Homework Answers
4. Please see the image below for the graph:
5. Absorption costing is more likely to lead to buildups of inventory than does variable costing. Absorption costing enables managers to increase reported operating income by building up inventory which reduces the amount of fixed manufacturing overhead included in the current period’s cost of goods sold.
Three ways that can be done to counteract undesirable inventory buildups are:
- Careful budgeting and inventory planning
- Change the accounting system to variable costing or throughput costing
- Incorporate a carrying charge for carrying inventory
- Use a longer time period to evaluate performance than a quarter or a year
- Include nonfinancial as well as financial measures when evaluating management performance
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The Mavis Company uses an absorption-costing system based on standard costs. Total variable manufacturing cost, including...
The Hoffman Company uses an absorption-costing system based on standard costs. Total variable manufacturing cost, including...
The Hoffman Company uses an absorption-costing system based on standard costs. Total variable manufacturing cost, including direct material cost, is $3 per unit; the standard fixed manufacturing overhead costs are $480,000. Fixed manufacturing overhead is allocated at $8 per machine-hour ($480,000 / 60,000 machine-hours of denominator level). Selling price is $5 per unit. Variable operating (nonmanufacturing) cost, which is driven by units sold, is ginning inventory in 2014 is 40,000 units; ending inventory is 45,000 units. Sales in 2014 are...
Donaldson Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs...
Donaldson Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs and reports the following data for 2014: (Click the icon to view the data.) There are no price, spending, or efficiency variances. Actual operating costs equal budgeted operating costs. The production-volume variance is written off to cost of goods sold. For each choice of denominator level, the budgeted production cost per unit is also the cost per unit of beginning inventory. Data Table -...
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of...
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $58, of which $40 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $91 per unit, and the cost structure did not change. Scott uses the first-in first-out inventory method and has the following production and sales for 2015 and 2016 Units Manufactured Units Sold 90,000 120,000 130,000 2015 120,000...
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of...
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $59, of which $41 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $93 per unit, and the cost structure did not change. Scott uses the first-in, first-out inventory method and has the following production and sales for 2015 and 2016 2015 Units Manufactured Units Sold 120,000 90,000 120,000 130,000...
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of...
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $57, of which $39 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $89 per unit, and the cost structure did not change. Scott uses the first-in first-out inventory method and has the following production and sales for 2015 and 2016 Units Manufactured Units Sold 90,000 20,000 130,000 2015 120,000...
Variable and Absorption Costing Grant Company sells its product for $57 per unit. Variable manufacturing costs...
Variable and Absorption Costing Grant Company sells its product for $57 per unit. Variable manufacturing costs per unit are $35, and fixed manufacturing costs at the normal operating level of 18,000 units are $90,000. Variable selling expenses are $5 per unit sold. Fixed administrative expenses total $155,000. Grant had 7,000 units at a per-unit cost of $40 in beginning inventory in 2016. During 2016, the company produced 18,000 units and sold 20,000. Would net income for Grant Company in 2016...
Variable and Absorption Costing Chandler Company sells its product for $100 per unit. Variable manufacturing costs...
Variable and Absorption Costing Chandler Company sells its product for $100 per unit. Variable manufacturing costs per unit are $40, and fixed manufacturing costs at the normal operating level of 10,000 units are $240,000. Variable selling expenses are $16 per unit sold. Fixed administrative expenses total $104,000. Chandler had no beginning inventory in 2019. During 2019, the company produced 10,000 units and sold 8,000. Would net income for Chandler Company in 2019 be higher if calculated using variable costing or...
Dodner Company uses an absorption costing system in accounting for the single product it manufactures. The...
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Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of...
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $60, of which $42 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $95 per unit, and the cost structure did not change. Scott uses the first-in, first-out inventory method and has the following production and sales for 2015 and 2016 Units Manufactured Units Sold 2015 120,000 90,000 2016 120,000...
Variable and Absorption Costing Chandler Company sells its product for $104 per unit. Variable manufacturing costs...
