Blazer Chemical produces and sells an ice-melting granular used on roadways and

Question

Blazer Chemical produces and sells an ice-melting 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 year's 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 $20,500 per ton) Cost of goods sold (60 tons at $15,500 per ton ) Gross nargin Selling and adminiatrative expenses Net los $1,230,000 300,000 (19,200) cost information follows and consists mainly of fixed cost because of its automated production process requiring expensive equipment. Variable direet labor and material costa per ton Fixed cost per ton ($720,000 60 tons) Total product cost per ton 3,500 12,000 $15,500 Selling and administrative expenses consist of variable selling and administrative expenses of $320 administrative expenses of $300,000 per year. The company's president is concerned about t per ton and fixed selling and capacity, it can report a net income by keeping its production at the usual 100-ton level even though it expects to sell only 60 t The president was puzzled by the suggestion that the company can re he adverse reaction from its creditors the projected net loss is reported. The operations manager mentions that since the company has large storage ons port income by producing more without increasing sales. Required: 1. Can the compa Complete the following income statement (using absorption costing) based on production of 100 tons and sales of ny report a net income by increasing production to 100 tons and storing the excess production in inventory? 60 tons. (Round

Explanation / Answer

Solution:

Cost of goods sold Production Volume 60 tons 100 tons Variable direct labor and material cost $210,000.00 $350,000.00 Fixed cost $720,000.00 $720,000.00 Total cost of production $930,000.00 $1,070,000.00 Volume in tons 60 100 Cost of goods sold per unit $15,500.00 $10,700.00 Nos of tons sold 60 60 Total cost of goods sold $930,000.00 $642,000.00

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