Variable and Absorption Costing

Scott Manufacturing makes only one product with total unit manufacturing costs of $56, of which $38 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $87 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 2015 and 2016

Units Manufactured Units

2015 120,000

2016 120,000

units sold

2015 90000

2016 130000

a. Prepare gross profit computations for 2015 and 2016 using absorption costing.

Do not usenegative signs with your answers.

Absorption Costing

2015 2016

Sales

Cost of goods sold:

Beginning inventory

Production

Goods available

Less: Ending inventory

Cost of goods sold

Gross profit

Answer

b. gross profit computations for 2015 and 2016 using variable costing.

Do not usenegative signs with your answers.

Variable Costing

2015 2016

Sales

Variable cost of goods sold:

Beginning inventory

Production

Goods available

Less: Ending inventory

Variable cost of goods sold

Less: Fixed manufacturing costs

Gross profit