Question

Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $58, of which $40 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $91 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 2015 and 2016 Units Manufactured Units Sold 120,000 90,000 20,000 130,000 2015 2016 a. Prepare gross profit computations for 2015 and 2016 using absorption costing. Do not use negative signs with your answers. Absorption Costing 2015 2016 s 8,190,000 11,830,00 Sales Cost of goods sold: Beginning inventory 30,000 x Production 120,000 X 120,000 Goods available 120,000 150,000

Please include helpful steps

Answer 1

Answer a.

Absorption Costing:

2015:

Sales = 90,000 * $91
Sales = $8,190,000

Production = 120,000 * $58
Production = $6,960,000

Ending Inventory = 30,000 * $58
Ending Inventory = $1,740,000

2016:

Sales = 130,000 * $91
Sales = $11,830,000

Beginning Inventory = $1,740,000

Production = 120,000 * $58
Production = $6,960,000

Ending Inventory = 20,000 * $58
Ending Inventory = $1,160,000

Absorption Costing 2015 2016 8,190,000$ 11,830,000 Sales Cost of goods sold Beginning inventory Production Goods available Less: Ending inventory Cost of goods sold Gross profit $ 1,740,000 $ 6,960,000$6,960,000 $ 6,960,000 $8,700,000 $ 1,740,000$1,160,000 $ 5,220,000 $ 7,540,000 $ 2,970,000 $4,290,000

Answer b.

Variable Costing:

Fixed Costs = Fixed Manufacturing Cost per unit * Total units produced
Fixed Costs = $18 * 120,000
Fixed Costs = $2,160,000

2015:

Production = 120,000 * $40
Production = $4,800,000

Ending Inventory = 30,000 * $40
Ending Inventory = $1,200,000

2016:

Production = 120,000 * $40
Production = $4,800,000

Beginning Inventory = $1,200,000

Ending Inventory = 20,000 * $40
Ending Inventory = $800,000

Variable Costing 2015 2016 S8,190,000 S 11,830,000 Sales Variable cost of goods sold Beginning inventory Production Goods available Less: Ending inventory Variable cost of goods sold Less: Fixed manufacturing costs Gross profit -$ 1,200,000 $ 4,800,000$4,800,000 $ 4,800,000$6,000,000 $ 1,200,000$800,000 $ 3,600,000 $5,200,000 $ 2,160,0002,160,000 $ 2430,000$4,470,000