Question

0 4 Not complete worked out of 5.00 Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $54, of which $40 is variable. No units were on hand at the beginning of 2019. During 2019 and 2020, the only product manufactured was sold for 65 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 2019 and 2020 Units Manufactured Units sold 2020 110.000 120.000 Prepare gross profit computations for 2019 and 2020 using absorption costing Do not use negative signs with your answers Absorption Corting 2019 2020

Answer 1

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Scott Manufacturing
Calculation of beginning and ending inventory
	2019	2020	Note
Beginning inventory	-	20,000.00
Add: Production	110,000.00	110,000.00
Less: Sales	90,000.00	120,000.00
Ending inventory	20,000.00	10,000.00	A
Calculation of dollar values
	2019	2020
Sales units	90,000.00	120,000.00	B
Sell price	65.00	65.00	C
Sale Value	5,850,000.00	7,800,000.00	D=B*C
Beginning inventory	-	20,000.00	E
Total unit manufacturing costs	54.00	54.00	F
Beginning inventory ($)	-	1,080,000.00	G=E*F
Production	110,000.00	110,000.00	H
Total unit manufacturing costs	54.00	54.00	F
Production ($)	5,940,000.00	5,940,000.00	I=H*F
Ending inventory	20,000.00	10,000.00	J
Total unit manufacturing costs	54.00	54.00	F
Ending inventory ($)	1,080,000.00	540,000.00	K=J*F
Beginning inventory	-	20,000.00	E
Unit Variable costs	40.00	40.00	L
Beginning inventory ($)	-	800,000.00	M=E*L
Production	110,000.00	110,000.00	H
Unit Variable costs	40.00	40.00	L
Production ($)	4,400,000.00	4,400,000.00	N=H*L
Ending inventory	20,000.00	10,000.00	J
Unit Variable costs	40.00	40.00	L
Ending inventory ($)	800,000.00	400,000.00	O=J*L
Total unit manufacturing costs	54.00	54.00	F
Unit Variable costs	40.00	40.00	L
Unit Fixed costs	14.00	14.00	P=F-L
Production	110,000.00	110,000.00	H
Fixed manufacturing costs	1,540,000.00	1,540,000.00	Q=P*H
Answer a	Absorption Costing
	2019	2020
Sale Value	5,850,000.00	7,800,000.00	See D
Cost of Goods sold
Beginning inventory	-	1,080,000.00	See G
Add: Production	5,940,000.00	5,940,000.00	See I
Cost of Goods available	5,940,000.00	7,020,000.00
Less: Ending inventory	1,080,000.00	540,000.00	See K
Cost of Goods sold	4,860,000.00	6,480,000.00	R
Gross profit	990,000.00	1,320,000.00	S=D-R
Answer b	Variable Costing
	2019	2020
Sale Value	5,850,000.00	7,800,000.00	See D
Variable Cost of Goods sold
Beginning inventory	-	800,000.00	See M
Add: Production	4,400,000.00	4,400,000.00	See N
Cost of Goods available	4,400,000.00	5,200,000.00
Less: Ending inventory	800,000.00	400,000.00	See O
Variable Cost of Goods sold	3,600,000.00	4,800,000.00	T
Less: Fixed manufacturing costs	1,540,000.00	1,540,000.00	See Q
Gross profit	710,000.00	1,460,000.00	U=D-T-Q
Answer C
If production volume exceeds sales volume then, the absorption costing gross profit will be higher than variable costing gross profit.