Whitey's Toothbrush Company

Contribution Margin and Cost Volume Profit Analysis

Whitey's Toothbrush Company $($WTC$)$ produces adult toothbrushes. The toothbrushes are all uniform. WTC$\text{'}$s relevant range based on its current resources is $1,200,000$ to $2,000,000$

toothbrushes a month. WTC currently makes and sells $1,600,000$ toothbrushes a month. WTC$\text{'}$s toothbrushes are sold for $$1\mathrm{.}98$ each. A cost summary is below.

$\backslash$table$[[,,$Original,Operating$],[$COSTS$,$Behavior,Costs,Costs$]]$

Labor

$\backslash$table$[[1,$Factory Workers $($Hourly$),$Variable,$$720,000,$per month$],[,40$ Production Supervisors $($Salary$),$Fixed,$$109,000,$per month$],[,2$ Assistant Plant Managers $($Salary$),$Fixed,$$10,000,$per month$],[,$Plant Manager $($Salary$),$Fixed,$$,12,000,$per month$],[$Materials$],[,$Plastic for toothbrushes handle,Variable,$0\mathrm{.}05,$per ounce$],[,$Bristles for toothbrushes,Variable,$0\mathrm{.}01,$per foot$],[$Overhead$],[2,$Factory Depreciation,$$4,800,000,$$$10,000,$per month$],[,$Accumulated Depreciation,$$100,000,,],[3,$Equipment Depreciation,$$1,200,000,$$$20,000,$per month$],[,$Accumulated Depreciation,$$480,000,,],[,$Utilities,$\backslash$table$[[$Mixed$],[70\%$ Variable$]],$$$80,000,$per month$],[,$Other Miscellaneous,Fixed,$$,15,000,$per month$],[$Other$],[,$Administrative Expenses,Fixed,$$60,000,$Per month$],[,$Sales Expenses,Variable,$$,0\mathrm{.}015,$Per brush$],[,$Land Owned,$$2,000,000,,]]$

$1$ Assume that labor costs relate to the operation of the $80$ machines used to make toothbrushes ratably.

$2$ The factory is being depreciated over $40$ years using a straight$-$line method. The estimated residual value for depreciation purposes is $0.$

$3$ The factory has $80$ machines used to produce toothbrushes. They have an estimated life of $5$ years. The estimated residual value for depreciation purposes is $0.$ They are depreciated using straight$-$line depreciation.

$22$

Questions:

$1.$ Produce a contribution income statement for the $1,600,000$ adult toothbrushes produced and sold each month? $($What wohld an absorption income statement look like if sales decreased to $1,200,000$ adult toothbrushes?$)$

$2.$ What is the cost per toothbrush produced under aborption costing and variable costing? State why they are different

$3.$ Create an income statement using absorption costing