Question

Fill in the blanks please

Variable and Absorption Costing Summarized data for 2016 (the first year of operations) for Gorman Products, Inc., are as follows: Sales (75,000 units) $4,500,000 Production costs (80,000 units) Direct material 1,320,000 Direct labor 1,080,000 Manufacturing overhead: Variable 816,000 Fixed 480,000 Operating expenses: Variable 252,000 Fixed 360,000 Depreciation on equipment 90.000 Real estate taxes 27,000 Personal property taxes (inventory & equipment) 43,200 Personnel department expenses 45,000 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 $ 4500000 Cost of Goods Sold: Beginning Inventory Direct materials 1320000 Direct labor 1080000 Manufacturing overhead 1296000 Less: Ending Inventory 231000 Cost of Goods Sold 3465000 Gross profit 1035000 Operating expenses Net Income (Loss) $ 0 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 Variable cost of Goods Sold: Beginning Inventory Direct materials Direct labor 1320000 Variable manufacturing overhead : 816000 Less: Ending Inventory Variable cost of goods sold Variable operating expenses 252000 Contribution margin Fixed costs: Manufacturing overhead 480000 Operating expenses 360000 Total Fixed Cost Net Income (Loss)

Answer 1

Answer-a)-

GORMAN PRODUCTS
Income statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)			4500000
Less:- Cost of goods sold (b)
Opening inventory
Add:- Cost of goods manufactured		3696000
Direct materials		1320000
Direct labor		1080000
Variable manufacturing overhead		816000
Fixed manufacturing overhead		480000
Cost of goods available for sale		3696000
Less:- Closing inventory	5000 units*$46.2 per unit	231000	3465000
Gross margin C= a-b			1035000
Less:-Variable operating expenses			252000
Less:- Fixed costs
Fixed operating expenses			360000
Other fixed costs			205200
Net Income			217800

Explanation- Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

=($1320000+$1080000+$816000)/80000 units+$6 per unit

= $46.2 per unit

Unit fixed manufacturing overhead= Fixed manufacturing overhead/No. of units produced

=$480000/80000 units

=$6 per unit

b)-

GORMAN PRODUCTS
Income statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)			4500000
Less:- Variable cost of goods sold (b)
Opening inventory		NIL
Add:- Variable cost of goods manufactured		3216000
Direct materials		1320000
Direct labor		1080000
Variable manufacturing overhead		816000
Variable cost of goods available for sale		3216000
Less:- Closing inventory	5000 units*$40.2 per unit	201000	3015000
Gross contribution margin C= a-b			1485000
Less:-Variable operating expenses			252000
Contribution margin			1233000
Less:- Fixed costs
Fixed manufacturing overhead			480000
Fixed operating expenses			360000
Other fixed costs			205200
Net Income			187800

Explanation-Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead

=($1320000+$1080000+$816000)/80000 units

= $40.2 per unit