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Variable and Absorption Costing Summarized data for 2019 (the first year of operations) for Gor- man Products, Inc., are as follows: Sales (70,000 units)..... Production costs (80,000 units): Direct materials.. Direct labor... Manufacturing overhead: Variable... Fixed.. Operating expenses: Variable... Fixed.. Depreciation on equipment.. Real estate taxes.. Personal property taxes (on inventory and equipment) Personnel department expenses... ****** $2,800,000 880,000 720,000 544,000 320,000 175,000 240,000 60,000 18,000 28,800 30,000 Required b. a. Prepare an income statement based on full absorption costing. Prepare an income statement based on variable costing. Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $25 per unit. Which income statement presents the most relevant data? Determine the appar- ent profit or loss on the special order based solely on these data. 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?

Variable and Absorption Costing Summarized data for 2019 (the first year of operations) for Gor- man Products, Inc., are as follows: Sales (70,000 units)..... Production costs (80,000 units): Direct materials.. Direct labor... Manufacturing overhead: Variable... Fixed.. Operating expenses: Variable... Fixed.. Depreciation on equipment.. Real estate taxes.. Personal property taxes (on inventory and equipment) Personnel department expenses... ****** $2,800,000 880,000 720,000 544,000 320,000 175,000 240,000 60,000 18,000 28,800 30,000 Required b. a. Prepare an income statement based on full absorption costing. Prepare an income statement based on variable costing. Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $25 per unit. Which income statement presents the most relevant data? Determine the appar- ent profit or loss on the special order based solely on these data. 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?

FINANCIAL ACCOUNTING
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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Variable and Absorption Costing Summarized data for 2019 (the first year of operations) for Gor- man Products, Inc., are as follows: Sales (70,000 units).... Production costs (80,000 units): Direct materials.. Direct labor.... a. b. C. Manufacturing overhead: Variable... Fixed.... Operating expenses: Variable. Fixed... Depreciation on equipment. Real estate taxes. Personal property taxes (on inventory and equipment) Personnel department expenses.. Required Prepare an income statement based on full absorption costing. Prepare an income statement based on variable costing. $2,800,000 880,000 720,000 544,000 320,000 175,000 240,000 60,000 18,000 28,800 30,000 Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $25 per unit. Which income statement presents the most relevant data? Determine the appar- ent profit or loss on the special order based solely on these data. 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?
Transcribed Image Text:Variable and Absorption Costing Summarized data for 2019 (the first year of operations) for Gor- man Products, Inc., are as follows: Sales (70,000 units).... Production costs (80,000 units): Direct materials.. Direct labor.... a. b. C. Manufacturing overhead: Variable... Fixed.... Operating expenses: Variable. Fixed... Depreciation on equipment. Real estate taxes. Personal property taxes (on inventory and equipment) Personnel department expenses.. Required Prepare an income statement based on full absorption costing. Prepare an income statement based on variable costing. $2,800,000 880,000 720,000 544,000 320,000 175,000 240,000 60,000 18,000 28,800 30,000 Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $25 per unit. Which income statement presents the most relevant data? Determine the appar- ent profit or loss on the special order based solely on these data. 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?
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