Question

The following information is available for Barnes Company for the fiscal year ended December 31:

Beginning finished goods inventory in units
Units produced
7,000
Units sold
5,100
Sales
$ 663,000
Materials cost
$ 140,000
Variable conversion cost used
$ 70,000
Fixed manufacturing cost
$ 490,000
Indirect operating costs (fixed)
$ 102,000
The difference between the variable costing ending inventory and the absorption costing ending inventory
-1,900 units times $65 per unit materials cost
-1,900 units times $75 per unit variable conversion cost plus $70 per unit fixed manufacturing cost
-1,900 units times $70 per unit fixed manufacturing cost
-1,900 units times $75 per unit variable conversion cost plus $70 per unit fixed manufacturing cost plus $71.67 per unit indirect operating costs

Answer 1

The question focuses on calculating total revenues, total costs, and profits based on given production and cost data. In summary, total revenues are the quantity sold multiplied by the price, and total costs are the sum of fixed and variable costs. Profitability and decisions like whether to continue in business depend on the comparison of revenues to costs.

Step-by-step explanation:

The student's question pertains to calculating total revenues, total costs, and profits for a company given certain production and cost data. To illustrate these concepts, let's consider an example where a business, AAA Aquarium Co., sells aquariums and has both fixed and variable costs.

Total revenues are calculated by multiplying the quantity sold by the price per unit. For instance, if 5 units are sold at $25/unit, total revenues would be 5 units * $25/unit = $125.

Total costs include fixed costs and variable costs. Using the given example, if the company produces five units with a fixed cost of $20 and variable costs as specified for each unit, the total cost would be the sum of the fixed cost and the total variable costs for five units, which would amount to $130.

Understanding the relationship between revenues and costs is essential for a business's profitability. If the total revenues are less than the total costs, the company experiences losses or negative profits. Following the previous example, if the total revenues are $125 and the total costs are $130, the firm faces a loss of $5.

Decisions like whether a center should continue in business are often based on the comparison between revenues and variable costs. For instance, if a center earns revenues of $20,000 and has variable costs of $15,000, it would be advisable for the center to continue in business as it covers variable costs and contributes to fixed costs and potential profits.

Profit maximization is achieved when a company can produce at a level where marginal revenue equals marginal cost. This is determined through calculating and analyzing these figures for different output levels and identifying the quantity at which profit is maximized.