Exam 9: Income Effects of Denominator Level on Inventory Valuation

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 cost of goods sold per unit using variable costing?

Use the information below to answer the following question(s).Urban Body Products Ltd.manufactures body wash liquid soap.The controller has provided the following information and stated that standard costing is used for manufacturing, marketing, and administrative costs. There were no beginning or ending inventories of materials or work-in-process. -What is the per unit manufacturing cost using absorption costing at Urban Body Products Ltd.?

Which of the following combination of costing systems assigns the same direct labour cost to inventory?

Klein 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?

Direct costing is a perfect way to describe the variable-costing inventory method.

Each unit in inventory under absorption costing absorbs fixed manufacturing costs.

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. -________ provides the denominator-level capacity based on demand for more than one budget cycle.

Both ASPE/IFRS and the CRA accept practical capacity for external reporting purposes.

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

Which of the following concepts is most compatible with absorption costing in a manufacturing environment?

Variable costing will generally report less operating income than absorption costing when the inventory level decreases.

Use the information below to answer the following question(s).Urban Body Products Ltd.manufactures body wash liquid soap.The controller has provided the following information and stated that standard costing is used for manufacturing, marketing, and administrative costs. There were no beginning or ending inventories of materials or work-in-process. -Advanced Lighting's total variable costs are $102 and total manufacturing costs are $98.Standard variable marketing/administrative costs constitute 20 percent of the total variable costs.Respectively, what are Advanced Lighting's standard variable manufacturing costs and standard fixed manufacturing costs?

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

Answer the following question(s)using the information below.Reusser Company produces wood statues.Management has provided the following information: -What is the cost per statue if throughput costing is used?

Ewing Company planned to be in operation for three years.During the first year, it had no sales but incurred $120,000 in variable manufacturing expenses and $40,000 in fixed manufacturing expenses.In the next year, it sold half of the finished goods inventory from the previous year for $100,000 but it had no manufacturing costs.In the third year, it sold the remainder of the inventory for $120,000, had no manufacturing expenses and went out of business.Marketing and administrative expenses were fixed and totalled $20,000 each year.Required: a.Prepare an income statement for each year using absorption costing in the gross margin format. b.Prepare an income statement for each year using variable costing contribution margin format.

The difference between variable costing and absorption costing centres on accounting for variable costs.

Use the information below to answer the following question(s).Urban Body Products Ltd.manufactures body wash liquid soap.The controller has provided the following information and stated that standard costing is used for manufacturing, marketing, and administrative costs. There were no beginning or ending inventories of materials or work-in-process. -Which of the following is correct concerning variable vs absorption costing?

Answer the following question(s)using the information below.Heinrich Corporation budgeted fixed manufacturing costs of $6,000 during 2012.Other information for 2012 includes: The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level.Manufacturing variances are closed to cost of goods sold. -Operating income using absorption costing will be ________ than operating income if using variable costing.

The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted.

Absorption costing prevents managers from increasing production to levels above customer demand, as a means of inflating operating income.