Saved Help Blazer Chemical produces and sells an ice-meting granular used on roa
ID: 2343207 • Letter: S
Question
Saved Help Blazer Chemical produces and sells an ice-meting 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 reported a net loss. However, because of this years unusually mild winter, projected demand for its product is only 60 tons. Based on its predicted production and sales of 60 tons, the company projects the following income statement (under absorption costing) Sales (60 tons at $21,000 per ton) Cost of goods sold (60 tons at $16,000 per ton) Gross margin Selling and administrative expenses Net loss $1,260,000 960,000 300,000 318,600 (18,600) ts 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 Pixed cost per ton ($740,00060 tons) Total product cost per ton 3,667 12,333 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 concerned about the adverse reaction from its and shareholders if the projected net loss is reported. The operations manager mentions that since the company has large storage capacity, it ca The president was puzzled by the sugges n report a net income by keeping its production at the usual 100-ton level even though it expects to sell only 60 tons. tion that the company can report income by producing more without increasing sales Required: 1. Can the company report a net income by increasing production to 100 tons and storing the excess production in inventory? Complete the following income statement (using absorption costing) based on production of 100 tons and sales of 60 tons. (Rouned your answers to the nearest whole dollar) Production volume sold 60 tons Prev 11 of 11 NextExplanation / Answer
Production Volume
Production Volume
Units
60
100
variable labor and material cost per ton
3667
3667
fixed cost
12333
7400
total cost of goods sold per ton
16000
11067.00
units sold
60
60
total cost of goods sold
960000
664020
income statement
sales
1260000
1260000
less cost of goods sold
960000
664020
gross profit
300000
595980
less administrative expense
300000
300000
less variable selling expense
18600
18600
net profit
-18600
277380
Yes
Production Volume
Production Volume
Units
60
100
variable labor and material cost per ton
3667
3667
fixed cost
12333
7400
total cost of goods sold per ton
16000
11067.00
units sold
60
60
total cost of goods sold
960000
664020
income statement
sales
1260000
1260000
less cost of goods sold
960000
664020
gross profit
300000
595980
less administrative expense
300000
300000
less variable selling expense
18600
18600
net profit
-18600
277380
Yes
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