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ACCT303Chapter9 - CHAPTER 9 INVENTORY COSTING AND CAPACITY...

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CHAPTER 9 INVENTORY COSTING AND CAPACITY ANALYSIS 9-16 (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 2008 May 2008 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 9-1
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(b) Absorption costing April 2008 May 2008 Revenues a $8,400,000 $12,480,000 Cost of goods sold Beginning inventory $ 0 $2,100,000 Variable manufacturing costs b 5,000,000 4,000,000 Allocated fixed manufacturing costs c 2,000,000 1,600,000 Cost of goods available for sale 7,000,000 7,700,000 Deduct ending inventory d (2,100,000) (420,000) Adjustment for prod.-vol. variance e 0 400,000 U Cost of goods sold 4,900,000 7,680,000 Gross margin 3,500,000 4,800,000 Operating costs Variable operating costs f 1,050,000 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 × 520 d $14,000 × 150; $14,000 × 30 b $10,000 × 500; $10,000 × 400 e $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-costing operating income Variable-costing operating income = Fixed manufacturing costs in ending inventory Fixed manufacturing costs in beginning inventory April: $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). 9-2
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9-17 (20 min.) Throughput costing (continuation of Exercise 9-16). 1. April 2008 May 2008 Revenues a $8,400,000 $12,480,000 Direct material cost of goods sold Beginning inventory Direct materials in goods manufactured b $ 0 3,350,000 $1,005,000 2,680,000 Cost of goods available for sale Deduct ending inventory c 3,350,000 (1,005,000 ) 3,685,000 (201,000 ) Total direct material cost of goods sold Throughput contribution Other costs 2,345,000 6,055,000 3,484,000 8,996,000 Manufacturing costs 3,650,000 d 3,320,000 e Other operating costs 1,650,000 f 2,160,000 g Total 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) + $2,000,000 b $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 Absorption costing Variable costing Throughput costing $1,850,000 1,250,000 755,000 $2,640,000 3,120,000 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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