SimBis Enterprises Incurred the Following Costs to Produce and Sell

question 146

Essay

SimBis Enterprises incurred the following costs to produce and sell its inventory in 2019:
$$\begin{array} { l | r } \hline \text { Raw materials consumed } & \$ 100,000 \\\hline \text { Labour used } & 75,000 \\\hline \text { Variable overhead incurred } & 50,000 \\\hline \text { Fixed overhead incurred } & 25,000 \\\hline \text { Selling costs } & 20,000 \\\hline \text { General administration } & 10,000 \\\hline \text { Freight costs to bring in raw materials } & 12,000 \\\hline \text { Freight costs on shipments to customers } & 7,000 \\\hline\end{array}$$ SimBis also noted that the following errors were made in recording transactions in 2019 (note that these errors only affect part (d)of this question):
$$\begin{array} {| l | r | } \hline \text { Omitted recording the purchase invoice in 2019; } & \$ 6,000 \\ \text { ending inventory was properly stated } & \\\hline \text { Omitted counting inventory in 2019; purchase } & 7,000 \\ \text { account was properly stated } & \\\hline \text { Omitted from inventory count and from }&3,000 \\\text { purchase account in 2019 } \\\hline \text { Counted inventory twice in error in 2019 } & 5,000 \\\hline \text { Consignment inventory out at consignee } &10,000 \\\text { excluded in error in 2019 } \\\hline \text { Recorded a purchase invoice twice in } 2019&7,500\\\hline\end{array}$$ 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 2019.

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