A manufacturer reports direct materials of $5 per unit, direct labor of $2 per unit, and variable overhead of $3 per unit. Fixed overhea is $200,000 per year, and the company estimates sales of 20,000 units at a sales price of $22 per unit for the year. The company has no beginning finished goods inventory. 1. If the company uses absorption costing, compute gross profit assuming (a) 20,000 units are produced and 20,000 units are sold an (b) 25,000 units are produced and 20,000 units are sold. 2. If the company uses variable costing, how much would contribution margin differ if the company produced 25,000 units instead of producing 20,000? Assume the company sells 20,000 units. Hint: Calculations are not required.

A manufacturer reports direct materials of $5 per unit, direct labor of $2 per unit, and variable overhead of $3 per unit. Fixed overhea is $200,000 per year, and the company estimates sales of 20,000 units at a sales price of $22 per unit for the year. The company has no beginning finished goods inventory. 1. If the company uses absorption costing, compute gross profit assuming (a) 20,000 units are produced and 20,000 units are sold an (b) 25,000 units are produced and 20,000 units are sold. 2. If the company uses variable costing, how much would contribution margin differ if the company produced 25,000 units instead of producing 20,000? Assume the company sells 20,000 units. Hint: Calculations are not required.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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