CHAP 9 - CHAPTER 9 INVENTORY COSTING AND CAPACITY ANALYSIS...

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9-1 CHAPTER 9 INVENTORY COSTING AND CAPACITY ANALYSIS9-16 (30 min.) Variable and absorption costing, explaining operating-income differences. 1.Key inputs for income statement computations are April May Beginning inventory Production Goods available for sale Units sold Ending inventory 0 500 500 350 150 150 400 550 520 30 The budgeted fixed cost per unit and budgeted total manufacturing cost per unit under absorption costing are April May (a) Budgeted fixed manufacturing costs (b) Budgeted production (c) = (a) ÷ (b) Budgeted fixed manufacturing cost per unit (d) Budgeted variable manufacturing cost per unit (e) = (c) + (d) Budgeted total manufacturing cost per unit $2,000,000 500 $4,000 $10,000 $14,000 $2,000,000 500 $4,000 $10,000 $14,000(a) Variable costing April 2014 May 2014 Revenuesa$8,400,000 $12,480,000 Variable costs Beginning inventory$ 0 $1,500,000 Variable manufacturing costsb5,000,000 4,000,000 Cost of goods available for sale5,000,000 5,500,000 Deduct ending inventoryc(1,500,000) (300,000) Variable cost of goods sold3,500,000 5,200,000 Variable operating costsd1,050,000 1,560,000 Total variable costs4,550,000 6,760,000 Contribution margin3,850,000 5,720,000 Fixed costsFixed manufacturing costs2,000,000 2,000,000 Fixed operating costs600,000 600,000 Total fixed costs2,600,000 2,600,000 Operating income$1,250,000 $3,120,000 a $24,000 × 350; $24,000 × 520c$10,000 × 150; $10,000 × 30 b$10,000 × 500; $10,000 × 400d $3,000 × 350; $3,000 × 520 (b) Absorption costing
9-2 April 2014 May 2014 Revenuesa$8,400,000 $12,480,000 Cost of goods sold Beginning inventory $ 0 $2,100,000 Variable manufacturing costsb5,000,000 4,000,000 Allocated fixed manufacturing costsc2,000,000 1,600,000 Cost of goods available for sale 7,000,000 7,700,000 Deduct ending inventoryd(2,100,000) (420,000) Adjustment for prod.-vol. variancee0 400,000 U Cost of goods sold 4,900,000 7,680,000 Gross margin 3,500,000 4,800,000 Operating costs Variable operating costsf1,050,000 1,560,000 Fixed operating costs 600,000 600,000 Total operating costs 1,650,000 2,160,000 Operating income $1,850,000 $ 2,640,000 a$24,000 × 350; $24,000 × 520d$14,000 × 150; $14,000 × 30 b$10,000 × 500; $10,000 × 400e$2,000,000 – $2,000,000; $2,000,000 – $1,600,000 c$4,000 × 500; $4,000 × 400 f$3,000 × 350; $3,000 × 520 2. Absorption-costingoperating incomeVariable-costingoperating income= Fixed manufacturing costsin ending inventoryFixed manufacturing costsin beginning inventoryApril: $1,850,000 – $1,250,000 = ($4,000 × 150) – ($0) $600,000 = $600,000 May: $2,640,000 – $3,120,000 = ($4,000 × 30) – ($4,000 × 150) – $480,000 = $120,000 – $600,000 – $480,000 = – $480,000 The difference between absorption and variable costing is due solely to moving fixed manufacturing costs into inventories as inventories increase (as in April) and out of inventories as they decrease (as in May).
9-3 9-17 (20 min.) Throughput costing (continuation of Exercise 9-16). 1. April 2014 May 2014 Revenuesa$8,400,000 $12,480,000 Direct material cost of goods sold Beginning inventory Direct materials in goods manufacturedb$ 0 3,350,000 $1,005,000 2,680,000 Cost of goods available for sale Deduct ending inventoryc3,350,000 (1,005,000) 3,685,000 (201,000) Total direct material cost of goods sold Throughput margin Other costs 2,345,000 6,055,000 3,484,000 8,996,000 Manufacturing costs 3,650,000d3,320,000eOther operating costs 1,650,000f2,160,000gTotal other costs Operating income 5,300,000 $ 755,000 5,480,000 $ 3,516,000 a$24,000 × 350; $24,000 × 520 e($3,300 × 400) + $2,000,000b$6,700 × 500; $6,700 × 400 f($3,000 × 350) + $600,000 c$6,700 × 150; $6,700 × 30 g ($3,000 × 520) + $600,000 d($3,300 × 500) + $2,000,000 2.Operating income under: April May Variable costing Absorption costing Throughput costing $1,250,000 1,850,000 755,000 $3,120,000 2,640,000 3,516,000 In April, throughput costing has the lowest operating income, whereas in May throughput costing has the highest operating income. Throughput costing puts greater emphasis on sales as the source of operating income than does either absorption or variable costing.

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