Question

Munoz Glass Company makes stained glass lamps. Each lamp that it sells for $316.50 per lamp requires $16.80 of direct materials and $71.40 of direct labor. Fixed overhead costs are expected to be $195,000 per year. Munoz Glass expects to sell 1,000 lamps during the coming year. Selling and administrative expenses were zero.

Prepare income statements using absorption costing, assuming that Munoz Glass makes 1,000, 1,250, and 1,500 lamps during the year. (Do not round intermediate calculations.)

	MUNOZ GLASS COMPANY Income Statements – Absorption Costing Units Produced 1,000 1,250 1,500 Sales revenue $316,500 Cost of goods sold Gross margin 316,500 0 0 Selling and administrative expenses 0 0 0 Net income $316,500 $0 $0

Prepare income statements using variable costing, assuming that Munoz Glass makes 1,000, 1,250, and 1,500 lamps during the year. (Do not round intermediate calculations.)

	MUNOZ GLASS COMPANY Income Statements – Variable Costing Units Produced 1,000 1,250 1,500 Sales revenue $316,500 Variable costs Contribution margin 316,500 0 0 Fixed cost 195,000 195,000 195,000 Net income $121,500 $(195,000) $(195,000

Answer 1

MUNOZ GLASS COMPANY
Income Statement - Absorption Costing
Units produced / Sold       (a)	1000	1250	1500
Sales revenue                    [a x $316.50 per unit]	$316,500	$395,625	$474,750
Cost of goods Sold            [Refer working note 1]	$283,200	$305,250	$327,300
Gross Margin                   [Sales - Cost of goods sold]	$33,300	$90,375	$147,450
Selling and administrative expenses	$0	$0	$0
Net Income	$33,300	$90,375	$147,450

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MUNOZ GLASS COMPANY
Income Statement - Variable Costing
Units produced / Sold       (a)	1000	1250	1500
Sales revenue                    [a x $316.50 per unit]	$316,500	$395,625	$474,750
Variable costs                   [Refer working note 2]	$88,200	$110,250	$132,300
Contribution Margin        [Sales - Variable costs]	$228,300	$285,375	$342,450
Fixed Costs	$195,000	$195,000	$195,000
Net Income	$33,300	$90,375	$147,450

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Working note 1 - Computation of cost of goods sold under absorption costing
a. Number of units produced / sold	1000	1250	1500
b. Direct material         [a x $16.80]	$16,800.00	$21,000.00	$25,200.00
c. Direct labor              [a x $71.40]	$71,400.00	$89,250.00	$107,100.00
d. Fixed manufacturing overhead per year	$195,000.00	$195,000.00	$195,000.00
d. Cost of Goods Sold    [b + c + d]	$283,200.00	$305,250.00	$327,300.00

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Working note 2 - Computation of Variable costs under variable costing
a. Number of units produced / sold	1000	1250	1500
b. Direct material         [a x $16.80]	$16,800.00	$21,000.00	$25,200.00
c. Direct labor              [a x $71.40]	$71,400.00	$89,250.00	$107,100.00
d. Variable Costs    [b + c]	$88,200.00	$110,250.00	$132,300.00