It is the end of

20172017.

Mulberry All minus FixedMulberry AllFixed

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 AllFixed

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 AllFixed.

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

	2016	2017
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)