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2.67 - 2.67(40 min Absorption versus variable costing a...

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2.67 (40 min) Absorption versus variable costing a. Absorption-costing operating profit: Year 1 Year 2 Two- year Total Sales revenue (10,000 x $51) ................. $510,0 00 $510,0 00 $1,020,0 00 Less: Cost of goods sold: Beginning inventory ............................ –0– $100,0 00 –0– Current manufacturing costs: .............. Variable costs: Year 1, (15,000 x $5)…………….. 75,000 Year 2, (5,000 x $5)……………… 25,000 100,000 Fixed costs 225,00 0 225,00 0 450,000 Less: Ending inventory ....................... (100,0 00 )* –0– –0– Cost of goods sold ............................... $200,0 00 $350,0 00 $550,00 0 Gross margin ......................................... $310,0 00 $160,0 00 $470,00 0 Less: Marketing and admin. costs .......... 140,00 0 140,00 0 280,000 Operating profit ..................................... $170,0 00 $ 20,000 $190,00 0 *(Total manufacturing costs/units produced) x units sold = [ ($75,000 + $225,000) / 15,000] x 5,000 = $100,000 b. Variable-costing operating profit: Year 1 Year 2 Two- year Total Sales revenue (10,000 x $51) ................. $510,0 00 $510,0 00 $1,020,0 00 Less: Cost of goods sold: Beginning inventory ............................ –0– $ 25,000 –0– Current manufacturing costs: ..............
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Variable costs: Year 1, (15,000 x $5)…………….. 75,000 Year 2, (5,000 x $5)……………… 25,000 100,000 Less: Ending inventory ....................... (25,000)* –0– –0– Cost of goods sold ............................... $ 50,000 $ 50,000 $ 100,000 Contribution margin ............................... $460,0 00 $460,0 00 $ 920,000 Less: Fixed manufacturing costs $225, 000 $225, 000 $ 450,000 Less: Marketing and admin. costs .......... 140,00 0 140,00 0 280,000
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