Exam 9: Income Effects of Denominator Level on Inventory Valuation

Answer the following question(s)using the information below.A manufacturing firm is able to produce 1,000 pairs of shoes per hour, at maximum efficiency.There are three eight-hour shifts each day.Due to unavoidable operating interruptions, production averages 800 units per hour.In the month of June the plant actually operated only 25 days due to avoidable shut downs. -What is the practical capacity for the month of April?

Normal capacity utilization is not the same as master-budget capacity utilization.

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?

The method of costing that excludes fixed manufacturing costs from inventoriable costs is known as

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.

Using either the theoretical capacity or practical capacity as the denominator-level concept will result in the same production-volume variance.

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?

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 variances exists only under absorption costing?

Which of the following inventory costing methods results in the LEAST amount of costs being inventoried?

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. -The budgeted fixed manufacturing cost rate is the lowest for

If 400 units are produced and 600 units are sold, ________ results in the greatest amount of operating income.

Off-limits idle capacity refers to the unused capacity in facilities that are not located on the company's primary location.

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. -Which of the following is an example of a drawback of using absorption 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?

Ace Products sells its products for $22 each.Unit manufacturing costs are: direct materials, $4.00; direct manufacturing labour, $6.00; and variable manufacturing overhead, $3.00.Total fixed manufacturing overhead costs are $60,000 and marketing expenses are $2.00 per unit plus $20,000 per year.The current production level is 25,000 units although only 20,000 units are anticipated to be sold.Required: a.Prepare an income statement using absorption costing in the gross margin format. b.Prepare an income statement using variable costing in the contribution margin format.

Stamp Bottling Works manufactures glass bottles.January began with 15,000 units carried at $108,750.An additional 35,000 units were produced that month.February had production of 40,000 units.Fixed manufacturing costs totalled $119,000 in January and $132,000 in February.Sales for both months totalled 45,000 units with variable manufacturing costs of $4 per unit.Selling and administrative costs were $0.40 per unit variable and $60,000 fixed.The selling price was $10 per unit.Inventory moves on a first-in, first-out basis.Required: Compute the operating income for both months using absorption costing.

The following data are available for Ruggles Company for the year ended September 30, 2019. Manufacturing costs incurred: Nonmanufacturing costs incurred: Required: a.Determine operating income using the variable costing approach. b.Determine operating income using the absorption costing approach. c.Explain why the income was different each year using the two methods.Show computations.

Answer the following question(s)using the information below.Gabe's Auto produces and sells an auto part for $30.00 per unit.In 2012, 100,000 parts were produced and 75,000 units were sold.Other information for the year includes: -What is the inventoriable cost per unit using absorption costing?

In absorption costing, all nonmanufacturing costs are subtracted from gross margin.

Normal capacity utilization is the expected level of capacity utilization for the current budget period, which is typically one year.