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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 Year $1.$ During Year $1$ and Year $2,$ 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 Year $1$ and Year $2$:

$\backslash$table$[[,$Units Manufactured,Units Sold$],[$Year $1,120,000,90,000],[$Year $2,120,000,130,000]]$

a$.$ Prepare gross profit computations for Year $1$ and Year $2$ using absorption costing.

Do not use negative signs with your answers.

$\backslash$table$[[$Absorption Costing$],[$Sales$,$$$,7560000,$$$,10920000],[$Cost of goods sold:,,,,$],[$Beginning inventory,,$0,,],[$Production$,,6480000,,6480000],[$Goods available,,$6480000,,],[$Less: Ending inventory,,,,$],[$Cost of goods sold,,,,$0],[$Gross profit,$$,,,0]]$

b$.$ Prepare gross profit computations for Year $1$ and Year $2$ using variable costing.

Do not use negative signs with your answers.

$\backslash$table$[[$Variable Costing$],[,$Year $1,,$Year $2,],[$Sales$,$$$,0,$$$,0],[$Variable cost of goods sold:$],[$Beginning inventory,,$0,,0],[$Production$,,0,,0],[$Goods available,,$0,,0],[$Less: Ending inventory,,$0,,0],[$Variable cost of goods sold,,$0,,0],[$Less: Fixed manufacturing costs,,$0,,0],[$Gross profit,$$,0,$$$,0]]$

c$.$ Explain how your answers illustrate the impact of differences between production and sales volumes on the gross profits reported each year under absorption and variable costing.

Select the most appropriate statement.

If production volume exceeds sales volume, the absorption costing gross profit will be higher than the variable costing gross profit.

If sales volume exceeds production volume, the absorption costing gross profit will be higher than the variable costing gross profit.

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