In: Accounting
Variable and Absorption Costing
Summarized data for 2016 (the first year of operations) for Gorman
Products, Inc., are as follows:
Sales (75,000 units) | $1,500,000 | ||||
Production costs (80,000 units) | |||||
Direct material | 440,000 | ||||
Direct labor | 360,000 | ||||
Manufacturing overhead: | |||||
Variable | 272,000 | ||||
Fixed | 160,000 | ||||
Operating expenses: | |||||
Variable | 84,000 | ||||
Fixed | 120,000 | ||||
Depreciation on equipment | 30,000 | ||||
Real estate taxes | 9,000 | ||||
Personal property taxes (inventory & equipment) | 14,400 | ||||
Personnel department expenses | 15,000 |
a. Prepare an income statement based on full absorption
costing.
Only use a negative sign with your answer for net income (loss), if
the answer represents a net loss. Otherwise, do not use negative
signs with any answers. Round answers to the nearest whole number,
when applicable.
Absorption Costing Income Statement | ||||||
---|---|---|---|---|---|---|
Sales | Answer | |||||
Cost of Goods Sold: | ||||||
Beginning Inventory | Answer | |||||
Direct materials | Answer | |||||
Direct labor | Answer | |||||
AnswerGross profitOperating expensesVariable manufacturing overheadManufacturing overheadContribution margin | Answer | |||||
Less: Ending Inventory | Answer | |||||
Cost of Goods Sold | Answer | |||||
AnswerGross profitOperating expensesVariable manufacturing overheadManufacturing overheadContribution margin | Answer | |||||
AnswerGross profitOperating expensesVariable manufacturing overheadManufacturing overheadContribution margin | Answer | |||||
Net Income (Loss) | Answer |
b. Prepare an income statement based on variable costing.
Only use a negative sign with your answer for net income (loss), if
the answer represents a net loss. Otherwise, do not use negative
signs with any answers. Round answers to the nearest whole number,
when applicable.
Variable Costing Income Statement | ||||||
---|---|---|---|---|---|---|
Sales | Answer | |||||
Variable cost of Goods Sold: | ||||||
Beginning Inventory | Answer | |||||
Direct materials | Answer | |||||
Direct labor | Answer | |||||
AnswerGross profitVariable manufacturing overheadManufacturing overheadVariable operating expensesContribution margin | Answer | |||||
Less: Ending Inventory | Answer | |||||
Variable cost of goods sold | Answer | |||||
AnswerGross profitVariable manufacturing overheadManufacturing overheadVariable operating expensesContribution margin | Answer | |||||
AnswerGross profitVariable manufacturing overheadManufacturing overheadVariable operating expensesContribution margin | Answer | |||||
Fixed costs: | ||||||
AnswerGross profitVariable manufacturing overheadManufacturing overheadVariable operating expensesContribution margin | Answer | |||||
Operating expenses | Answer | |||||
Total Fixed Cost | Answer | |||||
Net Income (Loss) | Answer |
c. Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $15 per unit.
Which income statement presents the most relevant data? Answerabsorption costingvariable costing
Determine the apparent profit or loss on the special order based
solely on these data.
Use a negative sign with your answer if the special order creates
an apparent loss. Round answer to the nearest whole number.
$Answer
d. If the ending inventory is destroyed by fire, which costing
approach would you use as a basis for filing an insurance claim for
the fire loss? Why?
Select the most appropriate statement.
Absorption costing approach because the cost should include a reasonable portion of fixed manufacturing costs.
Variable costing approach because the cost should include a reasonable portion of fixed manufacturing costs.