Thornton Glass Company makes stained glass lamps. Each lamp that it sells for $3

Question

Thornton Glass Company makes stained glass lamps. Each lamp that it sells for $316.60 per lamp requires $16.60 of direct materials and $70.40 of direct labor. Fixed overhead costs are expected to be $190,500 per year. Thornton Glass expects to sell 1,000 lamps during the coming year. Selling and administrative expenses were zero.

Required

A. Prepare income statements using absorption costing, assuming that Thornton Glass makes 1,000, 1,250, and 1,500 lamps during the year.

B. Prepare income statements using variable costing, assuming that Thornton Glass makes 1,000, 1,250, and 1,500 lamps during the year

THORNTON GLASS COMPANY Income Statements – Absorption Costing Units Produced 1,000 1,250 1,500 Sales revenue Cost of goods sold Gross margin 0 0 0 Selling and administrative expenses Net income $0 $0 $0

Explanation / Answer

THORNTON GLASS COMPANY Income Statements – Absorption Costing Units Produced 1,000 1,250 1,500 Sales revenue 316600 316600 316600 Cost of goods sold 277500 239400 214000 Gross margin 39100 77200 102600 Selling and administrative expenses 0 0 0 Net income 39100 77200 102600 THORNTON GLASS COMPANY Income Statements – Variable Costing Units Produced 1,000 1,250 1,500 Sales revenue 316600 316600 316600 Variable costs 87000 87000 87000 Contribution margin 229600 229600 229600 Fixed cost 190500 190500 190500 Net income 39100 39100 39100

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