Chapter 9 Test Bank
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Chapter 9 Test Bank

Course Number: ACCT 3001, Fall 2011

College/University: LSU

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CHAPTER 9 (ONLY PAGES 298-312) THIS EXCLUDES LEARNING OBJECTIVES 5-7 INVENTORY COSTING AND CAPACITY ANALYSIS MULTIPLE CHOICE Direct manufacturing costs are inventoried when using variable costing. Direct manufacturing costs and fixed manufacturing costs are inventoried when using absorption costing. Absorption costing is required for GAAP, external reporting to shareholders, and income tax reporting....

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9 CHAPTER (ONLY PAGES 298-312) THIS EXCLUDES LEARNING OBJECTIVES 5-7 INVENTORY COSTING AND CAPACITY ANALYSIS MULTIPLE CHOICE Direct manufacturing costs are inventoried when using variable costing. Direct manufacturing costs and fixed manufacturing costs are inventoried when using absorption costing. Absorption costing is required for GAAP, external reporting to shareholders, and income tax reporting. Absorption costing includes fixed manufacturing overhead as an inventoriable cost. Variable costing treats direct manufacturing costs as a product cost. Variable costing, absorption costing, and throughput costing methods expense variable marketing costs in the period incurred. Absorption costing method includes fixed manufacturing overhead costs as inventoriable costs. Variable costing, absorption costing, throughput costing methods expense direct material costs as COGS. Absorption costing method is required for tax reporting purposes. Variable costing regards fixed manufacturing overhead as a period cost. The only difference between variable and absorption costing is the expensing of fixed manufacturing costs. Absorption costing is required by GAAP for external financial reporting. The contribution-margin format of the income statement highlights the lump sum of fixed manufacturing costs. The gross-margin format of the income statement distinguishes between manufacturing and nonmanufacturing costs. Variable manufacturing costs and variable marketing costs are subtracted from sales to calculate contribution margin. Variable manufacturing costs and fixed manufacturing costs are subtracted from sales to calculate gross margin. An unfavorable production-volume variance occurs when the denominator level exceeds production. If the unit level of inventory increases during an accounting period, then more operating income will be reported under absorption costing than variable costing. The difference between operating incomes under variable costing and absorption costing centers on how to account for fixed manufacturing costs. One possible means of determining the difference between operating incomes for absorption costing and variable costing is by subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory. When comparing the operating incomes between absorption costing and variable costing, and beginning finished inventory exceeds finished inventory, it may be assumed that variable costing operating income exceeds absorption costing operating income. Absorption costing allocates fixed manufacturing overhead to actual units produced during the period. Fixed manufacturing costs in ending inventory are expensed in the future under absorption costing. Operating income under absorption costing is higher than operating income under variable costing when production units exceed sales units. 9-1 Companies have recently been able to reduce inventory levels because there is better sharing of information between suppliers and manufacturers and just-in-time production strategies are being implemented. Many companies have switched from absorption costing to variable costing for internal reporting to reduce the undesirable incentive to build up inventories. Ways to "produce for inventory" that result in increasing operating income include deferring maintenance to accelerate production. To discourage producing for inventory, management can evaluate nonfinancial measures such as units in ending inventory compared to units in sales, evaluate performance over a three- to fiveyear period rather than a single year, and incorporate a carrying charge for inventory in the internal accounting system. Under absorption costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in increasing the manager's bonus. Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in not affecting the manager's bonus. Critics of absorption costing suggest to evaluate management on their ability to decrease inventory costs. Differences between absorption costing and variable costing are much smaller when a large part of the manufacturing process is subcontracted out or just-in-time inventory strategy is implemented. The following are examples of drawbacks of using absorption costing: management has the ability to manipulate operating income via production schedules, manipulation of operating income may ultimately increase the company's costs incurred over the long run, and decreasing maintenance activities and increasing production result in increased operating income. Absorption costing is most likely to cause undesirable incentives for managers to build up finished goods inventory. Advocates of throughput costing argue that only direct materials are truly variable, direct manufacturing labor is relatively fixed, and variable manufacturing costs are a cost of the period. Advocates of throughput costing maintain that fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units. Throughput costing results in the least amount of costs being inventoried. Throughput costing is least likely to cause undesirable incentives for managers to build up finished goods inventory. 9-2 THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 65 AND 66: Marie's Decorating produces and sells a mantel clock for $100 per unit. In 20X5, 100,000 clocks were produced and 80,000 were sold. Other information for the year includes: Direct materials Direct manufacturing labor Variable manufacturing costs Sales commissions Fixed manufacturing costs Administrative expenses, all fixed $30.00 per unit $ 2.00 per unit $ 3.00 per unit $ 5.00 per part $25.00 per unit $15.00 per unit 65. What is the inventoriable cost per unit using variable costing? b. $35 $30.00 + $2.00 + $3.00 = $35.00 66. What is the inventoriable cost per unit using absorption costing? c. $60 $30 + $2 + $3 + $25 = $60 THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 67 AND 68: Gabe's Auto produces and sells an auto part for $30.00 per unit. In 20X5, 100,000 parts were produced and 75,000 units were sold. Other information for the year includes: Direct materials Direct manufacturing labor Variable manufacturing costs Sales commissions Fixed manufacturing costs Administrative expenses, all fixed $12.00 per unit $ 2.25 per unit $ 0.75 per unit $ 3.00 per part $375,000 per year $135,000 per year 67. What is the inventoriable cost per unit using variable costing? b. $15.00 $12.00 + $2.25 + $0.75 = $15.00 68. What is the inventoriable cost per unit using absorption costing? c. $18.75 $12.00 + $2.25 + $0.75 + ($375,000 / 100,000) = $18.75 THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 74 THROUGH 77: Peggy's Pillows produces and sells a decorative pillow for $75.00 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: Variable manufacturing costs Variable marketing costs Fixed manufacturing costs Administrative expenses, all fixed Ending inventories: Direct materials WIP 0 Finished goods $20.00 per unit $ 3.00 per unit $ 7.00 per unit $15.00 per unit 0 250 units 9-3 74. What is cost of goods sold per unit using variable costing? a. $20 $20, only variable manufacturing costs are included when using variable costing. 75. What is cost of goods sold using variable costing? a. $35,000 $20 x 1,750 units = $35,000 76. What is contribution margin using variable costing? b. $91,000 ($75 x 1,750) [($20 + $3) x 1,750 units] = $91,000 77. What is operating income using variable costing? d. $47,000 Contribution margin of $91,000 [($7 + $15) x 2,000 units] = $47,000 THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 78 THROUGH 80: Andrea's Hobbies produces and sells a luxury animal pillow for $40.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: Variable manufacturing costs Variable marketing costs Fixed manufacturing costs Administrative expenses, all fixed Ending inventories: Direct materials WIP -0Finished goods $19 per unit $ 1 per unit $30,000 per month $6,000 per month -0750 units 78. What is cost of goods sold per unit when using absorption costing? c. $29 $19 + ($30,000 / 3,000 units) = $29 79. What is gross margin when using absorption costing? d. $24,750 [$40 $19 ($30,000/3,000)] x 2,250 units = $24,750 80. What is operating income when using absorption costing? b. $16,500 [$40 $19 ($30,000/3,000)] x 2,250 units = gross margin ($1 x 2,250) $6,000 = $16,500 87. Helton Company has the following information for the current year: Beginning fixed manufacturing overhead in inventory Fixed manufacturing overhead in production Ending fixed manufacturing overhead in inventory $95,000 375,000 25,000 Beginning variable manufacturing overhead in inventory $10,000 Variable manufacturing overhead in production 50,000 Ending variable manufacturing overhead in inventory 15,000 9-4 What is the difference between operating incomes under absorption costing and variable costing? a. $70,000 $95,000 $25,000 = $70,000 88. The following