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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

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
Fixed 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

Answer

Cost of Goods Sold:
Beginning Inventory

Answer

Direct materials

Answer

Direct labor

Answer

Answer

Answer

Less: Ending Inventory

Answer

Cost of Goods Sold

Answer

AnswerGross profitOperating expensesVariable manufacturing overheadManufacturing overheadContribution margin

Answer

AnswerGross profitOperating expensesVariable manufacturing overheadManufacturing overheadContribution margin

Answer

Net Income (Loss)

Answer

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

Answer

Variable cost of Goods Sold:
Beginning Inventory

Answer

Direct materials

Answer

Direct labor

Answer

AnswerGross profitVariable manufacturing overheadManufacturing overheadVariable operating expensesContribution margin

Answer

Less: Ending Inventory

Answer

Variable cost of goods sold

Answer

Answer

Answer

Answer

Answer

Fixed costs:
Answer

Answer

Operating expenses

Answer

Total Fixed Cost

Answer

Net Income (Loss)

Answer

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?Answer

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.

$Answer

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.

A- Absorption costing approach because the cost should include a reasonable portion of fixed manufacturing costs.

B- Variable costing approach because the cost should include a reasonable portion of fixed manufacturing costs.

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