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
Cost of Goods Sold:
Beginning Inventory
Direct materials
Direct labor
Gross profitOperating expensesVariable manufacturing overheadManufacturing overheadContribution margin
Less: Ending Inventory
Cost of Goods Sold
Gross profitOperating expensesVariable manufacturing overheadManufacturing overheadContribution margin
Gross profitOperating expensesVariable manufacturing overheadManufacturing overheadContribution margin
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
Gross profitVariable manufacturing overheadManufacturing overheadVariable operating expensesContribution margin
Less: Ending Inventory
Variable cost of goods sold
Gross profitVariable manufacturing overheadManufacturing overheadVariable operating expensesContribution margin
Gross profitVariable manufacturing overheadManufacturing overheadVariable operating expensesContribution margin
Fixed costs:
Gross profitVariable manufacturing overheadManufacturing overheadVariable operating expensesContribution margin
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 $45 per unit.

Which income statement presents the most relevant data? Answerabsorption costingvariable 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.

$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.

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.