SimBis Enterprises Incurred the Following Costs to Produce and Sell

question 63

Essay

SimBis Enterprises incurred the following costs to produce and sell its inventory in 2016:

SimBis also noted that the following errors were made in recording transactions in 2016 (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 2016.

---

Definitions:

Price Floor

A government- or authority-imposed minimum price on goods or services, below which they cannot be sold, usually set to prevent market prices from falling too low.

Shortage

A scenario where the market demand for a service or product surpasses its available supply.

Surplus

An amount of something left over when requirements have been met; an excess of production or supply.

Price Ceiling

A maximum legal price that can be charged for a good or service, aimed at preventing prices from becoming too high.