Jackson Company produces plastic that is used for injection-molding applications

Question

Jackson Company produces plastic that is used for injection-molding applications such as gears for small motors. In 2016, the first year of operations, Jackson produced 4,000 tons of plastic and sold 3,500 tons. In 2017, the production and sales results were exactly reversed. In each year, the selling price per ton was $2,000, variable manufacturing costs were 15% of the sales price of units produc ed, variable selling expenses were 10% of the selling price of units sold, fixed manufacturing costs were $2,800,000, and fixed administrative expenses were $500,000.

Explanation / Answer

JACKSON COMPANY JACKSON COMPANY Income statement Income statement for the year ended 2016 for the year ended 2017 Absorption Costing Absorption Costing Sales [3500 tons * $2000] $7,000,000.00 Sales [4000 tons * $2000] $8,000,000.00 Less : Production Cost Less : Production Cost Variable Manufacturing Cost [4000 tons*$300] $1,200,000.00 Variable Manufacturing Cost [3500 tons*$300] $1,050,000.00 Fixed Manufacturing Cost [4000 tons * $700] $2,800,000.00 Fixed Manufacturing Cost [3500 tons * $800] $2,800,000.00 Total Production Cost $4,000,000.00 Total Production Cost $3,850,000.00 Less : Ending Inventory [ 500 tons * $1000 ] $500,000.00 Add : Begiining Inventory [ 500 tons * $1000 ] $500,000.00 Cost of goods sold $3,500,000.00 Cost of goods sold $4,350,000.00 Gross Margin $3,500,000.00 Gross Margin $3,650,000.00 Less : Selling and administrative expenses Less : Selling and administrative expenses Variable Selling expenses [$2000*10%*3500 tons] $700,000.00 Variable Selling expenses [$2000*10%*4000 tons] $800,000.00 Fixed administrative expenses $500,000.00 Fixed administrative expenses $500,000.00 Total Selling and administrative cost $1,200,000.00 Total Selling and administrative cost $1,300,000.00 Net Operating Income $2,300,000.00 Net Operating Income $2,350,000.00 Fixed Manufacturing cost per unit for 2016 = $2800000 / 4000 tons produced = $700 Fixed Manufacturing cost per unit for 2017 = $2800000 / 3500 tons produced = $800

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