Scott Manufacturing makes only one product with total unit manufacturing costs of $54, of which $36 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $84 per unit, and the cost structure did not change. Scott uses the first-in, first-out inventory method and has the following production and sales for 2015 and 2016: Units Manufactured Units Sold
2015 110,000 90,000
2006 110,000 120,000

Required:
a. Prepare gross profit computations for 2015 and 2016 using absortion costing
b. Prepare gross profit compuations for 2015 and 2016 using variable costing
c. Explain how your answers illustrate the impact of differences between production and sales volumes on the gross profits reported each year under absortion and variable costing.

Fanning company is considering the addition of a new product to its cosmetics line. the company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. relevant information and budgeted annual income statements for each of the products follow. skin cream bath oil color gel budgeted sales in units (a) 110,000 190,000 70,000 expected sales price (b) $8 $4 $11 variable costs per unit (c) $2 $2 $7 income statements sales revenue (a × b) $880,000 $760,000 $770,000 variable costs (a × c) (220,000) (380,000) (490,000) contribution margin 660,000 380,000 280,000 fixed costs (432,000) (240,000) (76,000) net income $228,000 $140,000 $204,000 required: (a) determine the margin of safety as a percentage for each product. (b) prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume. (c) for each product, determine the percentage change in net income that results from the 20 percent increase in sales. (d) assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? (e) assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line?