ACCT303Chapter9

# Costs allocated fixed manuf costs a 400000u 192000u

This preview shows pages 35–39. Sign up to view the full content.

costs – allocated fixed manuf. costs) a \$ 400,000U \$ 192,000U \$ 120,000F a PVV is unfavorable if budgeted fixed manuf. costs are greater than allocated fixed costs 2. Normal Theoretical Practical Utilization Capacity Capacity Capacity Units sold 112,000 112,000 112,000 Budgeted fixed mfg. cost allocated per unit \$10 \$12 \$15 Budgeted var. mfg. cost per unit \$ 3 \$ 3 \$ 3 Budgeted cost per unit of inventory or production \$13 \$15 \$18 ABSORPTION-COSTING BASED INCOME STATEMENTS Revenues (\$3 selling price per unit × units sold) \$ 3,36 0,000 \$ 3,36 0,000 \$ 3,36 0,000 Cost of goods sold Beginning inventory (10,000 units × budgeted cost per unit of inventory) 130,000 150,000 180,000 Variable manufacturing costs (104,000 units × \$3 per unit) 312,000 312,000 312,000 Allocated fixed manufacturing overhead (104,000 units × budgeted fixed mfg. cost allocated per unit) 1,04 0,000 1,248 ,000 1,56 0,000 Cost of goods available for sale 1,482,000 1,710,000 2,052,000 Deduct ending inventory (2,000 b units × budgeted cost per unit of inventory) (26,000) (30,000) (36,000) Adjustment for production-volume variance 400 ,000 U 192 ,000 U ( 12 0,000 ) F Total cost of goods sold 1,856 ,000 1,872 ,000 1,896 ,000 Gross margin 1,504,000 1,488,000 1,464,000 Operating costs 400 ,000 4 00,000 4 00,000 Operating income \$ 1,104 ,000 \$ 1,088 ,000 \$ 1,064 ,000 b Ending inventory = Beginning inventory + production – sales = 10,000 + 104,000 – 112,000 = 2,000 units 2,000 x \$13; 2,000 x \$15; 2,000 x \$18 9-35

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
3. Koshu’s 2009 beginning inventory was 10,000 units; its ending inventory was 2,000 units. So, during 2009, there was a drop of 8,000 units in inventory levels (matching the 8,000 more units sold than produced). The smaller the denominator level, the larger is the budgeted fixed cost allocated to each unit of production, and, when those units are sold (all the current production is sold, and then some), the larger is the cost of each unit sold, and the smaller is the operating income. Normal utilization capacity is the smallest capacity of the three, hence in this year, when production was less than sales, the absorption-costing based operating income is the smallest when normal capacity utilization is used as the denominator level. 4. Reconciliation Theoretical Capacity Operating Income – Practical Capacity Operating Income \$16,000 Decrease in inventory level during 2009 8,000 Fixed mfg cost allocated per unit under practical capacity – fixed mfg. cost allocated per unit under theoretical capacity (\$12 – \$10) \$2 Additional allocated fixed cost included in COGS under practical capacity = 8,000 units × \$2 per unit = \$16,000 More fixed manufacturing costs are included in inventory under practical capacity, so, when inventory level decreases (as it did in 2009), more fixed manufacturing costs are included in COGS under practical capacity than under theoretical capacity, resulting in a lower operating income. 9-36
9-35 (30-35 min.) Effects of denominator-level choice. 1. Normal capacity utilization. Givens denoted* Actual Costs Incurred (1) Same Budgeted Lump Sum (as in Static Budget) Regardless of Output Level (2) Flexible Budget: Same Budgeted Lump Sum (as in Static Budget) Regardless of Output Level (3) Allocated: Budgeted Input Allowed for Actual Output × Budgeted Rate (4) \$52,000 \$48,000* \$48,000* 28,000 hrs.* × \$2.00 a = \$56,000 \$4,000 U* \$8,000 F* Spending variance Never a variance Prodn. volume variance = – \$8,000 = (\$48,000 – X) X = \$56,000 a = \$56,000 ÷ 28,000 machine-hours = \$2 per machine-hour Denominator level = \$48,000 ÷ \$2 per machine-hour = 24,000 machine-hours 9-37

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern