Question

Question 4 of 4 < > The following information is available for Foress Pools, a manufacturer of above-ground swimming pool kits: Total 20,200 20,200 Units produced Units sold Selling price per unit Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year Ford selling and administrative expense per year 2020 12.200 10,100 $4,080 $810 $1,500 $318 $2,440,000 $1,371,200 2021 8.000 10,100 $4,080 $810 $1,500 $318 $2,440,000 $1,371,200 In its first year of operation, the company produced 12,200 units but was able to sell only 10,100 units. In its second year, the company needed to get rid of excess inventory (the extra 2.100 units produced but not sold in 2020), so it cut back production to 8.000 units Calculate profit for both years using full costing. (Round cost per unit to 2 decimal places, s. 15.25 and final answers to decimal places, 23.125.) 2021 2020 $ Net profit e Textbook and Media Yes N NO ofit has declined in 2021. Is company performance actually worse in 2021 compared to 2020?

Answer 1

Answer:

Requirement 1 Calculation of profits for both years using full costing Foress Pools Full Costing Income Statement 2020 2021 Sales Revenue 2020: (10,100 Units x $4,080) 2021: (10,100 Units x $4,080) Less: Costs of Goods Sold(Note 1) Less: Fixed Selling and administrative costs Operating Income $ $ $ $ 41,208,000 $ 28,562,800 $ 1,371,200 $ 11,274,000 S 41,208,000 29,402,800 1,371,200 10,434,000 Requirement 2 No, Company performance is not actually worse in 2021 as compared to 2020. It is not worse as all variable and fixed cost remained same for both the years, In order to get rid of inventory company produced less units as compared to 2020.

2020 2021 $ 32,061,600 S 21,024,000 Note 1: Cost of Goods Sold - Variable Manufacturing Cost(Note 2) 2020: (12,200 units x $2628) 2021: (8,000 units x $2628) - Fixed Manufacturing overhead(Note 3) 2020: (12,200 units x $200) 2021: (8,000 units x $305) Add: Beginning Inventory 2021: [(12,200 - 10,100) Units units x ($2628 + $200)] Less: Ending Inventory 2020: [(12,200 - 10,100) Units units x ($2628 + $200)] Cost of Goods Sold $ 2,440,000 $ 2,440,000 $ $ 5,938,800 $ 5,938,800 28,562,800 $ $ 29,402,800 Note 2: Variable Manufacturing Cost per unit 2020 2021 Direct Material per Unit Direct labor per unit Variable Manufactring overhead per unit Total variable Manufacturing Cost $ $ $ 810 $ 1,500 $ 318 $ 2,628 $ 810 1,500 318 2,628 $

Note 3: Fixed Manufacturing overhead cost per unit: Fixed Manufacturing overhead cost per year Units produced Fixed Manufacturing overhead cost per unit: $ $ $ 2020 2,440,000 $ 12,200 $ 200 $ 2021 2,440,000 8,000 305

Requirement 3 Calculation of profits for both years using Variable Costing Foress Pools Variable Costing Income Statement 2020 2021 Sales Revenue 2020: (10,100 Units x $4,080) 2021: (10,100 Units x $4,080) Less: Costs of Goods Sold(Note 4) Less: Fixed manufacturing overhead per year Less: Fixed Selling and administrative costs Operating Income $ $ $ $ $ 41,208,000 $ 26,542,800 $ 2,440,000 $ 1,371,200 $ 13,294,000 $ 41,208,000 26,542,800 2,440,000 1,371,200 13,294,000 Requirement 4 Yes, variable costing present a more realistic view of firm performance in the 2 years.

2020 2021 $ 32,061,600 $ 21,024,000 Note 4: Cost of Goods Sold - Variable Manufacturing Cost(Note 5) 2020: (12,200 units x $2628) 2021: (8,000 units x $2628) Add: Beginning Inventory 2021: [(12,200 - 10,100) Units units x ($2628)] Less: Ending Inventory 2020: [(12,200 - 10,100) Units units x ($2628)] Cost of Goods Sold $ $ 5,518,800 $ $ 5,518,800 26,542,800 $ 26,542,800 Note 5: Variable Manufacturing Cost per unit 2021 Direct Material per Unit Direct labor per unit Variable Manufactring overhead per unit Total variable Manufacturing Cost $ $ $ $ 2020 810 $ 1,500 $ 318 $ 2,628 $ 810 1,500 318 2,628