Chapter8Solution

# Chapter8Solution - Excel Templates Chapter 8 Student Name:...

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Excel Templates Chapter 8 Student Name: <Type your name here> Class: <Type your class here>

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Problem 8-16 Given Data: ADVANCE PRODUCTS, INC. Manufacturing costs: Variable costs per unit: Direct materials \$86 Variable manufacturing overhead \$4 Fixed manufacturing overhead costs (total) \$240,000 Selling and administrative costs: Variable (percentage of sales) 15% Fixed (total) \$160,000 Activity: Units produced 4,000 Units sold 3,200 Selling price per unit \$250
<Type your name here> <Type your class here> Excel Templates Chapter 8 Problem 8-16 Part 1 Unit Product Cost Direct materials \$86 \$86 Variable manufacturing overhead 4 4 Fixed manufacturing overhead 60 0 Unit product cost \$150 \$90 Part 2 ADVANCE PRODUCTS, INC. Absorption Costing Income Statement Sales \$800,000 Less cost of goods sold: Beginning inventory \$-0- Cost of goods manufactured 600,000 Goods available for sale 600,000 Less ending inventory 120,000 480,000 Gross margin 320,000 Less selling and administrative expenses* 280,000 Operating income \$40,000 *Variable \$120,000 Fixed 160,000 Total \$280,000 Part 3 ADVANCE PRODUCTS, INC. Variable Costing Income Statement Sales \$800,000 Less variable expenses: Variable cost of goods sold: Beginning inventory \$-0- Variable manufacturing costs 360,000 Goods available for sale 360,000 Less ending inventory 72,000 Variable cost of goods sold 288,000 Variable selling and administrative expense 120,000 408,000 Contribution margin 392,000 Less fixed expenses: Fixed manufacturing overhead 240,000 Fixed selling and administrative 160,000 400,000 Operating loss \$(8,000) Part 4 Absorption Costing Variable Costing

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Part 5 Variable costing operating income (loss) \$(8,000) 48,000 Absorption costing operating income (loss) \$40,000 As a member of top management, which of the statements that you have prepared in (2) and (3) above would you prefer to take with you as you negotiate with the bank? Why? Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing A manager may prefer to take the statement prepared under the absorption approach in part (2), because it shows a profit for the month. As long as inventory levels are rising, absorption costing will report higher profits than variable costing. Notice in the situation above that the company is operating below its theoretical break-even point [\$816,327 = \$400,000 ÷ (\$392,000/\$800,000)], but yet reports a profit under the absorption approach. The ethics of this approach are debatable.
Problem 8-23 Given Data: MEMOTEC, INC. Income Statement Year 1 Year 2 Year 3 Sales \$1,000,000 \$800,000 \$1,000,000 Cost of goods sold: Beginning inventory -0- -0- 280,000 Add cost of goods manufactured 800,000 840,000 760,000 Goods available for sale 800,000 840,000 1,040,000 Less ending inventory -0- 280,000 190,000 Cost of goods sold 800,000 560,000 850,000 Gross margin 200,000 240,000 150,000 Less selling and administrative costs 170,000 150,000 170,000 Operating income (loss) \$30,000 \$90,000 \$(20,000)

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## This note was uploaded on 10/19/2010 for the course ACCOUNTING 341 taught by Professor Ken during the Spring '10 term at University of Guelph - Humber.

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Chapter8Solution - Excel Templates Chapter 8 Student Name:...

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