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Jax Incorporated reports the following data for its only product. The company had no beginning finished goods inventory and it uses
absorption costing
Sales price
$ 57.50 per unit
Direct materials
$ 10.50 per unit
Direct labor
$ 8.00 per unit
Variable overhead
$ 12.50 per unit
Fixed overhead
$ 1,237,500 per year
1. Compute gross profit assuming (a) 75,000 units are produced and 75,000 units are sold and (b) 110,000 units are produced and
75,000 units are sold.
2. By how much would the company's gross profit increase or decrease from producing 35,000 more units than it sells?
Answer is complete but not entirely correct.
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Compute gross profit assuming (a) 75,000 units are produced and 75,000 units are sold and (b) 110,000 units are produced
and 75,000 units are sold.
(a) 75,000 Units (b) 110,000 Units
Produced and
Produced and
75,000 Units Sold 75,000 Units Sold
Sales
4,312,500
4,312,500

Respuesta :

The gross income or profit of the company is the difference between the

total revenue and the cost of items produced.

The values for the gross profits are;

  • (a) $750,000
  • (b) $ -335,000
  • 2. The profit of the would decrease by $1,085,000

Reasons:

The gross profit is given by the equation;

Gross profit = Net revenue - Cost of items sold

The net revenue for 75,000 units = $57.50 × Sales price per unit

∴ The net revenue for 75,000 units = $57.50 × 75,000 = $4,312,500

Cost of production = 75,000 × Per unit cost of Materials plus Labor plus variable overhead + Fixed overhead

Cost of production = 75,000 × (10.50 + 8.00 + 12.50) + 1,237,500 = 3,562,500

The cost of producing 75,00 units per year = $3,562,500

Gross profit = $4,312,500 - $3,562,500 = $750,000

(b) When the number of units produced = 110,000, we have;

Cost of production = 110,000 × (10.50 + 8.00 + 12.50) + 1,237,500 = 4,647,500

Gross profit = $4,312,500 - $4,647,500 = $ -335,000 (a loss of 335,000)

2. By producing 35,000 units more than it sells, we have;

Cost > Revenue, therefore, the gross profit decreases

Let, X, represent the number of units sold, we have;

The number of units produced = X + 35,000

Which gives;

Cost of production = (X + 35,000) ×  (10.50 + 8.00 + 12.50) + 1,237,500 =

31·X + 2,322,500

Net revenue = X × 57.50 = 57.50·X

The profit =  57.50·X - (31·X + 2,322,500) = 26.5·X - 2,322,500

When X = 75,000, we have;

Gross profit = 26.5 × 75,000 - 2,322,500 = -335,000

Therefore;

The gross profit will decrease by 750,000 - (-335,000) = 1,085,000

The gross profit of the company will would decrease by $1,085,000, if it

sells 75,000 units and produces 110,000, which is 35,000 more units than

is sells.

Learn more here:

https://brainly.com/question/21776821

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