Q7SE - Horngren'S Financial And Managerial Accounting

Question

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

Step-by-Step Solution

Answer

Answer

 

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

 

Step 1: 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

Step 2: 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