The following information is taken from the records of the Zealand Manufacturing Company for the year ending December 31, 2012. There were no beginning or ending inventories.

1. Prepare a contribution income statement and an absorption income statement. If you are in doubt about any cost behavior pattern, decide on the basis of whether the total cost in question will fluctuate substantially over a wide range of volume. Prepare a separate supporting schedule of indirect manufacturing costs subdivided between variable and fixed costs.
2. Suppose that all variable costs fluctuate directly in proportion to sales, and that fixed costs are unaffected over a wide range of sales. What would operating income have been if sales had been $12 million instead of $14 million? Which income statement did you use to help get your answer?Why?

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Sales 14,000,00 Long-term rent, factory S 85,000 470,000 430,000 320,000 Sales commissions Factory superintendent's salary Factory supervisors' salaries Direct materials used 31,000 105.000 3,500,000 1,700,000 53,000 Shipping expenses Administrative executive salaries 00,000 Direct labor Cutting bits used Factory methods research Abrasives for machining Administrative clerical salaries (variable) 370,000 99,000 950,000 430.000 4,000 Indirect labor Fire insurance on factory equipm Property taxes on factory equipment 26,000 Depreciation on factory equipment