The following information is taken from the records of the Zealand Manufacturing Company for the year ending December 31, 2012. There were no beginning or ending inventories.

Sales	$14,000,000	Long-term rental, factory	$ 85,000
Sales commissions	470,000
Advertising	430,000	Factory Superintendent Salary	31,000
Shipping costs	320,000	Factory Supervisor Salaries	105,000
		direct materials used	3,500,000
Administrative executive salaries	100,000	Direct labour	1,700,000
		used cutting bits	53,000
Administrative administrative salaries (variable)	370.000	Factory Methods Investigation	42,000
		Abrasives for machining	99,000
Fire insurance on factory equipment	4,000	indirect work	950,000
Property taxes on factory equipment	26,000	Depreciation on factory equipment	430.000

 Required

1. Prepare a contribution income statement and an absorption income statement. Prepare a separate support schedule for manufacturing overhead subdivided into fixed and variable costs.

2. Assume that all variable costs fluctuate directly in proportion to sales and that fixed costs are unaffected over a wide range of sales. What would the operating income have been if sales had been $12 million instead of $14 million? What income statement did you use to get your answer? Because?

Answer rating: 100% (QA)

To prepare the contribution income statement and the absorption income statement we need to first calculate the cost of goods sold by adding up the direct materials direct labor and manufacturing over... View the full answer