Homework Help Question & Answers
converting absorption income statement to a contribution margin income statement
Roland Andersson is the manager of the Ekland Division of Ystad Industries. He is one of several managers being considered for position of CEO, as the current CEO isretiring in a year.
All divisions use standard absorption costing. The division has the capacity to produce 50,000 units a quater and quarterly fixed overhead amounts to $500,000.Variable production cost is $45 per unit. Roland has been looking at the report for the first three months of the year and is not happy with the results.
For the Quarter Ending March 31, 2012
Production: 25,000 units
Sales (25,000 units)
Cost of goods sold
Beginning inventory (10,000 units)
Production costs applied
Less ending inventory
Selling &general expenses
The sales forecast for the second quarter is 25,000 units. Roland had budgeted second quarter production at 25,000 units but changes it to 50,000 units, which is totalcapacity for a quarter. The sales forecasts for each of the last two quarters of the year are also 25,000 units. Costs incurred in the second quarter are the same asbudgeted, based on 50,000 units of production.
Convert the Ekland absorption income statement to a contribution margin income statement for the first quarter. Click here for an example showing how to convert fromone approach to another. This example is for guidance only and the numbers have not bearing on the Ekland case.
Prepare absorption and contribution margin income statements for the second quarter for Ekland.
Compute production costs per unit for both approaches and for both years.
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