Income reporting, ab
ID: 2573987 • Letter: C
Question
Can someone please help me with this question
Problem 19-5A Income reporting, absorption costing, and managerial ethics reported a net loss. However, because of this year's unusually mild winter, projected demand for its prod C1 P2 Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells about 100 tons of its granular. In its nine-year history, the company has never uct is only 60 tons. Based on its predicted production and sales of 60 tons, the company projects the fol- lowing income statement (under absorption costing) $1,260,000 960,000 300,000 318,600 $ (18,600) Cost of goods sold (60 tons at $16,000 per ton) .. .. . .. . Selling and administrative expenses . . . .. . . . . . . . . . . . . . . . Its product cost information follows and consists mainly of fixed cost because of its automated production process requiring expensive equipment. Variable direct labor and material costs per ton .$ 3,500 Fixed cost per ton ($750,000 ÷ 60 tons) . . . . . . . . . . . . . . . -12,500 Total product cost per ton... . . . . . . . .. . . . . . . . $16,000 Selling and administrative expenses consist of variable selling and administrative expenses of $310 per ton and fixed selling and administrative expenses of $300,000 per year. The company's president is con- cerned about the adverse reaction from its creditors and shareholders if the projected net loss is reported. The operations manager mentions that since the company has large storage capacity, it can report a netExplanation / Answer
Part-2
It shall be unethical to produce the extra 40 tones just to raise income, its only for books cooking. If the company does not feel it can sell the 100 tones in near future, it should not produce 100 tones.
If it feels that the extra tones can be sold in near future, it might be appropriate to produce 100 tones.
Income Statement as per Absorption Costing Method Production Volume 100 Tons 60 Tons Sales (60*21000) $1,260,000.00 $ 1,260,000.00 Less:Cost of Goods Sold Cost of Goods Manufactured - Closing Inventory 100 tons*11000 - 40 tons*11000 $ 660,000.00 60 tons*16000 - 0 960000 Gross Margin $ 600,000.00 $ 300,000.00 Less:Selling & Administartaive Expenses $ 318,600.00 $ 318,600.00 Net Profit/(Loss) $ 281,400.00 $ (18,600.00) Manufacturing Costs Per tons Variable material & labor costs 3500 3500 Fixed cost (750000/100 tons) 7500 (750000/60tons) 12500 COGS per tons 11000 16000Part-2
It shall be unethical to produce the extra 40 tones just to raise income, its only for books cooking. If the company does not feel it can sell the 100 tones in near future, it should not produce 100 tones.
If it feels that the extra tones can be sold in near future, it might be appropriate to produce 100 tones.