1. **State the problem:** Calculate the Cost of Goods Sold (COGS) and profit using the absorption costing method for two periods with given production and sales data. 2. **Formula and rules:** - Absorption costing includes all manufacturing costs (variable + fixed overhead) in product cost. - Unit product cost = $ \frac{\text{Total production cost}}{\text{Units produced}} $ - COGS = Unit product cost $ \times $ Units sold - Gross profit = Sales - COGS - Net profit = Gross profit - Selling and Distribution expenses 3. **Given data:** - Total production cost = Variable cost + Fixed overhead = 240,000 + 60,000 = 300,000 - Sales price per unit = $ \frac{400,000}{20,000} = 20 $ - Selling and Distribution (fixed) = 20,000 4. **Calculate unit product cost:** $$\text{Unit cost} = \frac{300,000}{24,000} = 12.5$$ 5. **Period 1 calculations:** - Production = 24,000 units - Sales = 18,000 units - COGS = Unit cost $ \times $ Sales = 12.5 $ \times $ 18,000 = 225,000 - Gross profit = Sales revenue - COGS = (18,000 $ \times $ 20) - 225,000 = 360,000 - 225,000 = 135,000 - Net profit = Gross profit - Selling and Distribution = 135,000 - 20,000 = 115,000 6. **Period 2 calculations:** - Production = 18,000 units - Sales = 21,000 units - Unit cost for period 2 = $ \frac{\text{Variable cost} + \text{Fixed overhead}}{\text{Production}} = \frac{(\text{Variable cost per unit} \times 18,000) + 60,000}{18,000} $ - Variable cost per unit = $ \frac{240,000}{24,000} = 10 $ - Total variable cost period 2 = 10 $ \times $ 18,000 = 180,000 - Total production cost period 2 = 180,000 + 60,000 = 240,000 - Unit cost period 2 = $ \frac{240,000}{18,000} = 13.33\overline{3} $ 7. **Calculate COGS for period 2:** - Since sales (21,000) > production (18,000), some inventory from period 1 is sold. - Opening inventory = Production period 1 - Sales period 1 = 24,000 - 18,000 = 6,000 units - COGS = (Opening inventory $ \times $ unit cost period 1) + (Sales - Opening inventory) $ \times $ unit cost period 2 - COGS = (6,000 $ \times $ 12.5) + (21,000 - 6,000) $ \times $ 13.33\overline{3} = 75,000 + 15,000 $ \times $ 13.33\overline{3} = 75,000 + 200,000 = 275,000 8. **Calculate gross and net profit period 2:** - Sales revenue = 21,000 $ \times $ 20 = 420,000 - Gross profit = 420,000 - 275,000 = 145,000 - Net profit = 145,000 - 20,000 = 125,000 **Final answers:** - Period 1 net profit = 115,000 - Period 2 net profit = 125,000