GoWay manufacturers and sells a portable battery-powered transportation device t
ID: 2467945 • Letter: G
Question
GoWay manufacturers and sells a portable battery-powered transportation device that can be stored in a backpack. The device usually sells for $5,000 per unit. The company normally sells units as quickly as manufactured and does not maintain a finished goods inventory. However, during the most recent year, the company produced 10,000 units, but only sold 9,000. A military customer has requested to buy the other 1,000 units for delivery on December 31 of the current year. The offered price is $4,000 per unit for all 1,000 units. Below are absorption-costing based calculations of ending inventory and net income, on the 9,000 units already sold. Variable manufacturing costs ($3,000 X 10,000) $30,000,000 Fixed manufacturing costs 12,000,000 Cost of goods manufactured $42,000,000 Cost of goods sold ($42,000,000 X (9,000/10,000)) 37,800,000 Ending inventory ($42,000,000 X (1,000/10,000)) $4,200,000 Sales (9,000 X $5,000) $45,000,000 Cost of goods sold 37,800,000 Gross profit $7,200,000 Selling, general, & administrative costs Variable (9,000 X $100) $900,000 Fixed 5,800,000 6,700,000 Net income $500,000 Prepare a revised absorption-costing based income statement, assuming acceptance of the 1,000 unit order. Also prepare variable-costing income statements (with and without the order). Compare the results and evaluate whether the order should be accepted.
Explanation / Answer
Unit cost under absorption costing:
Manufacturing variable cost
3,000
Fixed cost per unit
1,200
Unit product cost
4,000
Revised Absorption income statement
Sales (9000*5000) +
(4000*1000)
$49,000,000
Less:Cost of goods sold
(10,000*4,200)
-42,000,000
Gross Profit
7,000,000
Less : Selling expense
Variable (100 *10,000)
1,000,000
Fixed
5,800,000
-6,800,000
Net income
200,000
Variable costing (with order)
Sales
$49,000,000
Less Cost of goods sold
(10,000*3000)
30,000,000
Selling expense
(10,000 *100)
1,000,000
Contribution margin
18,000,000
Less : Fixed expenses
Fixed manufacturing
12,000,000
Selling expense
5,800,000
-17,800,000
Net income
200,000
Variable costing ( Without order)
Sales (9000 *5000)
45,000,000
Less: Cost of goods sold
(9000* 3,000)
-27,000,000
Selling expense (900*100)
900,000
Contribution margin
17,100,000
Less :Fixed expense
-17,800,000
Net income
-700,000
Manufacturing variable cost
3,000
Fixed cost per unit
1,200
Unit product cost
4,000
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