Music World produces student-grade violins for beginning violin students. The company produced 2 comma 500 violins in its first month of operations. At month-end, 500 finished violins remained unsold. There was no inventory in work in process. Violins were sold for $ 125.00 each. Total costs from the month are as follows:

Direct materials used. . . . . . . . . . . . . . . . . . . . . . . .

$119,500

Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . .

$60,000

Variable manufacturing overhead. . . . . . . . . . . . . .

$28,000

Fixed manufacturing overhead. . . . . . . . . . . . . . . . .

$42,500

Variable selling and administrative expenses. . . . .

$8,000

Fixed selling and administrative expenses. . . . . . .

$13,000

Compute the following amounts that would be shown on these income statements:

Requirement 1. Gross Profit

Identify the formula, then compute the gross profit.

-

=

Gross profit

-

=

Requirement 2. Contribution Margin

Identify the formula, then compute the contribution margin.

-

=

Contribution margin

-

=

Requirement 3. Total expenses shown below the gross profit line

+
=	Total expenses below the gross profit line

Requirement 4. Total expenses shown below the contribution margin line

+
=	Total expenses below the contribution margin line

Requirement 5. Dollar value of ending inventory under absorption costing

The dollar value of ending inventory under absorption costing is $

.

Requirement 6. Dollar value of ending inventory under variable costing

The dollar value of ending inventory under variable costing is $

.

Requirement 7. Which income statement will have a higher operating income? By how much? Explain.

The		income statement will have a higher operating income by $			. Under absorption costing
			Under variable costing, these costs are

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