Exam 9: Inventory Costing and Capacity Analysis

Answer the following questions using the information below: Daniel Rubber Company produces a specialty item. Management has provided the following information: Actual sales 110,000 units Budgeted production 100,000 units Selling price \ 40.00 per unit Direct material costs \ 8.00 per unit Variable manufacturing overhead \ 3.00 per unit Variable ad ministrative costs \ 5.00 per unit Fixed manufacturing overhead \ 4.00 per unit -What is the total throughput contribution?

________ is the level of capacity utilization that managers expect for the current budget period,which is typically one year.

________ is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs.

Given a constant contribution margin per unit and constant fixed costs,the period-to-period change in operating income under variable costing is driven solely by changes in the quantity of units actually manufactured.

Explain how using master-budget capacity utilization for setting prices can lead to a downward demand spiral.

Which of the following costs is inventoried when using absorption costing?

The following information pertains to Brian Stone Corporation: Beginning fixed manufacturing overhead in inventory \ 60,000 Ending fixed manufacturing overhead in inventory 45,000 Beginning variable manufacturing overhead in inventory \ 30,000 Ending variable manufacturing overhead in inventory 14,250 Fixed selling and administrative costs \ 724,000 Units produced 5,000 units Units sold 4,800 units What is the difference between operating incomes under absorption costing and variable costing?

Kaiser Company just hired its fourth production manager in three years.All three previous managers had quit because they could not get the company above the break-even point,even though sales had increased somewhat each year.The company was operating at about 60 % of plant capacity.The flatware industry was growing,so increased sales were not out of the question. I.R.Thinking took the job as manager of the production division with a very attractive salary package.After interviewing for the position,he proposed a salary and bonus package that would give him a very small salary but a large bonus if he took the operating income (using absorption costing)above the breakeven point during his very first year. Required: What do you think Mr.Thinking had in mind for increasing the company's operating income?

Ireland Corporation planned to be in operation for three years. • During the first year,2015,it had no sales but incurred $240,000 in variable manufacturing expenses and $80,000 in fixed manufacturing expenses. • In 2016,it sold half of the finished goods inventory from 20x1 for $200,000 but it had no manufacturing costs. • In 2017,it sold the remainder of the inventory for $240,000,had no manufacturing expenses and went out of business. • Marketing and administrative expenses were fixed and totaled $40,000 each year. Required: a.Prepare an income statement for each year using absorption costing. b.Prepare an income statement for each year using variable costing.

Answer the following questions using the information below: Greene Manufacturing incurred the following expenses during 2015: Fixed manufacturing costs \ 112,500 Fixed nonmanufacturing costs \ 87,500 Unit selling price \ 250 Total unit cost \ 100 Variable manufacturing cost rate \ 50 Units produced 1,340 units -What will be the breakeven point if variable costing is used?

The production-volume variance only exists under variable costing and not under absorption costing.

Evaluating performance of managers over a long period,say over three-to five-years,helps to reduce undesirable buildup of inventories.

As a company reduces its inventory levels,operating income differences between absorption costing and variable costing become immaterial.

Stiller Corporation incurred fixed manufacturing costs of $24,000 during 2015. Other information for 2015 includes: The budgeted denominator level is 2,000 units. Units produced total 1,500 units. Units sold total 1,200 units. Beginning inventory was zero. 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. -The production-volume variance is ________.

Answer the following questions using the information below: Veach Corporation incurred fixed manufacturing costs of $6,000 during 2015. Other information for 2015 includes: The budgeted denominator level is 1,000 units. Units produced total 750 units. Units sold total 600 units. Beginning inventory was zero. The company uses variable costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. -Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances)total ________.

Using ________ as the denominator level also gives the manager a more accurate idea of the resources needed and used to produce a unit by excluding the cost of unused capacity.

The unit cost of a product is always higher in variable costing than in absorption costing.

Determining the "right" level of capacity is one of the most strategic and difficult decisions managers face.

Absorption-costing income statements do not need to differentiate between variable and fixed costs.