Variable and Absorption Costing Summarized data for 2019 (the first year of operations) for Gorman Products, Inc., are as follows: Sales (70,000 units) $2,800,000 Production costs (80,000 units) 880,000 Direct material Direct labor 720,000 Manufacturing overhead: Variable 544,000 Fixed 320,000 Operating expenses: Variable 175,000 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 Cost of Goods Sold: Beginning Inventory Direct materials Direct labor Less: Ending Inventory Cost of Goods Sold 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 Cost of Goods Sold: Beginning Inventory Direct materials Direct labor Less: Ending Inventory Cost of Goods Sold Net Income (Loss) b. Prepare an income statement based on variable 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. Variable Costing Income Statement Sales Variable cost of Goods Sold: Beginning Inventory Direct materials Direct labor Less: Ending Inventory Variable cost of goods sold b. Prepare an income statement based on variable 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. Variable Costing Income Statement Sales $ Variable cost of Goods Sold: Beginning Inventory Direct materials Direct labor Less: Ending Inventory Variable cost of goods sold Fixed costs: Operating expenses Total Fixed Cost Net Income (Loss) c. Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $25 per unit. Which income statement presents the most relevant data? Determine the apparent profit or loss on the special order based solely on these data. Use a negative sign with your answer if the special order creates an apparent loss. Round answer to the nearest whole number. d. If the ending inventory is destroyed by fire, which costing approach would you use as a basis for filing an insurance claim for the fire loss? Why? Select the most appropriate statement
