Question

Variable and Absorption Costing
Summarized data for 2016 (the first year of operations) for Gorman Products, Inc., are as follows:

Sales (75,000 units)					$7,500,000
Production costs (80,000 units)
Direct material					2,200,000
Direct labor					1,800,000
Manufacturing overhead:
Variable					1,360,000
Fixed					800,000
Operating expenses:
Variable					420,000
Fixed					600,000
Depreciation on equipment					150,000
Real estate taxes					45,000
Personal property taxes (inventory & equipment)					72,000
Personnel department expenses					75,000

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 $75 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

Answer 1

Ans Calculation of Begining and Ending Inventory 2016 Begining Inventory Add: Production Less Sales 8oono 750go 5000 wits Ending Inventory Calculation of per unit Rates 2016 Sales units 75000 sale value 7500DDA loo Sell Price per unit 2016 8oosol per unit 27.5 22.5 Production units Direct Material (2209000 / 80600 ) Direct labour (18090DD / 80090) Manufacturing overhead: Variable (1360000 / 80099 ) fixed ( 800000 1 89002) 17

Ending Inventory values Ending Inventory (5000) per unit Direct Material absorption costing variable costing 137500 137500 27.5 112 Direit labour 22.5 112 variable 17 8500e 85000 fixed 10 50000 37 3850oo 335000 fuding Inventory Total operating Expense Variable 429900 fixed 600900 Depreciation 150 DOO Real Estate tax 4500D Personal Property taxes Personal Department Expenses 72000 7sveo operating Expenses Cabsortion 1362000 casting)

(a ) 2200 DOI ) Income statement (Absorption Losting) Sale 7509900 Cost of goods sold Begining Inventory Direit Material Direct labour 180999 Manufacturing overhead 2 lboooo loss, fuding Inventory (385000) cost of goods sold 5775000 Gross Profit 1725ODD Less, operating Expouses (1362 00) Net Income 363 DOO (6) Income Statement (variable costing) Sale 7502000 Variable cost of goods sold Begining Inventory Direct material Direct labour 1800000 Manufacturing over head 1360ooo (-) Ending Inventory 1335000) variable cost of goods sold 50 25000 contribution 2475000 (-) fixed cost (85000) Manufacturing overhead operating Expense 1362000 313 Deo Net Income ( 220990

presents the ( (c) variable Costing Income Statement most Reflevent Date. Direct Material 27.5 22.5 Direct Labour Maunfacturing overhead: variable 17 67 75 Total cost her whit sell price Profit loss por unit Whits sold Met loss I Profit 1000 8090