2016 Required a. Prepare gross profit computations for 2015 and 2016 using absor

Question

2016 Required a. Prepare gross profit computations for 2015 and 2016 using absorption costing b. Prepare gross profit computations for 2015 and 2016 using variable costing C. Explain how your answers illustrate the impact of differences between production PROB P7-1B sales vol. Variable and Absorption Costing Summarized data for 2016 (the first year of c Gorman Products, Inc., are as follows: umes on the gross profits reported each year under absorption and variable costin P7-2A. . . $3,000,000 Sales (75,000 units) Production costs (80,000 units): 880,000 Direct material Direct labor Manufacturing overhead: Variable Fixed 544,000 .. . .320,000 Operating expenses 168,000 240,000 60,000 18,000 28,800 30,000 Variable Fixed Depreciation on equipment Real estate taxes Personal property taxes (on inventory and equipment) Personnel department expenses P7-2B. Required a. Prepare an income statement based on full absorption costing b. Prepare an income statement based on variable costing c. Assume that you must decide quickly whether to accept a special one-time order for l ,000 units for $30 per unit. Which income statement presents the most relevant data? Determine the appod ent profit or loss on the special order based solely on these data. If the ending inventory is destroyed by fire, which costing approach would you use asa filing an insurance claim for the fire loss? Why? d. for Lo2 P7.3A. Variable and Absorption Costing-Service Company Jensen's Tailoring provides custom services. After the company's first year of operations, its owner prepared the following su data report for 2016: SERVICE AND tailoring

Explanation / Answer

Part c:

The most relevant data is presented by income statemnet based on variable costing approach. This will help in easily determining the net increase in contribution if such order is accepted. In this case, if special one time order is accepted it will lead to increase in overall net contribution margin for the company as the fixed cost will remain the same.

Part d:

In case ending inventory is destroyed by fire, full absorption costing is preferable as it is easy to determine net profit in such cases. No adjustment for ending inventory would be required and thus results will be same in both absorption and variable costing.

Part A: Full Absorption Costing Gorman Products Inc. Amount in $ Sales (75000 units) 3,000,000 Less: Direct Material (80000 units @ $ 11 each) 880,000 Direct Labour (80000 units @ $ 9 each) 720,000 Manufacturing Overhead (80000 units @ $ 10.8 each) 864,000 Less: Closing Inventory ( 5000 units *$30.8) -154,000 Cost of Goods Sold 2,310,000 Gross Profit 690,000 Less: Other operating Expenses 408000 Depreciation on equipments 60000 Real Estate Taxes 18000 Personal Property Taxes 28800 Personal Department Taxes 30000 Net Profit/ Loss 145,200 Note: Opening Inventory assumed to be zero Part B: Variable Costing Gorman Products Inc. Amount in $ Sales 3,000,000 Less: Variable cost of goods sold Direct Material 880,000 Direct Labour 720,000 Manufacturing Overhead (Variable) 544,000 Less: Closing inventory (variable) -134,000 Gross Contribution 990,000 Operating Expenses(Variable) 168,000 Contribution 822,000 Less: Period Expenses Manufacturing Overhead (Fixed) 320,000 Operating Expenses(Fixed) 240000 Depreciation on equipments 60000 Real Estate Taxes 18000 Personal Property Taxes 28800 Personal Department Taxes 30000 Net Profit/ Loss 125,200

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.