Question
GoWay manufacturers and sells a portable battery-powered transportation device that can be stored in a backpack. The device usually sells for $5,000 per unit. The
GoWay manufacturers and sells a portable battery-powered transportation device that can be stored in
a backpack. The device usually sells for $5,000 per unit. The company normally sells units as quickly as
manufactured and does not maintain a finished goods inventory. However, during the most recent year, the company produced 10,000 units, but only sold 9,000.
A military customer has requested to buy the other 1,000 units for delivery on December 31 of the year current year. The offered price is $3,900 per unit for all 1,000 units. Below are absorption-costing based calculations of ending inventory and net income, based on the 9,000 units already sold.
Variable manufacturing costs ($3,000 X 10,000) | $30,000,000 |
Fixed manufacturing costs | 12,000,000 |
Cost of goods manufactured | $42,000,000 |
Cost of goods sold ($42,000,000 X (9,000/10,000)) | 37,800,000 |
Ending inventory ($42,000,000 X (1,000/10,000)) | $4,200,000 |
Sales (9,000 X $5,000) | $45,000,000 |
Cost of goods sold | 37,800,000 |
Gross profit | 7,200,000 |
Variable SG&A (9,000 X $100) | $900,000 |
Fixed SG&A | 5,800,000 |
Net income | $500,000 |
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