16 8 points eBook Print Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 22,875 tons of its granular. Because of this year's mild winter, projected demand for its product is only 18,300 tons. Based on projected production and sales of 18,300 tons, the company estimates the following income using absorption costing. Sales (18,300 tons at $124 per ton) Cost of goods sold (18,300 tons at $60 per ton) Gross profit Selling and administrative expenses Income $ 2,269,200 1,098,000 1,171,200 212,200 $ 959,000 Its product cost per ton follows and consists mainly of fixed overhead because its automated production process uses expensive equipment. Direct materials Direct labor Variable overhead References Fixed overhead ($732,000/18,300 tons) $ 13 per ton $ 4 per ton $ 3 per ton $ 40 per ton Selling and administrative expenses consist of variable selling and administrative expenses of $6 per ton and fixed selling and administrative expenses of $212,200 per year. The company's president will not earn a bonus unless a positive income is reported. The controller mentions that because the company has large storage capacity, it can report a positive income by setting production at the usual 22,875 ton level even though it expects to sell only 18,300 tons. The president is surprised that the company can report income by producing more without increasing sales. Required: 1. Prepare an income statement using absorption costing based on production of 22,875 tons and sales of 18,300 tons. Can the company report a positive income by increasing production to 22,875 tons and storing the 4,575 tons of excess production in inventory? 2. By how much does income increase by when producing 22,875 tons and storing 4,575 tons in inventory compared to only producing 18,300 tons?