Variable and Absorption Costing Chandler Company sells its product for $104 per unit. Variable manufacturing costs per unit are 545, and fixed manufacturing costs at the normal operating level of 12,000 units are $240,000. Variable selling expenses are $15 per unit sold. Fixed administrative expenses total $104,000. Chandler had no beginning inventory in 2016. During 2016, the company produced 12,000 units and sold 9,000. Would net income for Chandler Company in 2016 be higher if calculated using variable costing or...
The Hoffman Company uses an absorption-costing system based on standard costs. Total variable manufacturing cost, including direct material cost, is $3 per unit; the standard fixed manufacturing overhead costs are $480,000. Fixed manufacturing overhead is allocated at $8 per machine-hour ($480,000 / 60,000 machine-hours of denominator level). Selling price is $5 per unit. Variable operating (nonmanufacturing) cost, which is driven by units sold, is ginning inventory in 2014 is 40,000 units; ending inventory is 45,000 units. Sales in 2014 are...
Donaldson Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs and reports the following data for 2014: (Click the icon to view the data.) There are no price, spending, or efficiency variances. Actual operating costs equal budgeted operating costs. The production-volume variance is written off to cost of goods sold. For each choice of denominator level, the budgeted production cost per unit is also the cost per unit of beginning inventory. Data Table -...
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $58, of which $40 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $91 per unit, and the cost structure did not change. Scott uses the first-in first-out inventory method and has the following production and sales for 2015 and 2016 Units Manufactured Units Sold 90,000 120,000 130,000 2015 120,000...
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $59, of which $41 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $93 per unit, and the cost structure did not change. Scott uses the first-in, first-out inventory method and has the following production and sales for 2015 and 2016 2015 Units Manufactured Units Sold 120,000 90,000 120,000 130,000...
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $57, of which $39 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $89 per unit, and the cost structure did not change. Scott uses the first-in first-out inventory method and has the following production and sales for 2015 and 2016 Units Manufactured Units Sold 90,000 20,000 130,000 2015 120,000...
Variable and Absorption Costing Grant Company sells its product for $57 per unit. Variable manufacturing costs per unit are $35, and fixed manufacturing costs at the normal operating level of 18,000 units are $90,000. Variable selling expenses are $5 per unit sold. Fixed administrative expenses total $155,000. Grant had 7,000 units at a per-unit cost of $40 in beginning inventory in 2016. During 2016, the company produced 18,000 units and sold 20,000. Would net income for Grant Company in 2016...
Variable and Absorption Costing Chandler Company sells its product for $100 per unit. Variable manufacturing costs per unit are $40, and fixed manufacturing costs at the normal operating level of 10,000 units are $240,000. Variable selling expenses are $16 per unit sold. Fixed administrative expenses total $104,000. Chandler had no beginning inventory in 2019. During 2019, the company produced 10,000 units and sold 8,000. Would net income for Chandler Company in 2019 be higher if calculated using variable costing or...
Dodner Company uses an absorption costing system in accounting for the single product it manufactures. The following selected data are for the year 2020: Sales (20,000 $720,000 units) Direct materials $259,200 used Direct labor $86,400 costs Variable manufacturing $25,920 overhead Fixed manufacturing $34,560 overhead $43,200 Variable selling and administrative expenses Fixed selling and administrative expenses $144,000 The company produced 24,000 units and sold 20,000 units in 2020. Direct materials and direct labor are variable costs. One unit of direct material...
Variable and Absorption Costing Chandler Company sells its product for $104 per unit. Variable manufacturing costs per unit are 545, and fixed manufacturing costs at the normal operating level of 12,000 units are $240,000. Variable selling expenses are $15 per unit sold. Fixed administrative expenses total $104,000. Chandler had no beginning inventory in 2016. During 2016, the company produced 12,000 units and sold 9,000. Would net income for Chandler Company in 2016 be higher if calculated using variable costing or...
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