Stonehenge Inc., a manufacturer of landscaping blocks, began operations on April 1 of the current year. During this time, the company produced 750,000 units and sold 720,000 units at a sales price of $9 per unit. Cost information for this period is shown in the following table:Production costs? Direct materials$1.80 per unit Direct labor$.30 per unit Variable overhead$495,000 in total Fixed overhead$450,000 in totalNon production costs? Variable selling and administrative$18,000 in total Fixed selling and administrative$53,000 in totala. Prepare Stonehenge's December 31st income statement for the current year under absorption costing.b. Prepare Stonehenge's December 31st income statement for the current year under variable costing.
What will be an ideal response?
a.
| STONEHENGE, INC. Income Statement (Absorption Costing) For the nine months ended December 31, xx | |
| Sales (720,000 × $9) | $6,480,000 |
| Cost of goods sold (720,000 × $3.36*) | 2,419,200 |
| Gross margin | 4,060,800 |
| Selling and administrative expenses ($18,000 + $53,000) | 71,000 |
| Net income | $3,989,800 |
| *$1.80 + $.30 + ($495,000/750,000) + ($450,000/750,000) = $3.36 |
| STONEHENGE, INC. Income Statement (Variable Costing) For the nine months ended December 31, xx | |
| Sales (720,000 × $9) | $6,480,000 |
| Variable expenses | ? |
| Variable production costs (720,000 × $2.76*) | 1,987,200 |
| Variable selling and administrative | 18,000 |
| Contribution margin | 4,474,800 |
| Fixed expenses | ? |
| Fixed overhead | 450,000 |
| Fixed selling and administrative expenses | 53,000 |
| Net income | $3,971,800 |
| *$1.80 + $.30 + ($495,000/750,000) = $2.76 |
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