information pertains to Brian Stone Corporation: Beginning fixed manufacturing overhead in inventory Ending fixed manufacturing overhead in inventory Beginning variable manufacturing overhead in inventory Ending variable manufacturing overhead in inventory Fixed selling and administrative costs Units produced Units sold 5,000 units 4,800 units $60,000 45,000 $30,000 14,250 $724,000 What is the difference between operating incomes under absorption costing and variable costing? c. $15,000 $60,000 $45,000 = $15,000 THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 89 THROUGH 92: Heinrich Corporation incurred fixed manufacturing costs of $6,000 during 20X5. Other information for 20X5 includes: The budgeted denominator level is 1,000 units. Units produced total 750 units. Units sold total 600 units. Beginning inventory was zero. The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. 89. Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total: a. $3,600 $6,000 / 1,000 units = $6 x 600 = $3,600 90. Fixed manufacturing costs included in ending inventory total: c. $900 $6,000 / 1,000 units = $6 x 150 = $900 91. The production-volume variance is: b. $1,500 $6,000 / 1,000 units = $6 x 250 = $1,500 92. Operating income using absorption costing will be __________ than operating income if using variable costing. c. $900 higher Different operating incomes are reported because the unit level of inventory increased during the accounting period by 150 units x $6 denominator rate = $900. Therefore, operating income is $900 higher under absorption costing because $900 of fixed manufacturing costs remains in inventory. THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 93 THROUGH 96: 9-5 Veach Corporation incurred fixed manufacturing costs of $6,000 during 20X5. Other information for 20X5 includes: The budgeted denominator level is 1,000 units. Units produced total 750 units. Units sold total 600 units. Beginning inventory was zero. The company uses VARIABLE COSTING and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. 93. Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total: c. $6,000 $6,000 of fixed manufacturing costs is expensed as a lump sum. 94. Fixed manufacturing costs included in ending inventory total: d. 0 Under variable costing no fixed manufacturing costs are included in inventory, and all are expensed on the income statement as a lump sum. 95. The production-volume variance totals: d. 0 Variable costing has no production-volume variance. 96. Operating income using variable costing will be __________ than operating income if using absorption costing. d. $900 lower Different operating incomes are reported because the unit level of inventory increased during the accounting period by 150 units x $6 denominator rate = $900. Therefore, operating income is $900 lower under variable costing because $900 of fixed manufacturing costs remains in inventory under absorption. THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 97 THROUGH 100: Morse Corporation incurred fixed manufacturing costs of $7,200 during 20X5. Other information for 20X5 includes: The budgeted denominator level is 800 units. Units produced total 1,000 units. Units sold total 950 units. Beginning inventory was zero. The fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. 97. Under absorption costing, fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total: a. $8,550 $7,200 / 800 units = $9 x 950 = $8,550 98. Under absorption costing, the production-volume variance is: c. $1,800 $7,200 / 800 units = $9 x 200 = $1,800 99. Under variable costing, the fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total: 9-6 b. $7,200 $7,200 of fixed manufacturing costs is expensed as a lump sum. 100. Operating income using absorption costing will be __________ operating income if using variable costing. a. $450 higher Different operating incomes are reported because the unit level of inventory increased during the accounting period by 50 units x $9 denominator rate = $450. Therefore, operating income is $450 higher under absorption costing because $450 of fixed manufacturing costs remains in inventory under absorption costing. 