HP 19 6 Saved Help Save &Exit; Submit Check my work 2 Dowell Company produces a
ID: 340479 • Letter: H
Question
HP 19 6 Saved Help Save &Exit; Submit Check my work 2 Dowell Company produces a single product. ts income statements under absorption costing for its first two years of operation follow. 2016 2017 Sales ($46 per unit) Cost of goods sold ($31 per unit) $1,104,000 $2,024,000 744,000 1,364.000 360,000 660,000 299,000344,000 $61,000 316,000 Part 2 of2 Gross margin Selling and adninistrative expenses Net income 3.75 points Skipped Additional Information a. Sales and production data for these first two years follow eBook Print Units produced Units sold 2016 2017 34,000 34,00 24,000 44,000 b. Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $31 per unit product cost consists of the following. s 5 Direet nateriale Direct labor Variable overhead Pixed overhead (6340,000/34,000 unite) Total product cont per unit 10 $31Explanation / Answer
Variable cost per unit = 23.25. This computed as Material + Labor + variable overhead = 5+9+7 +2.25 = 23.25.
Explanation
In the year 2016, we have an ending finished goods inventory of 10000 Units ( i.e 34000 - 24000).
In absorption costing, some part of the manaufacturing overhead is carried along with these 10000 units to next year i.e 2017. Because of this cost decreases and profit increases in absorption costing. But in variable costing we had charged all fixed costs against contribution. Thus these 10000 units @ 10 per unit is the reason for difference in profits of variable costing and absorption costing.
We this 10000 Units become beginning Inventory in 2017, their impact on profits is just the reverse of 2016. Hence, we added this 100,000 in 2016 and again deducted it in 2017.
Variable costing approach ….. Income statement Sales 1104000 2024000 (-) Variable cost @23.25 558000 1023000 Contribution 546000 1001000 (-) Fixed cost Manufacturing ….. 340000 340000 Selling and admin 245000 245000 Total Fixed cost 585000 585000 Profit / loss -39000 416000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.