Violins minus by minus SarahViolinsbySarah produces student-grade violins for beginning violin students. The company produced 2,100 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 $120.00 each. Total costs from the month are as follows:

The company prepares traditional (absorption costing) income statements for its bankers. Sarah would also like to prepare contribution margin income statements for management use.

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Direct materials used$86,200

Direct labor$60,000

Variable manufacturing overhead.$ 26,000

Fixed manufacturing overhead.$44,100

Variable selling administrative expense.$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.

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=

Gross profit

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=

Requirement 2. Contribution Margin

Identify the formula, then compute the contribution margin.

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=

Contribution margin

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=

Requirement 3. Total expenses shown below the gross profit line

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=	Total expenses below the gross profit line

Requirement 4. Total expenses shown below the contribution margin line

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=	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 $

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Requirement 6. Dollar value of ending inventory under variable costing

The dollar value of ending inventory under variable costing is $

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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