Unformatted text preview: hange in profit due to a change in sales volume. Thus, it is the
difference between the master budget profit and the flexible budget profit.
$70,000 - $15,000 = $55,000 Unfavorable 11. Quality wants to understand why its October operating income was $27,000 rather than its planned $70,000.
Compute the amount of the decrease that is explained solely by the decrease in the number of units sold.
“The amount of the decrease that is explained solely by the decrease in the number of units sold” is exactly
what the sales volume variance measures.
$55,000 6A:002 Fall 2009 – Final Exam Page 6 12. Assume that Quality began the month of October with zero units in its finished goods inventory. At the end
of October, it had 1,800 units in finished goods inventory. Compute the amount of fixed cost that Quality will
store in ending inventory if it uses absorption costing to account for inventory.
Total FMOH for the period is $120,000. 3,000 units are sold and 1,800 remain in ending inventory, so 4,800
units were produced.
FMOH per unit is $120,000/4,800 = $25
So, 1,800 units @ $25 per unit = $45,000 in fixed cost is stored in inventory at the end of the period. 13. Continue to assume that Quality began the month of October with zero units in its finished goods inventory
and had 1,800 units in ending finished goods inventory. Will Quality’s variable costing net income be higher
or lower than its absorption costing net income? By what amount?
Absorption costing will store fixed cost in inventory; variable costing does not. So, more costs will be on the
variable costing income statement than on the absorption costing income statement.
Lower by $45,000 6A:002 Fall 2009 – Final Exam Page 7 Use the following information about Alon to answer questions 14 through 16.
Alon manufactures paperweights that it sells to other companies for customizing with their own logos. Alon
prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost
of a paperweight is based on...
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- Spring '11