Exam 9: Income Effects of Denominator Level on Inventory Valuation

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 absorption costing approach?

Explain three methods under absorption costing that managers can use to improve operating income.

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 theoretical capacity for the month of September?

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)

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

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

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?

Another common term used by some companies for variable costing is direct costing.

When the distinction between variable and fixed costs is one of the important elements in the preparation of the income statement,the method used should be the

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

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?

"Super-variable costing" assumes that

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?

Use the information below to answer the following question(s). Western Technologies Inc.produces dashboard displays.Actual fixed manufacturing overhead is the same as the budgeted amount,$687,500.Production in September increased by 10% over the previous month's production.August production was 25,000 displays.The production level is the same as the budgeted denominator level.At the end of September,2,000 displays remained in stock.In August,all of the displays were sold by the end of the month and there was no remaining work in process inventory. -What are Western Technologies' appropriate period costs for September if variable costing is used?

The gross-margin format of the income statement highlights the lump sum of fixed manufacturing costs.

Throughput costing treats all costs as period costs.

Helton Company has the following information for the current year: What is the difference between operating incomes under absorption costing and variable costing?

What is operating income using variable costing?

Johnson and Sons Company was concerned that increased sales did not result in increased profits for 2016.Both variable unit and total fixed manufacturing costs for 2015 and 2016 remained constant at $20 and $2,000,000,respectively. In 2015 the company produced 100,000 units and sold 80,000 units at a price of $50 per unit.There was no beginning inventory in 2011.In 2016 the company made 70,000 units and sold 90,000 units at a price of $50.Selling and administrative expenses were all fixed at $100,000 each year. Required: a.Prepare income statements for each year using absorption costing in the gross margin format. b.Prepare income statements for each year using variable costing in the contribution margin format. c.Explain why the income was different each year using the two methods.Show computations.

The break-even point under absorption costing depends on the: fixed costs,contribution margin per unit,unit level sales,unit level of production,and overhead cost rate.