Question

Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $59, of which $41 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $93 per unit, and the cost structure did not change. Scott uses the first-in, first-out inventory method and has the following production and sales for 2015 and 2016 2015 Units Manufactured Units Sold 120,000 90,000 120,000 130,000 2016 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 $ 0$ Cost of goods sold: Beginning inventory Production Goods available Less: Ending inventory Cost of goods sold Gross profit $ 0$ 0

Answer 1

Absorption costing income statement- Scot Manufacturing
	Year-2015		Year-2016
Sales Unit	90000		130000
Sales @ 93		$8,370,000		$12,090,000
Less:Cost Of Goods Sold
Beginning Inventory			$1,770,000
Variable Manufacturing Cost ( 41*120000)	$4,920,000		$4,920,000
Fixed Manufacturing Cost ( 18*120000)	$2,160,000		$2,160,000
Goods Available	$7,080,000		$8,850,000
Less:Ending Inventory (7080000/120000*30000) (8850000/150000*20000)	-$1,770,000		-$1,180,000
Cost Of Goods Sold		$5,310,000		$7,670,000
Gross Profit		$3,060,000		$4,420,000
Variable costing income statement- Scott Manufacturing
	Year-2015		Year-2016
Sales Unit	90000		130000
Sales @ 93		$8,370,000		$12,090,000
Less:Variable Cost Of Goods Sold
Beginning Inventory			$1,230,000
Variable Manufacturing Cost ( 41*120000)	$4,920,000		$4,920,000
Goods Available	$4,920,000		$6,150,000
Less:Ending Inventory (4920000/120000*30000) (6150000/150000*20000)	-$1,230,000		-$820,000
Less: Variable cost of Goods Sold		$3,690,000		$5,330,000
Less Fixed manufacturing cost		$2,160,000		$2,160,000
Gross Profit		$2,520,000		$4,600,000

Part-3

If product volume Exceed sales volume, the absorption costing gross profit will be higher than the variable costing gross profit