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Unformatted text preview: CHAPTER 9 INVENTORY COSTING AND CAPACITY ANALYSIS 9-1 No. Differences in operating income between variable costing and absorption costing are due to accounting for fixed manufacturing costs. Under variable costing only variable manufacturing costs are included as inventoriable costs. Under absorption costing both variable and fixed manufacturing costs are included as inventoriable costs. Fixed marketing and distribution costs are not accounted for differently under variable costing and absorption costing. 9-3 No. The difference between absorption costing and variable costs is due to accounting for fixed manufacturing costs. As service or merchandising companies have no fixed manufacturing costs, these companies do not make choices between absorption costing and variable costing. 9-4 The main issue between variable costing and absorption costing is the proper timing of the release of fixed manufacturing costs as costs of the period: a. at the time of incurrence, or b. at the time the finished units to which the fixed overhead relates are sold. Variable costing uses (a) and absorption costing uses (b). 9-7 Under absorption costing, heavy reductions of inventory during the accounting period might combine with low production and a large production volume variance. This combination could result in lower operating income even if the unit sales level rises. 9-11 The theoretical capacity and practical capacity denominator-level concepts emphasize what a plant can supply. The normal capacity utilization and master- budget capacity utilization concepts emphasize what customers demand for products produced by a plant. 9-16 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 2006 May 2006 Revenues a $8,400,000 $12,480,000 Variable costs Beginning inventory $ 0 $1,500,000 Variable manufacturing costs b 5,000,000 4,000,000 Cost of goods available for sale 5,000,000 5,500,000 Deduct ending inventory c 1,500,000 300,000 Variable cost of goods sold 3,500,000 5,200,000 Variable operating costs d 1,050,000 1,560,000 Total variable costs 4,550,000 6,760,000 Contribution margin 3,850,000 5,720,000 Fixed costs Fixed manufacturing costs 2,000,000 2,000,000 Fixed operating costs 600,000 600,000 Total fixed costs 2,600,000 2,600,000 Operating income $1,250,000 $3,120,000 a $24,000 350; $24,000 520 c $10,000 150; $10,000 30 b $10,000 500; $10,000 400 d $3,000 350; $3,000 520 (b)...
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This note was uploaded on 07/07/2009 for the course ACCT 2102 taught by Professor Unknown during the Three '08 term at Queensland.
- Three '08