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Jacquie Inc. reports the following annual cost data for its single product.
Normal production and sales level 70,000 units
Sales price $ 57.00 per unit
Direct materials $ 10.00 per unit
Direct labor $ 7.50 per unit
Variable overhead $ 12.00 per unit
Fixed overhead $ 1,050,000 in total
Complete the below table using absorption costing. (Round cost per unit answers to 2 decimal place.)
Production volume
Cost of goods sold: 72000 units 104000 units
Cost of goods sold per unit
Number of units sold
Total cost of goods sold
Jacquie Inc.
Income statement through gross margin
Sales volume
72000 units 72000 units
If Jacquie increases its production to 104000 units, while sales remain at the current 72000 unit level, by how much would the company?

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Answer:

Cost of goods sold:

  • 72,000 units = $3,174,000
  • 104,000 units = $4,118,000

Cost of goods sold per unit:

  • 72,000 units = $44.08
  • 104,000 units = $39.60

A comparative income statement showing the different production and sales levels:

                                 70,000 units         72,000 units     104,000 units

Total sales                $3,990,000            $4,104,000      $5,928,000

COGS                       ($3,115,000)            ($3,174,000)     ($4,118,000)  

Gross profit                  $875,000              $930,000       $1,810,000

If Jacquie increases its production to 104000 units, while sales remain at the current 72000 unit level, by how much would the company?

Total sales       $4,104,000

COGS             ($2,851,200)

Gross profit     $1,253,000

If the production level is 104,000 units, but only 72,000 are sold, net profits will increase by $323,000 (= $1,253,000 - $930,000). The remaining 32,000 units will be reported as ending inventory of finished goods.

Explanation:

                              normal production   72,000 units      104,000 units

direct materials            $700,000            $720,000          $1,040,000

direct labor                   $525,000            $540,000            $780,000

variable overhead       $840,000            $864,000          $1,248,000

fixed overhead          $1,050,000          $1,050,000          $1,050,000

total                             $3,115,000           $3,174,000           $4,118,000

cost per unit                 $44.50                  $44.08                   $39.60

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