Exam 9: Income Effects of Denominator Level on Inventory Valuation

The Canada Revenue Agency requires companies to use practical capacity as the denominator-level concept.

The production-volume variance is

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?

What is contribution margin using variable costing?

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 is the Western Technologies' September cost of goods sold amount if absorption costing is used?

Longview Golf Company sells a special putter for $20 each.In March it sold 28,000 putters while manufacturing 30,000.There was no beginning inventory on March 1.Production information for March was: Required: a.Compute the cost per unit under both absorption and variable costing. b.Compute the ending inventories under both absorption and variable costing. c.Compute operating income under both absorption and variable costing.

Period-to-period changes in operating income under absorption costing are driven by variations in both the unit level of sales and the unit level of production.

Variable costing does not include variable indirect manufacturing costs as inventoriable costs.

Fresco Bottling Works manufactures glass bottles.January began with 10,000 units carried at $71,500.An additional 55,000 units were produced that month.February had production of 50,000 units.Fixed manufacturing costs totalled $192,500 in January and $180,000 in February.Sales for both months totalled 45,000 units with variable manufacturing costs of $4 per unit.Selling and administrative costs were $0.35 per unit variable and $70,000 fixed.The selling price was $11 per unit.Inventory moves on a first-in,first-out basis. Required: Compute the operating income for both months using absorption costing.

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. The following information pertains to the Bean Company: -What is the variable costing break-even point in units?

The period-to-period change in operating income under variable costing is driven by unit level of sales,if the fixed costs are constant.

A possible criticism of ________ costing is that fixed manufacturing overhead is treated as a/an ________.

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

When all fixed manufacturing costs and variable manufacturing costs are included as inventoriable costs,the method being used is

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

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

The distinction between absorption costing and variable costing is most important for which type of industry?

Explain the difference between the gross margin format and the contribution margin format for the income statement.What information is highlighted with each?

Which denominator-level concept results in the highest amount of fixed manufacturing overhead costs per unit of ending inventory when seasonal demand is low?