Question

$ 41 16 Sale price Variable manufacturing expense per unit Sales commission expense per unit Fixed manufacturing overhead Fixed operating expenses Number of goggles produced Number of goggles sold 10 2,400,000 295,000 240,000 220,000

Answer 1

Statement showing Absorption & Contribution Statement: 1 Absorption Costing Income Statement No. of units produced 240000 No. of units sold 220000 Closing Stock $ 20,000 Sales $ 90,20,000 Less: Cost of Goods sold Variable manufacturing cost per unit $ 35,20,000 Fixed manufacturing Overhead $ 22,00,000 Cost Goods sold $ 57,20,000 Gross Profit $ 33,00,000 Operating Expense Sales commission per unit $ 22,00,000 Fixed Operating Exp $ 2,95,000 Operating Expense $ 24,95,000 Income from Operations $ 8,05,000 Contribution Margin Statement No. of units produced No. of units sold Closing Stock 240000 220000 20,000 90,20,000 $ $ Sales Less: Variable Cost of Goods sold Variable manufacturing cost per unit Sales commission per unit Contribution Fixed manufacturing Overhead Fixed Operating Exp Income from Operations $ $ $ $ $ $ 35,20,000 22,00,000 33,00,000 24,00,000 2,95,000 6,05,000 2 Income form operations under absorption costing is higher by $ 200,000 and it is caused by the allocation of fixed manufacturing overhead to closing Inventory No. of units produced 240000 No. of units sold 220000 Closing Stock $ 20,000 Fixed manufacturing Overhead per unit $ 10 Fixed manufacturing Overhead in closir $ 2,00,000 3 Absorption Costing Income Statement No. of units produced 2,40,000 No. of units sold $ 2,40,000 Closing Stock $ Sales $ 98,40,000 Less Cost of Goods sold Variable manufacturing cost per unit $ 38,40,000 Fixed manufacturing Overhead $ 24,00,000 Cost of Goods sold $ 62,40,000 Gross Profit $ 36,00,000 Operating Expense Sales commission per unit $ 24,00,000 Fixed selling and admin costs $ 2,95,000 Advertising Expense $ 1,55,000 Operating Expense $ 28,50,000 Income from Operations $ 7,50,000 Previous Income from Operations $ 8,05,000 Difference $ -55,000 If promotion expense is incurred Income from Operations will decrease 55,000 so proposal should not be accepted. Workings for Fixed Mafg OH rate = 2400000/240000 = 10 * Kindly Comment down for any clarifications/ queries and please upvote.