Question

value 3.48 points Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells about 100 tons of its granular. In its nine-year history, the company has never reported a net loss. However, because of this year's unusually mild winter, projected demand for its product is only 65 tons. Based on its predicted production and sales of 65 tons, the company projects the following income statement (under absorption costing). Sales (65 tons at $21,000 per ton) Cost of goods sold (65 tons at $16,000 per ton) $1,365,000 1,040,000 Gross margin Selling and administrative expenses 325,000 346.450 Net loss $ (21,450) its product cost information follows and consists mainly of foxed cost because of its automated production process requiring expensive equipment. Variable direct labor and material costs per ton Fixed cost per ton ($720,000 -65 tons) $ 4,923 11.077 Total product cost per ton $ 16,000 Selling and administrative expenses consist of variable selling and administrative expenses of $330 per ton and fixed selling and administrative expenses of $325,000 per year. The company's president is concerned about the adverse reaction from its creditors and shareholders if the projected net loss is reported. The operations manager mentions that since the company has large storage capacity. It can report a net income by keeping its production at the usual 100-on level even though it expects to sell only 65 tons. The president was puzzled by the suggestion that the company can report income by producing more without increasing sales Required: 1. Can the company report a net income by increasing production to 100 tons and storing the excess A DOV.Com in the followincome statement using on costil based on R

Answer 1

	PRODUCTION VOLUME
COST OF GOODS SOLD	65 TONS	100 TONS
Variable cost of goods sold	319995	492300
Fixed cost of goods sold	720000	720000
Total cost of goods sold	1039995	1212300
Cost of goods sold per unit	16000	12123
Number of tons sold	65	100

SELLING AND ADMINISTRATIVE EXPENSES

	PRODUCTION VOLUME
	65		100
Variable	21450		33000
Fixed	325000		325000
Total cost	346450	358000
Cost per unit	5330	3580

SAFETY CHEMICALS

Income Statement: Absorption Costing

Sales >65 tons@21000 per ton	1365000
Cost of goods sold> 65 ton @12123	787995
Gross margin	577005
Selling and Administrative expenses>65 tons @3580	232700
Net Income	344305