101. At the end of the accounting period Susan Corporation reports operating income of $30,000 and the fixed overhead cost rate is $20 per unit. Under absorption costing, if this company now produces an additional 100 units of inventory, then operating income: a. will increase by $2,000 102. At the end of the accounting period Bumsted Corporation reports operating income $30,000 of and the fixed overhead cost rate is $20 per unit. Under variable costing, if this company produces 100 more units of inventory, then operating income: c. will not be affected 114. If 600 units are produced and only 400 units are sold, __________ results in the greatest amount of expense reported on the income statement. a. throughput costing 115. If 400 units are produced and 600 units are sold, __________ results in the greatest amount of operating income. a. throughput costing THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 117 AND 118: Reusser Company produces wood statues. Management has provided the following information: Actual sales Budgeted production Selling price Direct material costs Variable manufacturing costs Variable administrative costs Fixed manufacturing overhead 80,000 statues 100,000 statues $20.00 per statue $5.00 per statue $1.50 per statue $2.50 per statue $2.00 per statue 117. What is the cost per statue if throughput costing is used? d. $5.00 Equal to direct materials = $5.00 118. What is the total throughput contribution? d. $1,200,000 80,000 x ($20.00 $5.00) = $1,200,000 THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 119 AND 120: Stober Company produces a specialty item. Management has provided the following information: Actual sales 60,000 units Budgeted production 50,000 units 9-7 Selling price $40.00 per unit Direct material costs $10.00 per unit Variable manufacturing overhead $3.00 per unit Variable administrative costs $5.00 per unit Fixed manufacturing overhead $4.00 per unit 119. What is the cost per statue if throughput costing is used? d. $10.00 Direct material cost of $10 120. What is the total throughput contribution? d. $1,800,000 60,000 x ($40.00 $10.00) = $1,800,000 9-8 EXERCISES AND PROBLEMS 161. For 20X5, Nichols, Inc., had sales of 75,000 units and production of 100,000 units. Other information for the year included: Direct manufacturing labor $187,500 Variable manufacturing overhead 100,000 Direct materials 150,000 Variable selling expenses 100,000 Fixed administrative expenses 100,000 Fixed manufacturing overhead 200,000 There was no beginning inventory. Required: a. Compute the ending finished goods inventory under both absorption and variable costing. b. Compute the cost of goods sold under both absorption and variable costing. Register to View AnswerAbsorption Direct materials $150,000 Direct manufacturing labor 187,500 Variable manufacturing overhead 100,000 Fixed manufacturing overhead 200,000 Total $637,500 Unit costs: $637,500/100,000 units $6.375 $437,500/100,000 units Ending inventory: 25,000 units x $6.375 $159,375 25,000 units x $4.375 b. Cost of goods sold: 75,000 x $6.375 75,000 x $4.375 $478,125 $328,125 $4.375 Variable $150,000 187,500 100,000 0 $437,500 $109,375 162. Bruster Company sells its products for $66 each. The current production level is 25,000 units, although only 20,000 units are anticipated to be sold. Unit manufacturing costs are: Direct materials Direct manufacturing labor Variable manufacturing costs Total fixed manufacturing costs Marketing expenses $12.00 $18.00 $9.00 $180,000 $6.00 per unit, plus $60,000 per year Required: a. Prepare an income statement using absorption costing. b. Prepare an income statement using variable costing. 9-9 Register to View AnswerAbsorption-costing income statement: Sales (20,000 x $66) Cost of goods sold (20,000 x $46.20*) Gross margin Marketing: Variable (20,000 x $6) Fixed Operating income $1,320,000 924,000 396,000 $120,000 60,000 180,000 $216,000 * $12.00 + $18.00 + $9.00 + ($180,000/25,000) = $46.20 b. Variable-costing income statement: $1,320,000 $780,000 120,000 900,000 420,000 $180,000 60,000 240,000 $180,000 Sales (20,000 x $66) Variable costs: Cost of goods sold (20,000 x $39*) Marketing (20,000 x $6) Contribution margin Fixed costs: Manufacturing Marketing Operating income * $12.00 + $18.00 + $9.00 = $39 163. Ireland Corporation planned to be in operation for three years. During the first year, 20X1, it had no sales but incurred $120,000 in variable manufacturing expenses and $40,000 in fixed manufacturing expenses. In 20X2, it sold half of the finished goods inventory from 20X1 for $100,000 but it had no manufacturing costs. In 20X3, it sold the remainder of the inventory for $120,000, had no manufacturing expenses and went out of business. Marketing and administrative expenses were fixed and totaled $20,000 each year. Required: a. Prepare an income statement for each year using absorption costing. b. Prepare an income statement for each year using variable costing. Register to View AnswerAbsorption-costing income statements: 20X1 Sales $0 Cost of goods sold 0 Gross margin 0 9-10 20X2 $100,000 80,000 20,000 20X3 $120,000 80,000 40,000 Marketing and administrative Operating income b. 20,000 $(20,000) 20,000 $ 0 20,000 $20,000 20X3 $120,000 60,000 60,000 $ 0 20,000 20,000 $40,000 Variable-costing income statements: Sales Variable expenses Contribution margin Fixed