Calculate profit for both years using variable costing. The following informatio

Question

Calculate profit for both years using variable costing.

The following information is available for Skipper Pools, a manufacturer of above-ground swimming pool kits:
2014 2015 Total Units produced 12,060 9,940 22,000 Units sold 11,000 11,000 22,000 Selling price per unit $4,320 $4,320 Direct material per unit $880 $880 Direct labor per unit $1,600 $1,600 Variable manufacturing overhead per unit $295 $295 Fixed manufacturing overhead per year $2,375,820 $2,375,820 Fixed selling and administrative expense per year $1,428,700 $1,428,700
In its first year of operation, the company produced 12,060 units but was able to sell only 11,000 units. In its second year, the company needed to get rid of excess inventory (the extra 1,060 units produced but not sold in 2014), so it cut back production to 9,940 units.

Explanation / Answer

calculation of profit for both years using total cost method:

Variable cost per unit=$880+$1,600+$295=$2,775

Gross profit $14,649,680 $14,588,680

Fixed selling and administrative expenses $1,428,700 $1,428,700

Net profit $13,220,980 $13,159,980

Using variable cost

pariculars    2014 2015 sales 11,000 units 11,000 units sales amount $47,520,000 $47,520,000 Less: cost of goods sold Total variable cost $33,466,500 $27,583,500 Add:Fixed manufacturing cost $2,375,820 $2,375,820 Total $35,842,320 $29,959,320 Less:closing stock(35,842,320/12060*1000) $2,972,000 NIl Add:Opening stock Nil $2,972,000 cost of goods sold $32,8703,20 $32,931,320

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