Exam 12: Absorption Versus Variable Costing

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 practical capacity?

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 adjusted COGS for year 2.

Operating income, using absorption costing, is gross profit less

Kristin, the accountant for XYZ Industries, is studying the working papers for her client. She knows the client uses standard costing within its accounting system, but she is not sure which inventory costing method they use to prepare their reports. No variances were reported, except those as noted below, and the prior per-unit costs were the same as the current year. The working papers showed the following information: Instructions a.Did the client use absorption costing or variable costing? How can Kristin tell? b.How much did the client capitalize into inventory on a per-unit basis? c.How many units did the client produce last year? d.If the client had used the other costing method (not the one determined in part (a)), how much operating income would the client have reported for the current year?

Variable costing

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, what will be reported as cost of goods sold?

The fixed MOH volume variance measures

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: Using normal capacity, what is the budgeted fixed MOH rate?

Sullivan is pleased with how his company is doing. He sells his car dividers for $35 each. The company has been increasing the number of units produced each year and expects sales to meet production demand. He prepares his income statement using both variable costing and absorption costing. The following income statements were prepared for the current year. There were no price or efficiency variances noted as part of the company's standard cost system. Sullivan believes the upcoming fiscal year will show an increased sales volume of 10%. All per unit variable costs, selling price, and fixed costs will be consistent with the current year's information. Budgeted and actual production will remain the same, as the company has enough inventory to cover the increase. Instructions a.Identify which income statement reflects which method. b.Explain the difference in operating income between the two statements. c.Based on the anticipated sales volume increase, prepare projected income statements under both absorption and variable 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 normal capacity? (round the budgeted fixed MOH rate to the nearest two decimals)

Conform AI planned to produce 6,000 units but only produced 5,300 for the current year. They had a beginning inventory of 300 units with variable manufacturing cost of $11 per unit. Budgeted fixed MOH for the year was $72,000 with actual costs incurred of $66,000. What will Conform AI report as fixed MOH volume variance for the current year?

The following information applies to Hawks Corporation: Using absorption costing, how much will the per unit product cost be?

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 variable costing, what will be reported as operating income?

Powell Corporation produced 80,000 units and sold 78,000 units in its first year of operations. If the company had produced 1,000 fewer units, what would have been the effect on operating income under variable and absorption costing?

On an income statement prepared using variable costing, variable operating expenses are deducted from ____________ to get ________________.

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

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: Using normal capacity, what is the denominator level?

The efficient level of activity performance that is active in the production of goods and services is known as

What is the purpose of absorption costing and how does it work?

Normal capacity