Summarized data for 2016 (the first year of operations) for Gorman Products, Inc

Question

Summarized data for 2016 (the first year of operations) for Gorman Products, Inc., are as follows:

Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $60 per unit.

Which income statement presents the most relevant data?

Determine the apparent profit or loss on the special order based solely on these data.

Use a negative sign with your answer if the special order creates an apparent loss. Round answer to the nearest whole number.

Sales (75,000 units) $6,000,000 Production costs (80,000 units) Direct material 1,760,000 Direct labor 1,440,000 Manufacturing overhead: Variable 1,088,000 Fixed 640,000 Operating expenses: Variable 336,000 Fixed 480,000 Depreciation on equipment 120,000 Real estate taxes 36,000 Personal property taxes (inventory & equipment) 57,600 Personnel department expenses 60,000

Explanation / Answer

c) Income statement based on variable costing provides a more relevant data when one is to decide whether to accept a special order This is because in such a decision only the incremental cost is relevant Income statement - special order Sales ( 1000 * 60) 60000 less variable manufacturing cost ( 1000 * 53.60 **) 53600 variable operating expenses ( 1000 * 336000/75000) 4480 Net income 1920 **Variable Manufacturing Cost Direct Material 1760000 Direct Lanbour 1440000 Variable Amnufacturing Overhead 1088000 Total Variable Manufacturing Cost for 80000 Unit 4288000 Variable Manufacturing Cost for 1 Unit 53.6

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