525000 525000 525000 490000 525000 532000 g 800 1350

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$525,000 – $525,000; $525,000 – $490,000; $525,000 – $532,000 g $800 × 1,350; $800 × 1,400; $800 × 1,530 9-7
2. = January: $1,422,500 – $1,370,000 = ($350   × 150) – $0 $52,500 = $52,500 February: $1,445,000 – $1,445,000 = ($350 × 150) – ($350 × 150) $0 = $0 March: $1,636,500 – $1,640,000 = ($350 × 140) – ($350 × 150) – $3,500 = – $3,500 The difference between absorption and variable costing is due solely to moving fixed manufacturing costs into inventories as inventories increase (as in January) and out of inventories as they decrease (as in March). 9-26 Absorption and variable costing. (CMA) Miami, Inc., planned and actually manufactured 250,000 units of its single product 9-8
in 2017, its first year of operation. Variable manufacturing cost was $19 per unit produced. Variable operating (nonmanufacturing) cost was $13 per unit sold. Planned and actual fixed manufacturing costs were $750,000. Planned and actual fixed operating (nonmanufacturing) costs totaled $420,000. Miami sold 170,000 units of product at $41 per unit. Required: 1. Miami’s 2017 operating income using absorption costing is (a) $600,000, (b) $360,000, (c) $780,000, (d) $1,020,000, or (e) none of these. Show supporting calculations. 2. Miami’s 2017 operating income using variable costing is (a) $1,100,000, (b) $600,000, (c) $360,000, (d) $780,000, or (e) none of these. Show supporting calculations. :
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2. Variable Costing : Revenues e Variable costs: Variable manufacturing cost of goods sold f Variable operating costs g Contribution margin Fixed costs: Fixed manufacturing costs Fixed operating costs Operating income $3,230,000 2 ,210,000 750,000 420 ,000 $6,970,000 5 ,440,000 1,530,000 1 ,170,000 $ 360 ,000 e $41 × 170,000 f $19 × 170,000 g $13 × 170,000 9-27 Absorption versus variable costing. Horace Company manufactures a professional-grade vacuum cleaner and began operations in 2017. For 2017, Horace budgeted to produce and sell 25,000 units. The company had no price, spending, or efficiency 9-10
variances and writes off production-volume variance to cost of goods sold. Actual data for 2017 are given as follows: Required: 1. Prepare a 2017 income statement for Horace Company using variable costing. 2. Prepare a 2017 income statement for Horace Company using absorption costing. 3. Explain the differences in operating incomes obtained in requirements 1 and 2. 4. Horace’s management is considering implementing a bonus for its supervisors based on gross margin under absorption costing. What incentives will this bonus plan create for the supervisors? What modifications could Horace management make to improve such a plan? Explain briefly. SOLUTION (40 min) Absorption versus variable costing. 1. The variable manufacturing cost per unit is $33 + $23 + $62 = $118. 2017 Variable-Costing Based Income Statement 9-11
Revenues (18,500 $432 per unit) $7,992,000 Variable costs Beginning inventory $ 0 Variable manufacturing costs (21,000 units $118 per unit) 2 ,478 ,000

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