Exam 9: Income Effects of Denominator Level on Inventory Valuation

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 only able to operate for 27 days per month due to scheduled maintenance. What is the practical capacity for the month of September?

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?

The break-even points are the same under both variable costing and absorption 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.

Throughput costing treats all costs as period costs.

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

The Canada Revenue Agency effectively eliminates the use of certain denominator-level concepts through its income tax rulings. The accepted concept(s) for tax purpose is(are)

Use the information below to answer the following question(s). Beauty Supply Company manufactures shampoo. The supervisor 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 would Beauty Supply Company's operating income (loss) be for January and February, respectively, using the variable costing approach?

Use the information below to answer the following question(s). Beauty Supply Company manufactures shampoo. The supervisor 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?

________ provides the lowest estimate of denominator-level capacity.

Answer the following question(s) using the information below. Marie's Decorating produces and sells a mantel clock for $100 per unit. In 2012, 100,000 clocks were produced and 80,000 were sold. Other information for the year includes: -What is the inventoriable cost per unit using variable 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?

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.

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 2012 is as follows: -What are break-even sales in units using absorption costing?

A major reason for choosing ________ utilization over ________, is the difficulty in forecasting.

Direct costing is not truly synonymous with variable costing since variable costing does not include all direct costs as inventorial costs.

Betts 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?

Normandeau Corporation manufactures and sells laptop computers and uses standard costing. For the month of September there was no beginning inventory, there were 1,500 units produced and 1,250 units sold. The manufacturing variable cost per unit is $770 and the operating cost per unit was $625. The fixed manufacturing cost is $450,000 and the fixed operating cost is $75,000. The selling price per unit is $1,850. Required: Prepare the income statement for Normandeau Corporation for September under 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 2012 is as follows: -What are break-even sales in units using variable costing?

Use the information below to answer the following question(s). Beauty Supply Company manufactures shampoo. The supervisor 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 variable cost?