The following information is taken from the records of the Kingland Manufacturing Company for the year ending December 31, 2009. There were no beginning or ending inventories. Sales $13,000,000 Long-term factory $100,000 Sales Commissions 500,000 Factory Superintedents 30,000 Salary Advertising 400,000 Factory supervisors‘ 100,000 Salaries Shipping expenses 300,000 Direct Materials used 4,000,000 Administrative executive salaries 100,000 Direct labor 2,000,000 Administrative clerical salaries 400,000 Cutting bits used 60,000 Fire insurance on factory equip 2,000 Factory methods 40,000 research Property taxes on factory equip 30,000 Abrasives for machining 100,000 Indirect labor 800,000 Depreciation of factory 400,000 equip Prepare a contribution income statement and an absorption income statement. If you are in doubt about any cost behavior pattern, decide on the basis of whether the total cost is question will fluctuate substantially over a wide range of volume.
Prepare a separate supporting schedule of indirect manufacturing costs subdivided between variable and fixed costs. Suppose that all variable costs fluctuate directly in proportion to sales, and that fixed costs are unaffected over a wide range of sales. What would operating income have been if sales had been $12 million instead of $13 million? Which income statement did you use to help get your answer? Why?