Exam 9: Inventory Costing and Capacity Analysis

Time Again LLC produces and sells a mantel clock for $100 per unit. In 2017, 41,000 clocks were produced and 37,000 were sold. Other information for the year includes: What is the inventoriable cost per unit using absorption costing?

The choice of the capacity level used to allocate budgeted fixed manufacturing costs to products can greatly affect the product-cost information available to managers.

Kaiser 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 % of plant capacity. The flatware industry was growing, so increased sales were not out of the question. I. R. Thinking 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 breakeven point during his very first year. Required: What do you think Mr. Thinking had in mind for increasing the company's operating income?

Customers expect to pay a price that includes ________.

Jupiter Corporation incurred fixed manufacturing costs of $18,000 during 2017. Other information for 2017 includes: The budgeted denominator level is 2,400 units. Units produced total 2,700 units. Units sold total 1,600 units. Variable cost per unit is $4 Beginning inventory is zero. The fixed manufacturing cost rate is based on the budgeted denominator level. The operating income using variable costing will be ________ as compared to the operating income under absorption costing. (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A company should use the same denominator level capacity for all the budgets and other purposes so as to facilitate comparability and avoid misrepresentation.

Switching production to products that absorb the highest amount of fixed manufacturing costs is also called ________.

Speedy Supplies sells a product at a price of $150. It's variable manufactured cost is $30 and the variable marketing cost per unit is $17.50 with fixed cost per period of $60,000. What would be the change in operating income under variable costs if sales increase from 10,000 to 10,500 units?

Jenkins Corporation sells one product. The following information is available for the current month: What is the variable costing breakeven point in units? (Round your final answer up to the next whole unit.)

Sutton Hot Dog Stand sells hot dogs for $1.35. Variable costs are $1.05 per unit with fixed production costs of $90,000 per month at a level of 400,000 units. Fixed administrative costs total $30,000. Sales average 400,000 units per month, with planned production of 400,000 hot dogs. Required: a.What are breakeven unit sales under variable costing? b.What are breakeven unit sales under absorption costing if she sells everything she prepares? c.What are breakeven unit sales under absorption costing if average sales are 498,000 and planned production is changed to 500,000?

Throughput costing results in a higher amount of manufacturing costs being placed in inventory than either variable or absorption costing.

Which of the following statements is true of contribution-margin format of the income statement?

a.Explain the difference between the variable and absorption costing methods. b.Which method(s) are required for external reporting? For internal reporting?

Which of the following would be subtracted from sales while calculating contribution margin in a variable costing format of an operating income statement?

Aspen Manufacturing Company sells its products for $33 each. The current production level is 50,000 units, although only 40,000 units are anticipated to be sold. Required: a.Prepare an income statement using absorption costing. b.Prepare an income statement using variable costing.

Which of the following approaches spreads underallocated or overallocated overhead among ending balances in Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold?

Absorption costing is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs.

Cape Cod Technolgy Inc. manufactures heavy duty flash lights. January and February operations were identical in every way except for the planned production. January had a production denominator of 80,000 units. February had a production denominator of 60,000 units. Fixed manufacturing costs totaled $200,000. Sales for both months totaled 62,000 units with variable manufacturing costs of $4 per unit. Selling and administrative costs were $0.60 per unit variable and $51,000 of fixed. The selling price was $10 per unit. Required: Compute the operating income for both months using absorption costing.

Using practical capacity is best for evaluating the marketing manager's performance for a particular year.

Explain how using master-budget capacity utilization for setting prices can lead to a downward demand spiral.