expenses: Manufacturing Marketing and administrative Total fixed Operating income $ 20X1 20X2 0 $100,000 0 60,000 0 $40,000 20,000 60,000 $(60,000) 40,000 $ 0 20,000 20,000 $20,000 164. Jarvis Golf Company sells a special putter for $20 each. In March, it sold 28,000 putters while manufacturing 30,000. There was no beginning inventory on March 1. Production information for March was: Direct manufacturing labor per unit Fixed selling and administrative costs Fixed manufacturing overhead Direct materials cost per unit Direct manufacturing labor per hour Variable manufacturing overhead per unit Variable selling expenses per unit 15 minutes $ 40,000 132,000 2 24 4 2 Required: a. Compute the cost per unit under both absorption and variable costing. b. Compute the ending inventories under both absorption and variable costing. c. Compute operating income under both absorption and variable costing. Register to View AnswerAbsorption Direct manufacturing labor ($24/4) $ 6.00 Direct materials 2.00 Variable manufacturing overhead 4.00 Fixed manufacturing overhead ($132,000/30,000) 4.40 Total cost per unit b. Beginning inventory Cost of goods manufactured: 30,000 x $16.40 30,000 x $12.00 9-11 $16.40 Absorption $0 $492,000 _______ Variable $ 6.00 2.00 4.00 ___0 $12.00 Variable $0 $360,000 Cost of goods available for sale Cost of goods sold: 28,000 x $16.40 28,000 x $12.00 Ending inventory c. Absorption-costing income statement: Sales (28,000 x $20) Cost of goods sold (28,000 x $16.40) $492,000 $459,200 _______ $ 32,800 $360,000 $336,000 $ 24,000 $560,000 459,200 100,800 96,000 $ 4,800 Gross margin Less: Variable selling and administrative $56,000 Fixed selling and administrative 40,000 Operating income Variable-costing income statement: Sales (28,000 x $20) Variable COGS (28,000 x $12) Variable selling expenses (28,000 x $2) Contribution margin Fixed costs: Manufacturing Selling and administrative Operating income $560,000 $336,000 56,000 392,000 168,000 $132,000 40,000 172,000 $ (4,000) 9-12 165. Johnson Realty bought a 2,000-acre island for $10,000,000 and divided it into 200 equal size lots. As the lots are sold, they are cleared at an average cost of $5,000. Storm drains and driveways are installed at an average cost of $8,000 per site. Sales commissions are 10% of selling price. Administrative costs are $850,000 per year. The average selling price was $160,000 per lot during 20X5 when 50 lots were sold. During 20X6, the company bought another 2,000-acre island and developed it exactly the same way. Lot sales in 20X6 totaled 300 with an average selling price of $160,000. All costs were the same as in 20X5. Required: Prepare income statements for both years using both absorption and variable costing methods. Answer: Cost per site: Land cost $10,000,000/200 sites Clearing costs Improvements Total Absorption-costing income statements: Sales Cost of goods sold: 50 x ($50,000 + $8,000 + $5,000) 300 x ($50,000 + $8,000 + $5,000) Gross margin Variable marketing Fixed administrative Operating income Variable-costing income statements: Sales Variable expenses: Cost of operations: 50 x $13,000 300 x $13,000 Selling expenses Contribution margin Fixed expenses: Land Administrative Operating income 20X5 3,150,000 ________ $4,850,000 800,000 850,000 $3,200,000 20X5 Absorption $50,000 5,000 8,000 Variable $0 5,000 8,000 $63,000 $13,000 20X6 $8,000,000 18,900,000 $29,100,000 4,800,000 850,000 $23,450,000 20X6 $8,000,000 $48,000,000 $48,000,000 650,000 800,000 $6,550,000 10,000,000 850,000 $(4,300,000) 3,900,000 4,800,000 $39,300,000 10,000,000 850,000 $28,450,000 166. Megredy Company prepared the following absorption-costing income statement for the year ended May 31, 20X5. 9-13 Sales (16,000 units) Cost of goods sold Gross margin Selling and administrative expenses Operating income $320,000 216,000 $104,000 46,000 $ 58,000 Additional information follows: Selling and administrative expenses include $1.50 of variable cost per unit sold. There was no beginning inventory, and 17,500 units were produced. Variable manufacturing costs were $11 per unit. Actual fixed costs were equal to budgeted fixed costs. Required: Prepare a variable-costing income statement for the same period. Answer: Sales Variable expenses: Manufacturing cost of goods sold1 Selling and administrative2 Contribution margin Fixed expenses: Fixed factory overhead3 Fixed selling and administrative4 Operating income 1. 2. 3. 