SimBis Enterprises incurred the following costs to produce and sell its inventory in 2012:
SimBis also noted that the following errors were made in recording transactions in 2012 (note that these errors only affect part (d)of this question):
Required:
a)Determine the cost of inventory under the absorption costing method.
b)Determine the cost of inventory under the variable costing method.
c)Explain how management could potentially manipulate net income by using absorption costing. What can an analyst or investor do to check if income has been manipulated through the use of absorption costing?
d)Assume that, before any corrections, gross margin was $500,000 and ending retained earnings was $750,000. Determine the impact of any inventory errors on cost of goods sold and ending retained earnings for 2012.

Question

SimBis Enterprises incurred the following costs to produce and sell its inventory in 2012:
  SimBis also noted that the following errors were made in recording transactions in 2012 (note that these errors only affect part (d)of this question):
  Required:
a)Determine the cost of inventory under the absorption costing method.
b)Determine the cost of inventory under the variable costing method.
c)Explain how management could potentially manipulate net income by using absorption costing. What can an analyst or investor do to check if income has been manipulated through the use of absorption costing?
d)Assume that, before any corrections, gross margin was $500,000 and ending retained earnings was $750,000. Determine the impact of any inventory errors on cost of goods sold and ending retained earnings for 2012.

Quizplus · Accepted Answer

The Answer of SimBis Enterprises incurred the following costs to produce and sell its inventory in 2012:
  SimBis also noted that the following errors were made in recording transactions in 2012 (note that these errors only affect part (d)of this question):
  Required:
a)Determine the cost of inventory under the absorption costing method.
b)Determine the cost of inventory under the variable costing method.
c)Explain how management could potentially manipulate net income by using absorption costing. What can an analyst or investor do to check if income has been manipulated through the use of absorption costing?
d)Assume that, before any corrections, gross margin was $500,000 and ending retained earnings was $750,000. Determine the impact of any inventory errors on cost of goods sold and ending retained earnings for 2012.

SimBis Enterprises Incurred the Following Costs to Produce and Sell