70.2K

Verified Solution

Link Copied!

Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 19,750 tons of its granular. Because of this year's mild winter, projected demand for its product is only 15,800 tons. Based on projected production and sales of 15,800 tons, the company estimates the following income using absorption costing. Its product cost per ton follows and consists mainly of fixed overhead because its automated production process uses expensive equipment. Selling and administrative expenses consist of variable selling and administrative expenses of $6 per ton and fixed selling and administrative expenses of $221,200 per year. The company's president will not earn a bonus unless a positive income is reported. The controller mentions that because the company has large storage capacity, it can report a positive income by setting production at the usual 19,750 ton level even though it expects to sell only 15,800 tons. The president is surprised that the company can report income by producing more without increasing sales. Required: 1. Prepare an income statement using absorption costing based on production of 19,750 tons and sales of 15,800 tons. Can the company report a positive income by increasing production to 19.750 tons and storing the 3,950 tons of excess production in inventory? 2. By how much does income increase by when producing 19,750 tons and storing 3,950 tons in inventory compared to only producing 15,800 tons? Complete this question by entering your answers in the tabs below. Prepare an income statement using absorption costing based on production of 19,750 tons and sales of 15,800 tons. Can the company report a positive income by increasing production to 19,750 tons and storing the 3,950 tons of excess production in inventory? Note: Round your answers to the nearest whole dollar. Complete this question by entering your answers in the tabs below. By how much does income increase by when producing 19,750 tons and storing 3,950 tons in inventory compared to only producing 15,800 tons

Answer & Explanation Solved by verified expert

See Answer