Problem 19-7A Jackson Company produces plastic that is used for injection-moldin
ID: 2550207 • Letter: P
Question
Problem 19-7A
Jackson Company produces plastic that is used for injection-molding applications such as gears for small motors. In 2016, the first year of operations, Jackson produced 4,600 tons of plastic and sold 3,680 tons. In 2017, the production and sales results were exactly reversed. In each year, the selling price per ton was $2,400, variable manufacturing costs were 16% of the sales price of units produced, variable selling expenses were 8% of the selling price of units sold, fixed manufacturing costs were $3,312,000, and fixed administrative expenses were $470,000.
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2016
2017
Problem 19-7A
Jackson Company produces plastic that is used for injection-molding applications such as gears for small motors. In 2016, the first year of operations, Jackson produced 4,600 tons of plastic and sold 3,680 tons. In 2017, the production and sales results were exactly reversed. In each year, the selling price per ton was $2,400, variable manufacturing costs were 16% of the sales price of units produced, variable selling expenses were 8% of the selling price of units sold, fixed manufacturing costs were $3,312,000, and fixed administrative expenses were $470,000.
Explanation / Answer
unit cost under variable costing Variable manufacturing overhead (2400*.16%) 384 384 Variable costing income statement for 2016 sales (3680*2400) 8832000 Less: variable expenses opening inventory 0 Add: variable cost of goods manufactured (4600*384) 1766400 variable cost of goods available for sale 1766400 Less: Closing inventory (4600-3680)*384 -353280 Variable cost of goods sold 1413120 Gross contribution margin 7418880 Less: variable selling expenses (8832000*8%) 706560 Net contribution margin 6712320 Less: Fixed Cost Fixed manufacturing cost 3312000 Fixed administrative cost 470000 3782000 Net operating income 2930320 Variable costing income statement for 2017 sales 4600*2400 11040000 Less: variable cost Opening inventory 353280 Add:variable cost of goods manufactured (3680*384) 1,413,120 Variable cost of goods available for sale 1,766,400 Less: Closing inventory 0 Variable cost of goods sold 1,766,400 Gross contribution margin 9,273,600 Less: variable selling expenses(11040000*8%) 883200 Net contribution margin 8,390,400 Less: Fixed Cost Fixed manufacturing cost 3312000 Fixed administrative cost 470000 3782000 Net operating income 4,608,400 unit cost under absorbtion costing for 2016 Variable manufacturing overhead (2400*0.16) 384 Fixed manufacturing overhead (3312000/4600) 720 1104 Absorbtion costing income statement for 2016 Sales (2400*3680) 8832000 COGS Beginning inventory 0 Add: production during the year (4600*1104) 5078400 Less : Ending inventory (4600-3680)*1106 1015680 4062720 Gross margin 4769280 Less : selling and administrative expenes variable selling exp (8%*8832000) 706560 fixed administrative exp 470000 1176560 net operating income 3592720 unit cost under absorbtion costing for 2017 Variable manufacturing overhead (2400*0.16) 384 Fixed manufacturing overhead (3312000/3680) 900 1284 Absorbtion costing income statement for 2017 sales 4600*2400 11040000 Cost of goods sold Beginning inventory 1015680 add : production during the year( 3680*1284) 4725120 Less : ending inventory 0 5740800 Gross margin 5299200 Less : selling and administrative expenes variable selling exp (8%*11040000) 883200 fixed administrative exp 470000 1353200 Net operating income 3946000 Reconciliation 2016 2017 Variable net income 2930320 4,608,400 Fixed manufacturing overhead expensed with variable costing - A 3312000 3312000 Less: Fixed manufacturing overhead expensed with absorption costing -B 2649600 3974400 (3680*720) (3680*900)+(920*720) Difference A-B 662400 -662400 Absorption costing net income 3592720 3,946,000