Variable and Absorption Costing Summarized data for 2016 (the first year of operations) for Gorman Products, Inc., are as follows: Sales (75,000 units) $3,000,000 Production costs (80,000 units) Direct material 880,000 Direct labor 720,000 Manufacturing overhead: Variable 544,000 Fixed 320,000 Operating expenses: Variable 168,000 Fixed 240,000 Depreciation on equipment 60,000 Real estate taxes 18,000 Personal property taxes (inventory & equipment) 28,800 Personnel department expenses 30,000 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 Answer Answer Less: Ending Inventory Answer Cost of Goods Sold Answer Answer Answer Answer 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 Answer Answer Less: Ending Inventory Answer Variable cost of goods sold Answer Answer Answer Answer Answer Fixed costs: Answer 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 $30 per unit. Which income statement presents the most relevant data? Answer

Variable and Absorption Costing Summarized data for 2016 (the first year of operations) for Gorman Products, Inc., are as follows: Sales (75,000 units) $3,000,000 Production costs (80,000 units) Direct material 880,000 Direct labor 720,000 Manufacturing overhead: Variable 544,000 Fixed 320,000 Operating expenses: Variable 168,000 Fixed 240,000 Depreciation on equipment 60,000 Real estate taxes 18,000 Personal property taxes (inventory & equipment) 28,800 Personnel department expenses 30,000 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 Answer Answer Less: Ending Inventory Answer Cost of Goods Sold Answer Answer Answer Answer 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 Answer Answer Less: Ending Inventory Answer Variable cost of goods sold Answer Answer Answer Answer Answer Fixed costs: Answer 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 $30 per unit. Which income statement presents the most relevant data? Answer

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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part two not graded

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

Sales (75,000 units)					$3,000,000
Production costs (80,000 units)
Direct material					880,000
Direct labor					720,000
Manufacturing overhead:
Variable					544,000
Fixed					320,000
Operating expenses:
Variable					168,000
Fixed					240,000
Depreciation on equipment					60,000
Real estate taxes					18,000
Personal property taxes (inventory & equipment)					28,800
Personnel department expenses					30,000

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
Answer	Answer
Less: Ending Inventory	Answer
Cost of Goods Sold		Answer
Answer		Answer
Answer		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
Answer	Answer
Less: Ending Inventory	Answer
Variable cost of goods sold		Answer
Answer		Answer
Answer		Answer
Fixed costs:
Answer	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 $30 per unit.

Which income statement presents the most relevant data? Answer

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.

(Part 1)

(I HAVE ANSWERED)

	Units Manufactured	Units Sold
2015	120,000	90,000
2016	120,000	130,000

a. Prepare gross profit computations for 2015 and 2016 using absorption costing.
Do not use negative signs with your answers.

Absorption Costing
	2015	2016
Sales	Answer	Answer
Cost of goods sold:
Beginning inventory	Answer	Answer
Production	Answer	Answer
Goods available	Answer	Answer
Less: Ending inventory	Answer	Answer
Cost of goods sold	Answer	Answer
Gross profit	Answer	Answer

b. Prepare gross profit computations for 2015 and 2016 using variable costing.
Do not use negative signs with your answers.

Variable Costing
	2015	2016
Sales	Answer	Answer
Variable cost of goods sold:
Beginning inventory	Answer	Answer
Production	Answer	Answer
Goods available	Answer	Answer
Less: Ending inventory	Answer	Answer
Variable cost of goods sold	Answer	Answer
Less: Fixed manufacturing costs	Answer	Answer
Gross profit	Answer	Answer

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