Question

It is the end of

20172017.

Mulberry All minus FixedMulberry All−Fixed

Corporation began operations in January

20162016.

The company is so named because it has no variable costs. All its costs are​ fixed; they do not vary with output.

Mulberry All minus FixedMulberry All−Fixed

Corp. is located on the bank of a river and has its own hydroelectric plant to supply​ power, light, and heat. The company manufactures a synthetic fertilizer from air and river water and sells its product at a price that is not expected to change. It has a small staff of​ employees, all paid fixed annual salaries. The output of the plant can be increased or decreased by pressing a few buttons on a keyboard. The following budgeted and actual data are for the operations of

Mulberry All minus FixedMulberry All−Fixed.

The company uses budgeted production as the denominator level and writes off any​ production-volume variance to cost of goods sold.

	2016	2017ª
Sales	50,000 tons	50,000 tons
Production	100,000 tons	0 tons
Selling price	$100 per ton	$100 per ton
Costs (all fixed):
Manufacturing	$4,800,000	$4,800,000
Operating (nonmanufacturing)	$106,000	$106,000

​(a) Management adopted the​ policy, effective January​ 1,

20172017​,

of producing only as much product as needed to fill sales orders. During

20172017​,

sales were the same as for

20162016

and were filled entirely from inventory at the start of

20172017.

Requirement 1. Prepare income statements with one column for

20162016​,

one column for

20172017​,

and one column for the two years together using​ (a) variable costing and​ (b) absorption costing. ​(Use parentheses or a minus sign for an operating​ loss.)

Start by preparing the​ (a) variable costing income statement for

20162016​,

20172017​,

and the two year total.

	2016
Revenue
Fixed costs:
Manufacturing costs
Operating costs
Total fixed costs
Operating income (loss)

Answer 1

Variable Costing Income Statement
	2016	2017
Revenue	$ 50,00,000	$ 50,00,000
Less Variable Costs	$                -	$                -
Contribution Margin	$ 50,00,000	$ 50,00,000
Fixed Costs
Manufacturing Costs	$ 48,00,000	$ 48,00,000
Operating Costs	$    1,06,000	$    1,06,000
Total Fixed Costs	$ 49,06,000	$ 49,06,000
Operating Income	$        94,000	$        94,000

Absorption Costing Income Statement
	2016	2017
Revenue	$ 50,00,000	$ 50,00,000
Cost of Goods Sold	$ 24,00,000	$ 72,00,000
Gross Profit	$ 26,00,000	$ -22,00,000
Operating Costs	$    1,06,000	$    1,06,000
Operating Income	$ 24,94,000	$ -23,06,000