Exam 12: Absorption Versus Variable Costing

There are three capacities that are impacted by the denominator levels' volume. Describe the effect on the budgeted fixed manufacturing overhead rate of each type.

Chaviano Construction is planning on purchasing new machinery for the upcoming year. The company believes, if everything is perfect, the machinery can generate 110 units per hour, 24 hours per day, 365 days per year. However, the manager is more realistic and understands the company will shut down for 10 days a year for holidays and will have downtime of approximately 2 hours per day, each day. A more reasonable output of units is 96 per day. The budgeted fixed MOH costs are expected to be $960,000. Calculate Chaviano's theoretical and practical capacity for the next year. What will the fixed MOH rate be for the theoretical and practical capacity? (Round final answer to nearest cent for fixed MOH rate.)

Ziska Engineering prepares its internal reports using standard costing within its variable costing system. As a result, the company writes off any variances directly to COGS. The company has continued to see growth over the last five years but feels it will become stagnant if it can't meet its budgeted production level due to a disrupted supply chain. Information to make and sell 1,300 units of its design plans are as follows: Actual costs came in as budgeted. However, the company only produced 1,150 units and sold 1,200 units at a selling price of $110 per unit. The company began the year with 250 units, and its standard product costs per unit were the same last year as they were this year. Instructions a.Calculate the cost per unit that Ziska will capitalize into inventory this year. b.Calculate how many units were in ending FG inventory this year and the total cost that will be capitalized on the balance sheet. c.Present Ziska's current year income statement, in good form, using variable costing. d. Last year, the company reported an operating income of $24,200. Comment on whether management will be pleased with the current year's performance.

The following information applies to Hawks Corporation: Using variable costing, what will Hawks record as total cost of goods sold, assuming no variances were reported?

If a company acquires the resources needed to perform an activity and the resources are used for its intended purposes, it is knowns as

The following information applies to Hawks Corporation: Using variable costing, what will Hawks record as operating income if the units were sold for $95 each and assuming no variances were reported?

BioClinic sells its product for $80 per unit. During 2025, it produced 120,000 units and sold 105,000 units. Costs per unit are: direct materials $25, direct labor $10, variable overhead $5, and variable operating expenses $3. Fixed costs are $840,000 manufacturing overhead, and $75,000 operating expenses. Assuming no variances were reported, no beginning inventory and the company uses absorption costing, how much is the per unit product cost?

During 2025, KM Construction sold 10,000 units, with beginning and ending units for the year of 1,000. Manufacturing costs were as follows: Which of the following statements is true?

On an income statement prepared using variable costing, to calculate contribution margin, a company will subtract what from sales?

Aresia is the manager for Dawson Company. She budgeted for $230,000 in fixed MOH and $80 per unit for variable manufacturing costs for the upcoming fiscal year. She was planning to produce 8,000 units. Actual fixed MOH costs and actual variable manufacturing costs came in on budget but the company was only able to produce and sell 7,600 units. If the company uses absorption costing with standard costs, what is the company's initial COGS (before any variance is considered)? What is the adjusted COGS after writing off the variance directly to COGS?

Malena is working on budgeting for the next fiscal year. The company recently upgraded their equipment purchases to increase capacity. The new equipment, with the current workforce can produce 225 units per hour, working 365 days per year. The operations currently run 24 hours a day. Malena estimates a more realistic goal is 210 units per hour. She also believes the company will be closed 15 days during the year for maintenance and holidays. She is also accounting for setups and inspection of 3 hours per day that will temporarily stop production. The current system produces 1,300,000 units per year and is tied to demand. If the budgeted fixed MOH costs are $2,100,000 for the upcoming year, what would be the fixed MOH rate using the theoretical capacity?

All the following are true for absorption costing, except

The type of available capacity that signals the need to improve factory operations is

Operating income under absorption costing is higher than operating income under variable costing

Fixed manufacturing overhead costs are recognized as period costs when incurred using

The product cost per unit for absorption costing is

Angels R Us is currently operating at 100% capacity and incurred the following costs during the first month of operations: If the company has ending inventory of 1,600 units for the month, what would be the difference in inventory reported on the balance sheet between absorption and variable costing?

Crystal, the owner of Crystal Clean, is planning for the next year. She uses the absorption method to determine the evaluation of employees and how much to increase their hourly wage. She has budgeted the following information: There were no price or efficiency variances for either year. Crystal writes off any fixed MOH volume variance directly to COGS. Calculate the Fixed MOH volume variance for year 1.

Bailey and Ben, B&B Ice Cream, were excited to prepare their current year income statement. This year was the best year yet and they were excited to provide bonuses for their employees, if profit exceeded the company's expectations. Information for the financial statements is as follows: The company had 5,000 units in beginning inventory, and they carried the same standard costs per unit as this year's production. Instructions a.Calculate the cost per unit that Ziska will capitalize into inventory this year using (1) variable costing and (2) absorption costing. b.Determine if there would be a fixed-MOH volume variance under either method. If yes, calculate the amount and specify the sign of the variance, if applicable. c.Prepare a current year income statement, in good form, using variable costing. d.Prepare a current year income statement, in good form, using absorption costing.

Amanha just learned her company will start a new workday policy. There is a 60% chance the company will start to enforce the policy this year and she has been tasked in determining how the new policy will affect the company. The new policy will have a significant effect on the company's production output because specific lines will close for periods of time during mandatory layoffs. The current demand of the company is 400,000 units per year. The budgeted fixed MOH costs are $920,000. She has put together the following information to plan for the coming policy: If the company's actual production was 450,000 units, what is the fixed MOH volume variance using theoretical capacity? (Round the budgeted fixed MOH rate to the nearest two decimals.)