Question
Sparrow Inc. uses absorption costing in a FIFO inventory system. Sparrow had opening inventory of 170 units at a cost of $35 per unit. Ending
Sparrow Inc. uses absorption costing in a FIFO inventory system. Sparrow had opening inventory of 170 units at a cost of $35 per unit. Ending inventory is 120 units. During 2017 Sparrow sold 1,600 units at $55 each. The following costs apply to Sparrow's operations for the year ended December 31, 2017.
Direct material used in production | $ 12 per unit |
Direct labour incurred | 5 per unit |
Fixed manufacturing overhead | $ 17,050 |
Variable manufacturing overhead | $ 4 per unit |
Selling costs (40% variable) | $ 20,000 |
Admin costs (10% variable) | $ 30,000 |
Round to the nearest whole number. Do not use decimals or commas in your answer.
(a) What amounts will be reported on Sparrow's Income Statement for:
Cost of goods sold $?
Gross profit $?
Period costs $?
(b) Sparrow also prepares a variable costing income statement for internal purposes. Assume the fixed manufacturing overhead attached to each unit in beginning inventory was $14 per unit. Will their variable costing net income be higher or lower than under absorption costing and by how much? and low or higher
*you'll have to calculate FMOH released from beginning inventory AND FMOH stored in ending inventory?
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