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Chapter 21: Q7SE (page 1168)

Computing absorption costing gross profit

Refer to your answers to Short Exercise S21-6. Product X sells for \(175 per unit. Assume no beginning inventories. Calculate the gross profit using absorption costing when Adamson:

  1. Produces and sells 2,000 units.
  2. Produces 2,500 units and sells 2,000 units.
  3. Produces 5,000 units and sells 2,000 units.

S21-6 Direct materials \) 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per ye

Short Answer

Expert verified

Answer

  1. Gross profit =$120,000
  2. Gross profit =$124,000
  3. Gross profit =$132,000

Step by step solution

01

Calculation of unit product cost using absorption costing

Particulars

2,000 Units

2,500 Units

5,000 Units

Direct material

$41

$41

$41

Direct labor

$57

$57

$57

Variable manufacturing overhead

$7

$7

$7

Fixed manufacturing overhead

$20,000/2,000

=$10

$20,000/2,500

=$8

$20,000/5,000

=$4

Total unit product cost

$115

$113

$109

02

Calculation of gross profit using absorption costing (a, b, c):

Particulars

Produce and sell 2,000 units

Produce 2,500 and sell 2,000 units

Produce 5,000 and sell 2,000 units

Net sales revenue

2,000x$175

=$350,000

2,000x$175

=$350,000

2,000x$175

=$350,000

Less: Cost of goods sold (Units sold x Unit product cost

2,000x$115

=$230,000

2,000x$113

=$226,000

2,000x$109

=$218,000

Gross profit

$120,000

$124,000

$132,000

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Most popular questions from this chapter

When units produced exceed units sold, how does operating income differ between variable costing and absorption costing? Why?

How do service companies differ from manufacturing companies?

Analyzing profitability analysis, service company Burlington Internet Services is an Internet service provider for commercial and residential customers. The company provided the following data for its two types of customers for the month of August:

For each type of customer, determine both the contribution margin per customer and the contribution margin ratio. Round to two decimal places.

Which type of service is more profitable?

Computing unit product cost, variable costing Calculate the unit product cost using variable costing. Round your answer to the nearest cent.

Use the following information for Short Exercises S21-2 and S21-3.

Martin Company had the following costs:

Units produced 320 units Direct materials $ 71 per unit Direct labor 40 per unit Variable manufacturing overhead 13 per unit Fixed manufacturing overhead 7,360 per year Variable selling and administrative costs 22 per unit Fixed selling and administrative costs 1,920 per year

Setting sales prices The Sweet Treats Company manufactures candy that is sold to food distributors. The company produces at full capacity for six months each year to meet peak demand during the “candy season” from Halloween through Valentine’s Day. During the other six months of the year, the manufacturing facility operates at 75% of capacity. The Sweet Treats Company provides the following data for the year:

Cases of candy produced and sold 1,800,000 cases Sales price $ 37.00 per case Variable manufacturing costs 20.00 per case Fixed manufacturing costs 6,400,000 per year Variable selling and administrative costs 2.00 per case Fixed selling and administrative costs 3,500,000 per year The Sweet Treats Company receives an offer to produce 13,000 cases of candy for a special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum sales price The Sweet Treats Company should accept for the order? Explain why
See all solutions

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