3 simbis enterprises incurred the following costs to produce and sell its inventory 4306262

3 simbis enterprises incurred the following costs to produce and sell its inventory 4306262

3) SimBis Enterprises incurred the following costs to produce and sell its inventory in 2011:

Raw materials consumed

$100,000

Labour used

75,000

Variable overhead incurred

50,000

Fixed overhead incurred

25,000

Selling costs

20,000

General administration

10,000

Freight costs to bring in raw materials

12,000

Freight costs on shipments to customers

7,000

SimBis also noted that the following errors were made in recording transactions in 2011:

Omitted recording the purchase invoice in 2011; ending inventory was properly stated

$6,000

Omitted counting inventory in 2011; purchase account was properly stated

7,000

Omitted from inventory count and from purchase account in 2011

3,000

Counted inventory twice in error in 2011

5,000

Consignment inventory out at consignee excluded in error in 2011

10,000

Recorded a purchase invoice twice in 2011

7,500

Requirements:

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 2011.

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