Question

Barnes company reports the following for its product for its first year of operations. direct materials$ 33per unit direct labor$ 23per unit variable overhead$ 10per unit fixed overhead$ 78,000per year variable selling and administrative expenses$ 3per unit fixed selling and administrative expenses$ 35,000per year the company sells its product for $130 per unit. compute gross profit using absorption costing assuming the company (a) produces and sells 3,000 units and (b) produces 3,900 units and sells 3,000 units.

Answer 1

To calculate the gross profit using absorption costing, multiply the cost per unit by the number of units to find the total direct costs. Multiply the variable selling and administrative expenses per unit by the number of units sold to find the total variable expenses. Subtract the total direct costs, total variable expenses, and fixed selling and administrative expenses from the total sales revenue to find the gross profit.

Step-by-step explanation:

To calculate the gross profit using absorption costing, we need to consider the direct costs, variable selling and administrative expenses, and fixed selling and administrative expenses. The direct costs include the direct materials, direct labor, variable overhead, and fixed overhead. We can calculate the total direct costs by multiplying the cost per unit by the number of units produced and sold. For example, with 3,000 units produced and sold, the total direct costs would be: (33 + 23 + 10) x 3,000 = $198,000. The total variable selling and administrative expenses can be calculated by multiplying the variable selling and administrative expenses per unit by the number of units sold. For 3,000 units sold, the total variable selling and administrative expenses would be: 3 x 3,000 = $9,000. Finally, the total fixed selling and administrative expenses are constant and equal to $35,000 per year.

To calculate the gross profit, we subtract the total direct costs, total variable selling and administrative expenses, and total fixed selling and administrative expenses from the total sales revenue. For 3,000 units produced and sold, the gross profit would be: ($130 x 3,000) - $198,000 - $9,000 - $35,000 = $148,000.

For 3,900 units produced and 3,000 units sold, the total direct costs would be: (33 + 23 + 10) x 3,900 = $237,900. The total variable selling and administrative expenses would be: 3 x 3,000 = $9,000 (same as before). The gross profit would be: ($130 x 3,000) - $237,900 - $9,000 - $35,000 = $159,100.