Pitt Company has the following data for 20X4 concerning its manufacturing operat
ID: 2408562 • Letter: P
Question
Pitt Company has the following data for 20X4 concerning its manufacturing operations. PITT COMPANY DATA FOR 20X4 SALES AND MANUFACTURING OPERATIONS Selling price per unit $ 120 Variable manufacturing cost per unit 95 Variable operating cost per unit 15 Total fixed manufacturing costs 500,000 Total fixed operating costs 100,000 The company produced 100,000 units during the year and sold 90,000 of those units. REQUIRED: Answer the following questions related to the above data, showing appropriate calculations to support your answers. (1) What is the company's total revenue for the year? (2) What is the company's full absorption cost per unit? (3) What is the company's contribution margin per unit? (4) What is the company's total gross profit for the year? (5) What is the company's net income for the year under variable costing? (6) What is the value of the company's ending inventory under variable costing? (7) What is the company's net income for the year under full absorption costing? (8) What is the value of the company's ending inventory under full absorption costing?
Explanation / Answer
Solution:
(1) What is the company's total revenue for the year?
Total Revenue for the year = Units Sold 90,000 Units x Unit Selling Price $120 = $10,800,000
(2) What is the company's full absorption cost per unit? = $100 per unit
Under Absorption Costing, product cost includes direct material, direct labor, variable manufacturing costs and fixed manufacturing overhead costs.
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Variable Manufacturing Cost per unit
$95
Per Unit Fixed Manufacturing Costs ($500,000 / Units Produced 100,000 Units)
$5
Product Cost Per Unit Under Absorption Costing
$100
(3) What is the company's contribution margin per unit?
Unit Selling Price = $120
Total Variable Cost Per Unit = Unit Variable Manufacturing Cost $95 + Unit Variable Operating Cost $15 = $110
Contribution Margin Per Unit = Unit Selling Price $120 – Unit Variable Cost $110 = $10 per unit
Contribution Margin per unit = $10 per unit
(4) What is the company's total gross profit for the year?
Gross Profit = Total Sales – Cost of Goods Sold
Total Sales / Revenue (refer part 1) = $10,800,000
Cost of Good Sold (Under absorption costing) = Units Sold 90,000 * Product Cost per unit $100 = $9,000,000
Gross Profit = Sales 10,800,000 – COGS 9,000,000 = $1,800,000
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$$
Variable Manufacturing Cost per unit
$95
Per Unit Fixed Manufacturing Costs ($500,000 / Units Produced 100,000 Units)
$5
Product Cost Per Unit Under Absorption Costing
$100