Ask Me Help Desk

Ask Me Help Desk (https://www.askmehelpdesk.com/forum.php)
-   Finance & Accounting (https://www.askmehelpdesk.com/forumdisplay.php?f=411)
-   -   Absorption / Contribution margin income statements (https://www.askmehelpdesk.com/showthread.php?t=658739)

  • May 9, 2012, 09:36 AM
    misgm11
    Absorption / Contribution margin income statements
    I am really lost here, any help would be great.

    Problem:
    Production: 25,000 units
    Sales (25,000 units) $2,500,000
    Cost of goods sold
    Starting inventory (10,000 units) $650,000
    Production costs 1,625,000
    Total $2,275,000
    Ending inventory 650,000
    Gross profit 1,625,000
    Selling and general expenses 500,000
    Net income $375,000

    Production capacity is 50,000 units with a fixed overhead of $500,000. Variable cost is $45 per unit. Sales forcasted for second qtr is 25,000 units. Production for second qtr is scheduled to be 50,000 units.

    Task is to convert the absorption income statement to a contribution margin income statement for the first quarter and prepare the same (absorption and contribution margin) for the second quarter. Also to compute production costs per unit for both approaches. I did the math and come up with a net income of 375,000 (absorption) and 875,000 contribution margin) for both quarters even though the production has changed, this does not seem right to me. I feel like I am missing some step but I have no idea what.

    This is all the information I have to work this problem.

  • All times are GMT -7. The time now is 01:44 AM.