4. $320,000 $176,000 24,000 $43,750 22,000 200,000 $ 120,000 65,750 $ 54,250 16,000 units x $11 = $176,000 16,000 units x $1.50 = $24,000 [($216,000/16,000 units) $11] x 17,500 units = $43,750 $46,000 $24,000 = $22,000 167. The following data are available for Ruggles Company for the year ended September 30, 20X5. Sales: Expected and actual production: Manufacturing costs incurred: Variable: Fixed: Nonmanufacturing costs incurred: Variable: Fixed: Beginning inventories: 24,000 units at $50 each 30,000 units $525,000 $372,000 $144,800 $77,400 none Required: a. Determine operating income using the variable-costing approach. b. Determine operating income using the absorption-costing approach. c. Explain why operating income is not the same under the two approaches. Register to View Answer24,000 x $50 = $1,200,000 sales ($525,000/30,000) x 24,000 = $420,000 variable manufacturing cost $1,200,000 $420,000 $144,800 = $635,200 contribution margin $635,200 $372,000 $77,400 = $185,800 operating income 9-14 b. ($372,000/30,000) x 24,000 = $297,600 manufacturing fixed cost $1,200,000 $420,000 $297,600 = $482,400 gross margin $482,400 $144,800 $77,400 = $260,200 operating income $260,200 $185,800 = $74,400 or 6,000 units in ending inventory x $12.40 per unit of fixed manufacturing cost. c. 168. Bobby Smith and Sons Company was concerned that increased sales did not result in increased profits for 20X6. Both variable unit and total fixed manufacturing costs for 20X5 and 20X6 remained constant at $20 and $2,000,000, respectively. In 20X5, the company produced 100,000 units and sold 80,000 units at a price of $50 per unit. There was no beginning inventory in 20X5. In 20X6, the company made 70,000 units and sold 90,000 units at a price of $50. Selling and administrative expenses were all fixed at $100,000 each year. Required: a. Prepare income statements for each year using absorption costing. b. Prepare income statements for each year using variable costing. c. Explain why the income was different each year using the two methods. Show computations. Register to View AnswerAbsorption-costing income statements: Sales Cost of goods sold: Beginning inventory Variable Fixed Subtotal Ending inventory Total COGS Gross margin Selling and administrative Operating income b. Variable-costing income statements: Sales Variable expenses Contribution margin Fixed expenses: Manufacturing Selling and administrative Operating income 20X5 $4,000,000 1,600,000 2,400,000 2,000,000 100,000 20X6 $4,500,000 1,800,000 2,700,000 2,000,000 100,000 20X5 $4,000,000 0 2,000,000 2,000,000 4,000,000 800,000 3,200,000 800,000 100,000 $ 700,000 20X6 $4,500,000 800,000 1,400,000 2,000,000 4,200,000 0 4,200,000 300,000 100,000 $ 200,000 $ 300,000 $ 600,000 9-15 c. Budgeted fixed manufacturing overhead rate for 20X5 = $2,000,000 / 100,000 = $20 20X5 difference of $400,000 = (100,000 80,000) x $20 = $400,000 (favors absorption method) 20X6 difference of $400,000 = (70,000 90,000) x $20 = $400,000 (favors variable method) 169. Ernsting Bottling Works manufactures glass bottles. January and February operations were identical in every way except for the planned production. January had a production denominator of 35,000 units. February had a production denominator of 36,000 units. Fixed manufacturing costs totaled $126,000. Sales for both months totaled 45,000 units with variable manufacturing costs of $4 per unit. Selling and administrative costs were $0.40 per unit variable and $60,000 fixed. The selling price was $10 per unit. Required: Compute the operating income for both months using absorption costing. Answer: January manufacturing cost per unit: Variable costs: Fixed costs ($126,000/35,000) Total per unit February manufacturing cost per unit: Variable costs Fixed costs $126,000/36,000 Total per unit January Income Statement Sales (45,000 x $10) Cost of goods sold (45,000 x $7.60) Gross margin Other costs: Variable selling and administrative Fixed selling and administrative Operating income February Income Statement Sales (45,000 x $10) Cost of goods sold (45,000 x $7.50) Gross margin Other costs: Variable selling and administrative Fixed selling and administrative Operating income $450,000 337,500 $112,500 $18,000 60,000 9-16 78,000 $34,500 $450,000 342,000 $108,000 $18,000 60,000 78,000 $30,000 $4.00 3.60 $7.60 $4.00 3.50 $7.50 Difficulty: 2 Objectives: 2, 7 170. Calvin Enterprises produces a specialty statue item. The following information has been provided by management: Actual sales Budgeted production Selling price Direct manufacturing costs Fixed manufacturing costs Variable manufacturing costs Variable administrative costs 150,000 units 160,000 units $34 per unit $9 per unit $5 per unit $4 per unit $2 per unit Required: a. What is the cost per statue if absorption costing is used? b. What is the cost per statue if "super-variable costing" is used? c. What is the total throughput contribution? Register to View Answer$9 + $5 + $4 = $18 b. c. Equal to direct materials = $9 150,000 x ($34 $9) = $3,750,000 9-17
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