chapter 8 solutions

chapter 8 solutions - CHAPTER 8 Absorption and Variable...

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Unformatted text preview: CHAPTER 8 Absorption and Variable Costing 8-14 (20 MINUTES) 1. Cost-volume profit graph: Break-even point: 14,667 units Total cost Revenue Dollars (in millions) $25 $20 $15 $10 $5 Units (in thousands) Fixed cost ($11,000,000) 5 10 15 8-14 (CONTINUED) 2. Calculation of break-even point: Break-even point = margin on contributi unit cost fixed = 000 , 1 $ 750 , 1 $ 000 , 000 , 11 $ = 14,667 units (rounded) 3. Variable costing is more compatible with the cost-volume-profit chart, because it maintains the distinction between fixed and variable costs as does CVP analysis. Absorption costing, in contrast, does not maintain the separation of fixed and variable costs. Fixed costs are unitized in the fixed overhead rate and inventoried as product costs along with variable manufacturing costs. 8-21 (45 MINUTES) 1. a. Absorption-costing income statements: Year 1 Year 2 Year 3 Sales revenue (at $25 per case) .............................. $2,000,000 $1,500,000 $2,250,000 Less: Cost of goods sold (at absorption cost of $21 per case) * ......................... 1,680,000 1,260,000 1,890,000 Gross margin ............................................................ 320,000 240,000 360,000 Less: Selling and administrative expenses: Variable (at $ .50 per case) .......................... 40,000 30,000 45,000 Fixed .............................................................. 37,500 37,500 37,500 Operating income ..................................................... $ 242,500 $ 172,500 $ 277,500 *The absorption cost per case is $21, calculated as follows: production Planned overhead ing manufactur fixed Budgeted + case per cost ing manufactur variable 000 , 80 000 , 400 $ + $16 $5 + $16 = $21 8-21 (CONTINUED)...
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This note was uploaded on 02/18/2012 for the course BUSE 237 taught by Professor Sf during the Spring '12 term at Simon Fraser.

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chapter 8 solutions - CHAPTER 8 Absorption and Variable...

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