Determine financial statement components (Learning Objective 7) (Appendix)

Violins-by-Hannah produces student-grade violins for beginning violin students. The company produced 2,000 violins in its first month of operations. At month-end, 600 finished violins remained unsold. There was no inventory in work in process. Violins were sold for $112.50 each. Total costs from the month are as follows:

The company prepares traditional (absorption costing) income statements for its bankers. Hannah would also like to prepare contribution margin income statements for her own management use. Compute the following amounts that would be shown on these income statements:
1. Gross Profit 2. Contribution Margin 3. Total Expenses shown below the Gross Profit line 4. Total Expenses shown below the Contribution Margin line 5. Dollar value of ending inventory under absorption costing 6. Dollar value of ending inventory under variable costing Which income statement will have a higher operating income? By how much? Explain.

Transcribed Image Text:

Direct materials used.......... ...... $80,000 Direct labor....... 50,000 Variable manufacturing overhead 30,000 Fixed manufacturing overhead. 40,000 Variable selling and administrative expenses... 10,000 Fixed selling and administrative expenses......... 15,000