Scott Manufacturing makes only one product with total unit manufacturing costs of $54, of which $40 is variable. No units were on hand at the beginning of 2019. During 2019 and 2020, the only product manufactured was sold for $65 per unit, and the cost structure did not change. Scott uses the first in, first out inventory method and has the following production and sales for 2019 and 2020. Units ManufacturedUnits Sold2019110,00090,0002020110,000120,000 a) Prepare gross profit computations for 2019 and 2020 using absortion costingb) Prepare gross profit compuations for 2019 and 2020 using variable costingc) Explain how your answers illustrate the impact of differences between production and sales volumes on the gross profits reported each year under absortion and variable costing.

Answered: Scott Manufacturing makes only one…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

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Scott Manufacturing makes only one product with total unit manufacturing costs of $54, of which $40 is variable. No units were on hand at the beginning of 2019. During 2019 and 2020, the only product manufactured was sold for $65 per unit, and the cost structure did not change. Scott uses the first in, first out inventory method and has the following production and sales for 2019 and 2020.

	Units Manufactured	Units Sold
2019	110,000	90,000
2020	110,000	120,000

a) Prepare gross profit computations for 2019 and 2020 using absortion costing

b) Prepare gross profit compuations for 2019 and 2020 using variable costing

c) Explain how your answers illustrate the impact of differences between production and sales volumes on the gross profits reported each year under absortion and variable costing.

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