3. Meaning of Technical Terms

Refer to the absorption income statement of your solution to the preceding problem Give the amounts of the following: (1) prime cost, (2) conversion cost, (3) factory burden (4) factory overhead, (5) manufacturing overhead, and (6) indirect manufacturing cost.

5-A1 Straightforward Income Statements The independce Company had the followin manufacturing data for the year 2006 (in thousands of dollar) Beginning and ending inventories Direct material used Direct labor Supplies Utilities-varible portion Utilities-fixed portion Indirect labor-varible portion Indirect labor - fixed portion Depreciation Property taxes Supervisory Salaries None 400 330 20 40 12 90 40 110 20 50 Selling expenses were $300,000 (including that were varible) General administration expenses were $144,000 (including that were variable) Sales were $ 1.8 million Direct labor and supplies are regarded as varible costs 1. Prepare two income statements, one using the contribution approach and one using the absorption approach 2. Suppose that all variable costs fluctuate directly in proportion to sale and that fixed cost are unaffected over a very wide range of sales. What would operating income have been if sale had been $2.0 million insted of $1.8 million? Wich income statement did you use to help obtain your ansawer? Why