Question

Variable and Absorption Costing Summarized data for 2019 the first year of operations) for Gorman Products, Inc., are as follows: Sales (70.000 units) Production COSES 80,000 units Direct material Direct labor Manufacturing overhead Operating expenses Depreciation on equipment Real estate taxes Personal property taxes inventory equipment Personnel department expenses 2800 2000 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 netlos. Otherwise do not use negative signs with any answers. Round answers to the ne number, when applicable Absorption Costing income statement Cost of Goods Sold Beginning inventory

Answer 1

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Gorman Products Inc.
Calculation of beginning and ending inventory
	2019	Note
Beginning inventory	-
Add: Production	80,000.00
Less: Sales	70,000.00
Ending inventory	10,000.00	A
Calculation of per unit rates	2019
Sales units	70,000.00	B
Sale Value	2,800,000.00	C
Sell price	40.00	D=C/B
	Total	Per unit
Production (units)	80,000.00
Direct Material	880,000.00	11.00	This is Direct Material costs/ Production (units).
Direct Labor	720,000.00	9.00	This is Direct Labor costs/ Production (units).
Manufacturing Overhead
Variable	544,000.00	6.80	This is Variable Manufacturing Overhead/ Production (units).
Fixed	320,000.00	4.00	This is Fixed Manufacturing Overhead/ Production (units).
Calculation of ending inventory values
	Per unit	Total
Ending inventory (units)		10,000.00
Direct Material	11.00	110,000.00	This is per unit Direct Material costs* Ending inventory (units).
Direct Labor	9.00	90,000.00	This is per unit Direct Labor costs* Ending inventory (units).
Manufacturing Overhead
Variable	6.80	68,000.00	This is per unit Variable Manufacturing Overhead/* Ending inventory (units).
Fixed	4.00	40,000.00	This is per unit Fixed Manufacturing Overhead/* Ending inventory (units).
Ending inventory (absorption costing)		308,000.00	E
	Per unit	Total
Ending inventory (units)		10,000.00
Direct Material	11.00	110,000.00	This is per unit Direct Material costs* Ending inventory (units).
Direct Labor	9.00	90,000.00	This is per unit Direct Labor costs* Ending inventory (units).
Manufacturing Overhead
Variable	6.80	68,000.00	This is per unit Variable Manufacturing Overhead/* Ending inventory (units).
Ending inventory (Variable costing)		268,000.00	F
Calculation of ending Operating Expenses
Operating Expenses
Variable	175,000.00
Fixed	240,000.00
Depreciation on Equipment	60,000.00
Real Estate Taxes	18,000.00
Personal Property taxes	28,800.00
Personal department Expenses	30,000.00
Operating Expenses (absorption costing)	551,800.00		G
Answer a	Absorption Costing
	2019
Sale Value	2,800,000.00
Cost of Goods sold
Beginning inventory	-
Direct Material	880,000.00
Direct Labor	720,000.00
Manufacturing Overhead	864,000.00
Less: Ending inventory	308,000.00	See Note E
Cost of Goods sold	2,156,000.00
Gross profit	644,000.00
Operating Expenses	551,800.00	See Note G
Net Income	92,200.00
Answer b	Variable Costing
	2019
Sale Value	2,800,000.00
Variable Cost of Goods sold
Beginning inventory	-
Direct Material	880,000.00
Direct Labor	720,000.00
Manufacturing Overhead	544,000.00
Less: Ending inventory	268,000.00	See Note F
Variable Cost of Goods sold	1,876,000.00
Contribution	924,000.00
Less: Fixed costs
Manufacturing Overhead	320,000.00
Operating Expenses	551,800.00	See Note G
Net Income	52,200.00
Answer c
Variable Costing income statement presents the most relevant data.
	Per unit $
Direct Material	11.00
Direct Labor	9.00
Manufacturing Overhead
Variable	6.80
Total cost per unit	26.80	H
Sell price	25.00	I
Loss per unit	(1.80)	J= H-I
Units sold	1,000.00	K
Net loss	(1,800.00)	L=J*K
Answer d
Absorption costing approach because the cost should include a reasonable portion of fixed manufacturing costs.