George Massat started a new business in 1999 to produce portable, climate-controlled shelters. The shelters have many applications in special events and sporting activities. George's accountant prepared the variable costing income statement shown after part (d3) after the first year to help him in making decisions. During the year, the following variable production costs per unit were recorded: direct material, $800; direct labor, $300; and overhead, $200.
Mr. Massat was upset about the net loss because he had wanted to borrow funds to expand capacity. His friend who teaches accounting at a local university suggested that the use of absorption costing could change the picture.
Prepare an absorption costing pretax income statement.

Transcribed Image Text:

GEORGE MASSAT ENTERPRISES Income Statement For the Year Ended December 31, 1999 Sales (1,500 shelters $2,500) Variable cost of goods sold Beginning inventory Cost of goods manufactured (1,750 $1,300) Cost of goods available for sale Less ending inventory (250 @ $1,300) Product contribution margin Less variable selling and administrative $3,750,000 0 2,275,000 $2,275,000 (325,000) (1,950,000) $1,800,000 expenses (1,500 $180) Total contribution margin Less fixed expenses: $1,530,000 Fixed factory overhead Fixed selling and administrative expenses $1,500,000 190,000 (1,690,000) (160,000) Net loss