Chenango Can Company manufactures metal cans used in the food-processing industr

Question

Chenango Can Company manufactures metal cans used in the food-processing industry. A case of cans sells for $35. The variable costs of production for one case of cans are as follows:

Variable selling and administrative costs amount to $.70 per case. Budgeted fixed manufacturing overhead is $564,000 per year, and fixed selling and administrative cost is $47,500 per year. The following data pertain to the company’s first three years of operation. (A unit refers to one case of cans.)

Chenango Can Company manufactures metal cans used in the food-processing industry. A case of cans sells for $35. The variable costs of production for one case of cans are as follows:

Required 1. Prepare operating income statements for Chenango Can Company for its first three years of operations using: a. Absorption costing Year 1 Year 2 Year 3 0 Selling and Administrative Expenses

Explanation / Answer

a) absorption costing income statement: Year 1 Year 2 Year 3 Sales 3290000 2240000 3815000 Manufacturing costs variable 1927000 1927000 1927000 fixed 564000 564000 564000 Less: Fixed of CS 0 -180000 90000 564000*30/94 Total Mcosts 2491000 2311000 2581000 Gross Profit 799000 -71000 1234000 Selling and administrative costs variable 65800 44800 76300 fixed 47500 47500 47500 Total 113300 92300 123800 NOI 685700 -163300 1110200 b) Variable costing income statement: Year 1 Year 2 Year 3 Sales 3290000 2240000 3815000 Variable Manufacturing costs 1927000 1927000 1927000 variable selling & admin costs 65800 44800 76300 Total variable costs 1992800 1971800 2003300 Contribution 1297200 268200 1811700 Less: Fixed costs: Fixed Manuf costs 564000 564000 564000 fixed sell & admin 47500 47500 47500 Total fixed costs 611500 611500 611500 NOI 685700 -343300 1200200 2: Reconciliation of change in NOI: change in inventory Predetermined rate of Manuf fixed costs: Difference in NOI 15000 6 90000 3: difference in NOI in forth year with no ending inventory: 15000*6 = $90000

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