exercise 19 - 14 (algo) absorption costing and overproduction lo c1\njax incorporated reports the following…

exercise 19 - 14 (algo) absorption costing and overproduction lo c1\njax incorporated reports the following data for its only product. the company had no beginning finished goods inventory and it uses absorption costing.\nsales price $ 57.00 per unit\ndirect materials $ 10.00 per unit\ndirect labor $ 7.50 per unit\nvariable overhead $ 12.00 per unit\nfixed overhead $ 1,050,000 per year\ncomplete this question by entering your answers in the tabs below.\ncompute gross profit assuming (a) 70,000 units are produced and 70,000 units are sold and (b) 100,000 units are produced and 70,000 units are sold.\n

exercise 19 - 14 (algo) absorption costing and overproduction lo c1\njax incorporated reports the following data for its only product. the company had no beginning finished goods inventory and it uses absorption costing.\nsales price $ 57.00 per unit\ndirect materials $ 10.00 per unit\ndirect labor $ 7.50 per unit\nvariable overhead $ 12.00 per unit\nfixed overhead $ 1,050,000 per year\ncomplete this question by entering your answers in the tabs below.\ncompute gross profit assuming (a) 70,000 units are produced and 70,000 units are sold and (b) 100,000 units are produced and 70,000 units are sold.\n

Answer

Explanation:

Step1: Calculate unit product cost for each case

Case (a)

  • Direct materials: $10.00 per unit
  • Direct labor: $7.50 per unit
  • Variable overhead: $12.00 per unit
  • Fixed overhead per unit: $\frac{1,050,000}{70,000}=15$ per unit
  • Unit product cost: $10 + 7.5+12 + 15=$44.5$

Case (b)

  • Direct materials: $10.00 per unit
  • Direct labor: $7.50 per unit
  • Variable overhead: $12.00 per unit
  • Fixed overhead per unit: $\frac{1,050,000}{100,000}=10.5$ per unit
  • Unit product cost: $10 + 7.5+12 + 10.5=$40$

Step2: Calculate gross profit for each case

Case (a)

  • Sales revenue: $57\times70,000 = 3,990,000$
  • Cost of goods sold: $44.5\times70,000=3,115,000$
  • Gross profit: $3,990,000 - 3,115,000=$875,000$

Case (b)

  • Sales revenue: $57\times70,000 = 3,990,000$
  • Cost of goods sold: $40\times70,000 = 2,800,000$
  • Gross profit: $3,990,000-2,800,000=$1,190,000$

Answer:

Item (a) 70,000 Units Produced and 70,000 Units Sold (b) 100,000 Units Produced and 70,000 Units Sold
Gross profit $$875,000$ $$1,190,000$