Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Variable and Absorption Costing Frances Manufacturing makes a product with total unit manufacturing cost of $64, of which $36 is variable. No units were on

Variable and Absorption Costing Frances Manufacturing makes a product with total unit manufacturing cost of $64, of which $36 is variable. No units were on hand at the beginning of 2019. During 2019 and 2020, the only product manufactured was sold for $96 per unit, and the cost structure did not change. Frances uses the first-in, first-out inventory method and has the following production and sales for 2019 and 2020:

Units Manufactured Units Sold
2019 90,000 70,000
2020 90,000 100,000

a. Prepare gross profit computations for 2019 and 2020 using absorption costing. Do not use negative signs with your answers.

Absorption Costing
2019 2020
Sales Answer Answer
Cost of goods sold:
Beginning inventory Answer Answer
Production Answer Answer
Goods available Answer Answer
Less: Ending inventory Answer Answer
Cost of goods sold Answer Answer
Gross profit Answer Answer

b. Prepare gross profit computations for 2019 and 2020 using variable costing. Do not use negative signs with your answers.

Variable Costing
2019 2020
Sales Answer Answer
Variable cost of goods sold:
Beginning inventory Answer Answer
Production Answer Answer
Goods available Answer Answer
Less: Ending inventory Answer Answer
Variable cost of goods sold Answer Answer
Less: Fixed manufacturing costs Answer Answer
Gross profit Answer Answer

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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

CISA Certified Information Systems Auditor Practice Exams

Authors: Peter H. Gregory

1st Edition

1260459845, 978-1260459845

More Books

Students also viewed these Accounting questions