#$1$ Variable and Absorption Costing

Scott Manufacturing makes only one product with total unit manufacturing costs of $$57,$ of which $$39$ is variable. No units were on hand at the beginning of Year $1.$ During Year $1$ and Year $2,$ the only product manufactured was sold for $$89$ 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 Year $1$ and Year $2$

Units Manufactured Units Sold

Year $1120,00090,000$

Year $2120,000130,000$

a$.$ Prepare gross profit computations for Year $1$ and Year $2$ using absorption costing.

Do not use negative signs with your answers.

Absorption Costing

Year $1$ Year $2$

Sales Answer

$0$

Answer

$0$

Cost of goods sold:

Beginning inventory Answer

$0$

Answer

$0$

Production Answer

$0$

Answer

$0$

Goods available Answer

$0$

Answer

$0$

Less: Ending inventory Answer

$0$

Answer

$0$

Cost of goods sold Answer

$0$

Answer

$0$

Gross profit Answer

$0$

Answer

$0$

b$.$ Prepare gross profit computations for Year $1$ and Year $2$ using variable costing.

Do not use negative signs with your answers.

Variable Costing

Year $1$ Year $2$

Sales Answer

$0$

Answer

$0$

Variable cost of goods sold:

Beginning inventory Answer

$0$

Answer

$0$

Production Answer

$0$

Answer

$0$

Goods available Answer

$0$

Answer

$0$

Less: Ending inventory Answer

$0$

Answer

$0$

Variable cost of goods sold Answer

$0$

Answer

$0$

Less: Fixed manufacturing costs Answer

$0$

Answer

$0$

Gross profit Answer

$0$

Answer

$0$

c$.$ Explain how your answers illustrate the impact of differences between production and sales volumes on the gross profits reported each year under absorption and variable costing.

Select the most appropriate statement.

If production volume exceeds sales volume, the absorption costing gross profit will be higher than the variable costing gross profit.

If sales volume exceeds production volume, the absorption costing gross profit will be higher than the variable costing gross profit.

If production volume exceeds sales volume, the variable costing gross profit will be higher than the absorption costing gross profit.

If sales volume exceeds production volume, the variable costing gross profit will be lower than the absorption costing gross profit.

#$2$Variable and Absorption Costing

Chandler Company sells its product for $$108$ per unit. Variable manufacturing costs per unit are $$49,$ and fixed manufacturing costs at the normal operating level of $12,000$ units are $$240,000.$ Variable selling expenses are $$17$ per unit sold. Fixed administrative expenses total $$104,000.$ Chandler had no beginning inventory for the year. During the year, the company produced $12,000$ units and sold $9,000.$ Would net income for Chandler Company be higher if calculated using variable costing or using absorption costing?

Calculate reported income using each method.

Do not use negative signs with any answers.

Absorption Costing Income Statement

Sales Answer

$0$

Cost of Goods Sold:

Beginning Inventory Answer

$0$

Variable Costs Answer

$0$

Fixed Costs Answer

$0$

Less: Ending Inventory Answer

$0$

Cost of Goods Sold Answer

$0$

Answer

Gross profit

Answer

$0$

Answer

Selling expense

Answer

$0$

Administrative expense Answer

$0$

Net Income Answer

$0$

Variable Costing Income Statement

Sales Answer

$0$

Cost of Goods Sold:

Beginning Inventory Answer

$0$

Variable Costs Answer

$0$

Answer

Answer

$0$

Variable cost of goods sold Answer

$0$

Answer

Answer

$0$

Answer

Answer

$0$

Fixed costs:

Answer

Answer

$0$

Administrative Expense Answer

$0$

Total Fixed Cost Answer

$0$

Net Income Answer

$0$

#$3$ Variable and Absorption Costing

Summarized data for the first year of operations for Gorman Products, Inc., are as follows:

Sales $(75,000$ units$)$ $$3,000,000$

Production costs $(80,000$ units$)$

Direct material $880,000$

Direct labor $720,000$

Manufacturing overhead:

Variable $544,000$

Fixed $320,000$

Operating expenses:

Variable $168,000$

Fixed $240,000$

Depreciation on equipment $60,000$

Real estate taxes $18,000$

Personal property taxes $($inventory & equipment$)28,800$

Personnel department expenses $30,000$

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 Answer

$3,000,000$

Cost of Goods Sold:

Beginning Inventory Answer

$0$

Direct materials Answer

$880,000$

Direct labor Answer

$720,000$

Answer

Manufacturing overhead

Answer

$864,000$

Less: Ending Inventory Answer

$154,000$

Cost of Goods Sold Answer

$2,310,000$

Answer

Gross profit

Answer

$690,000$

Answer

Operating expenses

Answer

$408,000$

Net Income $($Loss$)$ Answer?

$282,000$

b$.$ Prepare an income statement based on variable costing.

Only use a negative sign with your answer for net income $($loss$),$

i need help with c$?$ on number $3$