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22-8. Absorption Costing vs. Direct Costing. Norwood Corporation is con- sidering changing its method of inventory costing from absorption costing to direct costing and wants to determine the effect of the proposed change on its 19 financial statements. The firm manufactures Gink, which is sold for $20 per unit. A raw material, Marsh, is added before processing starts; and labor and factory overhead are added evenly during the manufacturing process. Production capacity is bud- geted at 110,000 units of Gink annually. The standard costs per unit of Gink are: Marsh (2 lbs. @ $1.50 per lb.)... Labor..... Variable factory overhead... Fixed factory overhead... Total unit cost.... Unit Cost $ 3.00 6.00 1.00 1.10 $11.10 A process cost system is used employing standard costs. Variances from standard costs are now debited or credited to Cost of Goods Sold. If direct costing were adopted, only variances resulting from variable costs would be debited or credited to Cost of Goods Sold. Inventory data for 19-are as follows: Marsh (lbs.)..... Work in process: 2/5ths processed... 1/3d processed.. Finished goods.... Units January 1 December 31 50,000 40,000 10,000 15,000 20,000 12,000 During 19-220,000 lbs. of Marsh were purchased, and 230,000 lbs. were transferred to work in process inventory. Also. 110.000 units of Gink were

22-8. Absorption Costing vs. Direct Costing. Norwood Corporation is con- sidering changing its method of inventory costing from absorption costing to direct costing and wants to determine the effect of the proposed change on its 19 financial statements. The firm manufactures Gink, which is sold for $20 per unit. A raw material, Marsh, is added before processing starts; and labor and factory overhead are added evenly during the manufacturing process. Production capacity is bud- geted at 110,000 units of Gink annually. The standard costs per unit of Gink are: Marsh (2 lbs. @ $1.50 per lb.)... Labor..... Variable factory overhead... Fixed factory overhead... Total unit cost.... Unit Cost $ 3.00 6.00 1.00 1.10 $11.10 A process cost system is used employing standard costs. Variances from standard costs are now debited or credited to Cost of Goods Sold. If direct costing were adopted, only variances resulting from variable costs would be debited or credited to Cost of Goods Sold. Inventory data for 19-are as follows: Marsh (lbs.)..... Work in process: 2/5ths processed... 1/3d processed.. Finished goods.... Units January 1 December 31 50,000 40,000 10,000 15,000 20,000 12,000 During 19-220,000 lbs. of Marsh were purchased, and 230,000 lbs. were transferred to work in process inventory. Also. 110.000 units of Gink were

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter18: Pricing And Profitability Analysis
Section: Chapter Questions
Problem 28P: The following information pertains to Vladamir, Inc., for last year: There are no work-in-process...
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22-8. Absorption Costing vs. Direct Costing. Norwood Corporation is con- sidering changing its method of inventory costing from absorption costing to direct costing and wants to determine the effect of the proposed change on its 19 financial statements. The firm manufactures Gink, which is sold for $20 per unit. A raw material, Marsh, is added before processing starts; and labor and factory overhead are added evenly during the manufacturing process. Production capacity is bud- geted at 110,000 units of Gink annually. The standard costs per unit of Gink are: Marsh (2 lbs. @ $1.50 per lb.)... Labor..... Variable factory overhead... Fixed factory overhead... Total unit cost.... Unit Cost $ 3.00 6.00 1.00 1.10 $11.10 A process cost system is used employing standard costs. Variances from standard costs are now debited or credited to Cost of Goods Sold. If direct costing were adopted, only variances resulting from variable costs would be debited or credited to Cost of Goods Sold. Inventory data for 19-are as follows: Marsh (lbs.)..... Work in process: 2/5ths processed... 1/3d processed.. Finished goods.... Units January 1 December 31 50,000 40,000 10,000 15,000 20,000 12,000 During 19-220,000 lbs. of Marsh were purchased, and 230,000 lbs. were transferred to work in process inventory. Also. 110.000 units of Gink were
Transcribed Image Text:22-8. Absorption Costing vs. Direct Costing. Norwood Corporation is con- sidering changing its method of inventory costing from absorption costing to direct costing and wants to determine the effect of the proposed change on its 19 financial statements. The firm manufactures Gink, which is sold for $20 per unit. A raw material, Marsh, is added before processing starts; and labor and factory overhead are added evenly during the manufacturing process. Production capacity is bud- geted at 110,000 units of Gink annually. The standard costs per unit of Gink are: Marsh (2 lbs. @ $1.50 per lb.)... Labor..... Variable factory overhead... Fixed factory overhead... Total unit cost.... Unit Cost $ 3.00 6.00 1.00 1.10 $11.10 A process cost system is used employing standard costs. Variances from standard costs are now debited or credited to Cost of Goods Sold. If direct costing were adopted, only variances resulting from variable costs would be debited or credited to Cost of Goods Sold. Inventory data for 19-are as follows: Marsh (lbs.)..... Work in process: 2/5ths processed... 1/3d processed.. Finished goods.... Units January 1 December 31 50,000 40,000 10,000 15,000 20,000 12,000 During 19-220,000 lbs. of Marsh were purchased, and 230,000 lbs. were transferred to work in process inventory. Also. 110.000 units of Gink were
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