Exam 8: Absorption and Variable Costing,and Inventory Management

McKay Company produces curling irons.The plastic handles used to produce the curling irons are purchased from an outside supplier.Each year,45,000 handles are used at the rate of 150 handles per day.Some days as many as 180 handles are used.On average it takes 4 days after an order is placed for the inventory to arrive at McKay Company. Required: A.Calculate the reorder point without safety stock. B.Calculate the amount of safety stock. C.Calculate the reorder point with safety stock.

Figure 8-2. Loring Company had the following data for the month: Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units.During the month,2,000 units were produced.Loring started the month with 300 units in beginning inventory,with unit product cost equal to this month's unit product cost.A total of 2,100 units were sold during the month at price of $14.Selling and administrative expense for the month,all fixed,totaled $3,600. Refer to Figure 8-2.What is operating income under variable costing?

When monthly production volume is constant and sales volume is less than production,income determined with variable costing procedures will

On a segmented income statement,fixed expenses are broken down into _____________ and ______________.

Grass Valley Mining mines three products.Gold ore sells for $1,000 per ton,variable costs are $400 per ton,and fixed mining costs are $250,000.The segment margin for 2011 was $(100,000). What were the sales (in tons)for 2011?

Figure 8-9. The following information pertains to Stark Corporation: Refer to Figure 8-9.Absorption costing income would be ____ the variable costing income.

Figure 8-5. Sanders Company has the following information for 2011: There were no beginning inventories. Refer to Figure 8-5.What is the cost of ending inventory for Sanders using the variable costing method?

Consider the following portion of a segmented income statement for the year just ended.Assume fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses. What is X's divisional segment margin?

Figure 8-8. Steele Corporation has the following information for January,February,and March 2011: Production costs per unit (based on 10,000 units)are as follows: There were no beginning inventories for January 2011,and all units were sold for $50.Costs are stable over the three months. Refer to Figure 8-8.What is the February contribution margin for Steele Corporation using the variable costing method?

Simon Company sells 900 units of its deluxe product each year.The cost of setting up for one production run is $150; the cost of carrying one unit in inventory for a year is $3.Simon currently produces 100 deluxe units in one production run.

Product cost includes all costs of the company.

Inventory costs under variable costing include only direct materials,direct labor,and variable factory overhead.

Carter Company orders 250 units at a time,and places 15 orders per year.Total ordering cost is $1,100 and total carrying cost is $1,100.Which of the following statements is true?

Figure 8-2. Loring Company had the following data for the month: Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units.During the month,2,000 units were produced.Loring started the month with 300 units in beginning inventory,with unit product cost equal to this month's unit product cost.A total of 2,100 units were sold during the month at price of $14.Selling and administrative expense for the month,all fixed,totaled $3,600. Refer to Figure 8-2.What is the unit product cost under variable costing?

Absorption costing treats fixed factory overhead as a ____________.

The inventory cost that can include lost sales,cost of expediting,and cost of interrupted production is called

Carter Company orders 250 units at a time,and places 15 orders per year.Total ordering cost is $1,600 and total carrying cost is $1,250.Which of the following statements is true?

You decide You have just become the controller for Artisan Industries.Artisan produces three different products and upon review of their internal reports you notice that they have never prepared a segmented income statement.Explain to the vice president what a segmented income statement consists of and why it can be useful in decision making.

When production is less than sales volume,income under absorption costing will be ____ income using variable costing procedures.

A major drawback to the JIT inventory approach is that it increases carrying costs.