Q3:

ABC Company gathered the following information regarding its only product:

Selling and administrative expenses

Sales commission $10,000

Depreciation 3,500

Rent-Show room and administration buildings 12,000

Salaries

Factory overhead8,000Indirect Material 2,500Indirect labour (paid per hour) 5,500Depreciation-Equipment 3,250Plant rent 1,750Salaries (Monthly) 6,450

Maintenance 2,900

Power 1,400

Other costs

Direct labor 25,000Direct materials used

Units produced and sold

Selling price per unit 15,000

25,000 units

$20Required:

a. Prepare an income statement using the contribution approach. [2 Marks]

b. Prepare an income statement using the absorption approach. [2 Marks]

c. Compute the effect on net income of accepting a special order for 1500

units at $16 per unit assuming excess capacity