Question

Jacquie Inc. reports the following annual cost data for its single product.

Answer 1

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