Exam 9: Income Effects of Denominator Level on Inventory Valuation

Answer the following question(s) using the information below. Stober Company produces a specialty item. Management has provided the following information: -What is the total throughput contribution?

Calvin Enterprises produces a specialty statue item. The following information has been provided by management: Required: a. What is the cost per statue if absorption costing is used? b. What is the cost per statue if throughput costing is used? c. What is the total throughput contribution?

Answer the following question(s) using the information below. A manufacturing firm is able to produce 2,000 pairs of shoes per hour, at maximum efficiency. There are three eight-hour shifts each day. Production is actually 1,600 pairs of shoes per hour due to unavoidable operating interruptions. The plant is expected to run every day but was only able to operate for 27 days in September. -What is the practical capacity for the month of September?

Answer the following question(s) using the information below. Peggy's Pillows produces and sells a decorative pillow for $75.00 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: -What is contribution margin using variable costing?

Alliance Realty bought a 2,000 acre island for $10,000,000 and divided it into 200 equal size lots. As the lots are sold they are cleared at an average cost of $5,000. Storm drains and driveways are installed at an average cost of $8,000 per site. Sales commissions are 10 percent of selling price. Administrative costs are $850,000 per year. The average selling price was $160,000 per lot during the year when 50 lots were sold. During the subsequent year, the company bought another 2,000 acre island and developed it exactly the same way. Lot sales in the second year totalled 300 with an average selling price of $160,000. All costs were the same as in the first year. Required: Prepare income statements for both years using both absorption and variable costing methods. Use the gross margin format for the absorption method and the contribution margin format for the variable costing method.

For the current year, Bonnet Inc., had sales of 42,000 units and production of 50,000 units. Other information for the year included: Required: a. Compute the ending finished goods inventory under both absorption and variable costing. b. Compute the cost of goods sold under both absorption and variable costing.

Fresco Bottling Works manufactures glass bottles. January began with 10,000 units carried at $71,500. An additional 55,000 units were produced that month. February had production of 50,000 units. Fixed manufacturing costs totalled $192,500 in January and $180,000 in February. Sales for both months totalled 45,000 units with variable manufacturing costs of $4 per unit. Selling and administrative costs were $0.35 per unit variable and $70,000 fixed. The selling price was $11 per unit. Inventory moves on a first-in, first-out basis. Required: Compute the operating income for both months using absorption costing.

The manager of the manufacturing division of Winnipeg Windows does not understand why gross margin went down in February when sales went up. Some of the information she has selected for evaluation include: The division operated at normal capacity during January. Variable manufacturing cost per unit was $5, and the fixed manufacturing costs were $400,000. Selling and administrative expenses were all fixed. Required: Explain why the gross margin in February was lower than January even though February sales were higher. How would variable costing income statements help the manager understand the division's operating income?

Use the information below to answer the following question(s). Honda Heaven produces and sells an auto part for $20.00 per unit. Direct materials are $8 per unit, while direct manufacturing labour averages $1.50 per unit. Variable manufacturing overhead is $0.50 per unit and fixed manufacturing overhead is $250,000 per year. Administrative expenses, all fixed, run $90,000 per year, with sales commissions of $2 per part. Production is 100,000 parts per year. And this year, 75,000 boxes were sold. -What is Honda Heaven's inventory cost per box using variable costing?

Which of the following is correct concerning variable vs absorption costing?

Use the information below to answer the following question(s). Western Technologies Inc. produces dashboard displays. Actual fixed manufacturing overhead is the same as the budgeted amount, $687,500. Production in September increased by 10% over the previous month's production. August production was 25,000 displays. The production level is the same as the budgeted denominator level. At the end of September, 2,000 displays remained in stock. In August, all of the displays were sold by the end of the month and there was no remaining work in process inventory. -What is the Western Technologies' September cost of goods sold amount if absorption costing is used?

Answer the following question(s) using the information below. Reusser Company produces wood statues. Management has provided the following information: -What is the total throughput contribution?

Wallace's Wrench Company manufactures socket wrenches. For next month the vice-president of production plans on producing 4,400 wrenches per day. The company can produce as many as 5,000 wrenches per day, but are more likely to produce 4,500 per day. The demand for wrenches for the next three years is expected to average 4,250 wrenches per day. Fixed manufacturing costs per month total $336,600. The company works 20 days a month due to local zoning restrictions. Fixed manufacturing overhead is charged on a per wrench basis. Required: a. What is the theoretical fixed manufacturing overhead rate per wrench? b. What is the practical fixed manufacturing overhead rate per wrench? c. What is the normal fixed manufacturing overhead rate per wrench? d. What is the master-budget fixed manufacturing overhead rate per wrench?

For Consumer Lumber what would be the total difference between operating incomes under absorption costing and variable costing?

Answer the following question(s) using the information below. Ms. Andrea Chadwick, the company president, has heard that there are multiple break-even points for every product. She does not believe this and has asked you to provide the evidence of such a possibility. Some information about the company for current year is as follows: -What are break-even sales in units using absorption costing if the production units are actually 25,000?

Plate Company just hired its fourth production manager in three years. All three previous managers had quit because they could not get the company above the break-even point, even though sales had increased somewhat each year. The company was operating at about 60 percent of plant capacity. The flatware industry was growing, so increased sales were not out of the question. I. R. Dumm took the job as manager of the production division with a very attractive salary package. After interviewing for the position, he proposed a salary and bonus package that would give him a very small salary but a large bonus if he took the operating income (using absorption costing) above the break-even point during his very first year. Required: What do you think Mr. Dumm had in mind for increasing the company's operating income?

Megredy Company prepared the following absorption costing income statement for the year ended May 31, 2016. Additional information follows: Selling and administrative expenses include $1.50 of variable cost per unit sold. There was no beginning inventory, and 17,500 units were produced. Variable manufacturing costs were $11 per unit. Actual fixed costs were equal to budgeted fixed costs. Required: Prepare a variable-costing income statement for the same period.

Amalgamated Glass and Mirror Inc. had sales of 37,500 units and production of 50,000 units. Other information for the year included: Required: a. Compute the ending finished goods inventory under both absorption and variable costing. b. Compute the cost of goods sold under both absorption and variable costing.

You are the management accountant for the West coast division of a musical instrument manufacturing company. There are three manufacturing plants in your division. Each plant manager was given decision making authority in terms of production, as long as income for their plant kept on pace. The manager at Plant A has consistently been the leader in profit for the division, but the other two managers are complaining that Plant A doesn't seem to be selling any more product than they are. The division manager has noticed higher inventory levels at Plant A, which the plant manager justifies by saying the higher levels are needed to ensure adequate sales. The division manager suspects that there could be other reasons, and she has asked you to provide three proposals for revising performance evaluation.

Use the information below to answer the following question(s). Western Technologies Inc. produces dashboard displays. Actual fixed manufacturing overhead is the same as the budgeted amount, $687,500. Production in September increased by 10% over the previous month's production. August production was 25,000 displays. The production level is the same as the budgeted denominator level. At the end of September, 2,000 displays remained in stock. In August, all of the displays were sold by the end of the month and there was no remaining work in process inventory. -What are Western Technologies' appropriate period costs for September if variable costing is used?