Exam 9: Income Effects of Denominator Level on Inventory Valuation

Variable manufacturing costs are accounted for in the same manner on the income statement regardless of whether absorption or variable costing is used.

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 manufacturing cost using absorption costing?

For 2012, Nichols Inc., had sales of 75,000 units and production of 100,000 units. Other information for the year included: There was no beginning inventory. Required: a. Compute the ending finished goods inventory under both absorption and variable costing. b. Compute the cost of goods sold under both absorption and variable costing.

Bruster Company sells its products for $66 each. The current production level is 25,000 units, although only 20,000 units are anticipated to be sold. Unit manufacturing costs are: 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.

Which of the following is correct concerning variable vs absorption costing?

________ utilization is an average that provides no meaningful feedback to the marketing manager for a particular year.

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

SamTech Company has two identical divisions, East and West. Their sales, production volume, and fixed manufacturing costs have been the same for the last five years. The amounts for each division were as follows: East Division uses absorption costing and West Division uses variable costing. Both use FIFO inventory methods. Variable manufacturing costs are $5 per unit. Selling and administrative expenses were identical for each division. There were no inventories at the beginning of Year 1. Required: Which division reports the highest income each year? Explain.

Use the information below to answer the following question(s). Balloon Arrangements produces balloon bouquets. The following information has been provided by management: -What is the cost per bouquet if throughput costing is used?

The denominator-level concept based on capacity utilization that satisfies average customer demand that includes seasonal and cyclical factors is called

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 break-even unit sales under variable costing? b. What are break-even unit sales under absorption costing if she sells everything she prepares? c. What are break-even unit sales under absorption costing if average sales are 498,000 and planned production is changed to 500,000?

Briefly discuss two methods of reducing the undesirable incentives associated with the use of absorption costing to evaluate the performance of a plant manager.

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 contribution margin using variable costing?

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

Answer the following question(s) using the information below. Greene Manufacturing incurred the following expenses during 2012: -What is the break-even point in units using absorption costing if the units produced are actually 2,250?

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

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

Answer the following question(s) using the information below. Stober Company produces a specialty item. Management has provided the following information: -What is the total throughput contribution?

Throughput costing provides more incentive to produce for inventory than does absorption costing.

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 variable costing?