Variable and Absorption Costing Summarized data for 2016 (the first year of operations) for Gorman Products, Inc., are as follows: Sales (75,000 units) $4,500,000 Production costs (80,000 units) Direct material 1,320,000 Direct labor 1,080,000 Manufacturing overhead: Variable 816,000 Fixed 480,000 Operating expenses: Variable 252,000 Fixeu 360,000 Depreciation on equipment 90,000 Real estate taxes 27,000 Personal property taxes (inventory & equipment) 43,200 Personnel department expenses 45,000 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 4,500,000 Cost of Goods Sold: Beginning Inventory Direct materials 1,320,000 Direct labor 1,080,000 Manufacturing overhead 1,296,000 Less: Encing Inventory 231,000 Cost of Goods Sold 3,465,000 Gross profit 1,035,000 Operating expenses 817,200 x Net Income (Loss) 217,800 x 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 $ 4,500,000 Variable cost of Goods Solo: Beginning Inventory Direct materials 1,320,000 Direct labor 1,080,000 Variable manufacturing overhead > 816,000 Less: Ending Inventory 201,000 Variable cost of goods sold 3,015,000 Variable operating expenses . 252,000 Contribution margin 1,233,000 Fixed costs: Manufacturing overhead 480,000 Operating expenses 565,200 x Total Fixed Cost 1,045,200 x Net Income (Loss) 187,800 x C. Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $45 per unit. Which income statement presents the most relevant data? variable costing 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. Absorption costing approach because the cost should include a reasonable portion of fixed manufacturing costs. Variable costing approach because the cost should include a reasonable portion of fixed manufacturing costs
