(20 pts) A company had the following data (in millions) for 2014 Beginning and e

Question

(20 pts) A company had the following data (in millions) for 2014 Beginning and ending inventory Sales Direct materials used Direct labor Indirect manufacturing costs: 3. None $1250 450 250 Variable 200 100 Fixed Variable Manufacturing cost of goods sold Manufacturing cost of goods sold Selling and Administrative expenses Vatiable Fixed 105 4D Gross profit Contribution margin Prepare an income statement using: aj the contribution approach b) the absorption approach and as you do it, fill in the blanks where applicable

Explanation / Answer

a) INCOME STATEMENT--CONTRIBUTION APPROACH Sales 1250 Variable cost of goods sold: Direct materials 450 Direct labor 250 Variable manufacturing overhead 200 Variable cost of goods sold 900 Variable selling and administrative expenses 105 Total variable expenses 1005 Contribution margin 245 Fixed costs: Manufacturing 100 Selling & administration 90 Total fixed expenses 190 Net operating income 55 b) INCOME STATEMENT--ABSORPTION APPROACH Sales 1250 Cost of goods sold: Direct materials 450 Direct labor 250 Manufacturing overheads (200+100) 300 Manufacturing cost of goods sold 1000 Gross profit 250 Administration and selling expenses (105+90) 195 Net operating income 55 FILLING IN THE BLANKS: Variable manufacturing COGS 900 Manufacturing COGS 1000 Gross profit 250 Contribution margin 245

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