World Strings produces student-grade violins for beginning violin students. The company produced 2,700 violins in its first

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World Strings produces student-grade violins for beginning violin students. The company produced 2,700 violins in its first month of operations. At month end, 800 finished violins remained unsold. There was no inventory in work in process. Violins were sold for $120.00 each. Total costs from the month are as follows:
Direct materials used ................................................... $120,300
Direct labor ................................................................... $ 65,000
Variable manufacturing overhead ................................ $ 28,000
Fixed manufacturing overhead .................................... $ 64,800
Variable selling and administrative expenses .............. $ 10,000
Fixed selling and administrative expenses .................. $ 12,900
The company prepares traditional (absorption costing) income statements for its bankers. World Strings would also like to prepare contribution margin income statements for management use. Compute the following amounts that would be shown on these income statements:
1. Gross profit
2. contribution margin
3. Total expenses shown below the gross profit line
4. Total expenses shown below the contribution margin line
5. Dollar value of ending inventory under absorption costing
6. Dollar value of ending inventory under variable costing
7. Which income statement will have a higher operating income? By how much? Explain.
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula                Ending Inventory Formula =...
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Managerial Accounting

ISBN: 978-0134128528

5th edition

Authors: Karen W. Braun, Wendy M. Tietz

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