Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 20,250 tons of its granular. Because of this years mild winter, projected demand for its product is only 16,200 tons. Based on projected production and sales of 16,200 tons, the company estimates the following income using absorption costing.

Sales (16,200 tons at $96 per ton) $ 1,555,200

Cost of goods sold (16,200 tons at $60 per ton) 972,000

Gross profit 583,200

Selling and administrative expenses 210,800

Income $ 372,400

Its product cost per ton follows and consists mainly of fixed overhead because its automated production process uses expensive equipment.

Direct materials $ 13 per ton

Direct labor $ 4 per ton

Variable overhead $ 3 per ton

Fixed overhead ($648,000/16,200 tons) $ 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 $210,800 per year. The companys 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 20,250 ton level even though it expects to sell only 16,200 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 20,250 tons and sales of 16,200 tons. Can the company report a positive income by increasing production to 20,250 tons and storing the 4,050 tons of excess production in inventory?

2. By how much does income increase by when producing 20,250 tons and storing 4,050 tons in inventory compared to only producing 16,200 tons?

Prepare an income statement using absorption costing based on production of 20,250 tons and sales of 16,200 tons. Can the company report a positive income by increasing production to 20,250 tons and storing the 4,050 tons of excess production in inventory? (Round your answers to the nearest whole dollar.)

BLAZER CHEMICAL

Income Statement (Absorption Costing)

Did the company report a positive income?

By how much does income increase by when producing 20,250 tons and storing 4,050 tons in inventory compared to only producing 16,200 tons?

Question

Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 20,250 tons of its granular. Because of this years mild winter, projected demand for its product is only 16,200 tons. Based on projected production and sales of 16,200 tons, the company estimates the following income using absorption costing.

Sales (16,200 tons at $96 per ton)	$ 1,555,200
Cost of goods sold (16,200 tons at $60 per ton)	972,000
Gross profit	583,200
Selling and administrative expenses	210,800
Income	$ 372,400

Its product cost per ton follows and consists mainly of fixed overhead because its automated production process uses expensive equipment.

Direct materials	$ 13	per ton
Direct labor	$ 4	per ton
Variable overhead	$ 3	per ton
Fixed overhead ($648,000/16,200 tons)	$ 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 $210,800 per year. The companys 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 20,250 ton level even though it expects to sell only 16,200 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 20,250 tons and sales of 16,200 tons. Can the company report a positive income by increasing production to 20,250 tons and storing the 4,050 tons of excess production in inventory?

2. By how much does income increase by when producing 20,250 tons and storing 4,050 tons in inventory compared to only producing 16,200 tons?

Prepare an income statement using absorption costing based on production of 20,250 tons and sales of 16,200 tons. Can the company report a positive income by increasing production to 20,250 tons and storing the 4,050 tons of excess production in inventory? (Round your answers to the nearest whole dollar.)

BLAZER CHEMICAL
Income Statement (Absorption Costing)






Did the company report a positive income?

By how much does income increase by when producing 20,250 tons and storing 4,050 tons in inventory compared to only producing 16,200 tons?

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Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 20,250 tons of its granular.

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