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ID: 2414974 • Letter: L
Question
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he following information is available for Skipper Pools, a manufacturer of above-ground swimming pool kits:2014 2015 Total Units produced 11,370 9,030 20,400 Units sold 10,200 10,200 20,400 Selling price per unit $3,960 $3,960 Direct material per unit $770 $770 Direct labor per unit $1,500 $1,500 Variable manufacturing overhead per unit $203 $203 Fixed manufacturing overhead per year $2,421,810 $2,421,810 Fixed selling and administrative expense per year $1,599,900 $1,599,900
In its first year of operation, the company produced 11,370 units but was able to sell only 10,200 units. In its second year, the company needed to get rid of excess inventory (the extra 1,170 units produced but not sold in 2014), so it cut back production to 9,030 units.
Explanation / Answer
1.
Full costing:
Full costing is also called as absorption costing. In absorption costing the costs related to the goods sold are only considered but not cost incurred.
Calculation of profit for periods 2014,2015:
Particulars
2014
Particulars
2015
Sales(10,200*3,960)
40,392,000.00
Sales(10,200*3,960)
40,392,000.00
less: total cost
less: total cost
Direct material(10,200*$770)
7,854,000.00
Direct material(10,200*$770)
7,854,000.00
Direct Labor(10,200*1,500)
15,300,000.00
Direct Labor(10,200*1,500)
15,300,000.00
variable manufacturing overhead(10,200*203)
2,070,600.00
variable manufacturing overhead(10,200*203)
2,070,600.00
Allocable fixed manufacturing overhead($2,421,810*10,200/11,370)
2,172,600.00
Allocable fixed manufacturing overhead($2,421,810*10,200/9,030)
2,735,599.34
Allocable selling and administration expenses($1,599,900*10,200/11,370)
1,435,266.49
Allocable selling and administration expenses($1,599,900*10,200/9,030)
1,807,196.01
Total cost
28,832,466.49
Total cost
29,767,395.35
Profit
11,559,533.51
Profit
10,624,604.65
2.
Yes
The profit has declined.
But it is not the correct indicator of the performance of the company because the profit is not correct it is absorption costing method of evaluation of profit.
Particulars
2014
Particulars
2015
Sales(10,200*3,960)
40,392,000.00
Sales(10,200*3,960)
40,392,000.00
less: total cost
less: total cost
Direct material(10,200*$770)
7,854,000.00
Direct material(10,200*$770)
7,854,000.00
Direct Labor(10,200*1,500)
15,300,000.00
Direct Labor(10,200*1,500)
15,300,000.00
variable manufacturing overhead(10,200*203)
2,070,600.00
variable manufacturing overhead(10,200*203)
2,070,600.00
Allocable fixed manufacturing overhead($2,421,810*10,200/11,370)
2,172,600.00
Allocable fixed manufacturing overhead($2,421,810*10,200/9,030)
2,735,599.34
Allocable selling and administration expenses($1,599,900*10,200/11,370)
1,435,266.49
Allocable selling and administration expenses($1,599,900*10,200/9,030)
1,807,196.01
Total cost
28,832,466.49
Total cost
29,767,395.35
Profit
11,559,533.51
Profit
10,624,604.65
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