A B D $ 900,000 $ 250,000 $ 900,000 $ 420,000 $ 900,000 $ 375,000 $ 900,000 $ 395,000 Sales Revenue Cost of Goods Sold (+) Variances: Direct Materials 15,000 15,000 Direct Labor 5,000 5,000 Manufacturing Overhead (+) Other Costs (AlI Fixed) 25,000 25,000 350,000 475,000 350,000 350,000 $ 770,000 $ 130,000 $ 770,000 $ 130,000 $ 770,000 $ 130,000 Total Costs $745,000 $ 155,000 Net Income Where applicable, Rob allocates both fixed and variable manufacturing overhead using direct labor hours as the driver. Blackstar carries no work-in-process inventory. Standard costs have been stable over time, and Rob writes off all variances to cost of goods sold. For 2017, there was no flexible budget variance for fixed overhead. In addition, the direct labor variance represents a price variance. 1. Match each method below with the appropriate income statement (A, B, C, or D): Required Actual Absorption costing Normal Absorption costing Standard Absorption costing Standard Variable costing 2. During 2017, how did Blackstar's level of finished-goods inventory change? In other words, is it pos- sible to know whether Blackstar's finished-goods inventory increased, decreased, or stayed constant during the year? 3. From the four income statements, can you determine how the actual volume of production during the year compared to the denominator (expected) volume level? 4. Did Blackstar have a favorable or unfavorable variable overhead spending variance during 2017?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Costing methods and variances, comprehensive. Rob Kapito, the controller of Blackstar Paint Supply Company, has been exploring a variety of internal accounting systems. Rob hopes to get the input of Blackstar’s board of directors in choosing one. To prepare for his presentation to the board, Rob applies four different cost accounting methods to the firm’s operating data for 2017. The four methods are actual absorption costing, normal absorption costing, standard absorption costing, and standard variable costing. With the help of a junior accountant, Rob prepares the following alternative income statements:

A
B
D
$ 900,000
$ 250,000
$ 900,000
$ 420,000
$ 900,000
$ 375,000
$ 900,000
$ 395,000
Sales Revenue
Cost of Goods Sold
(+) Variances:
Direct Materials
15,000
15,000
Direct Labor
5,000
5,000
Manufacturing Overhead
(+) Other Costs (AlI Fixed)
25,000
25,000
350,000
475,000
350,000
350,000
$ 770,000
$ 130,000
$ 770,000
$ 130,000
$ 770,000
$ 130,000
Total Costs
$745,000
$ 155,000
Net Income
Where applicable, Rob allocates both fixed and variable manufacturing overhead using direct labor hours as
the driver. Blackstar carries no work-in-process inventory. Standard costs have been stable over time, and
Rob writes off all variances to cost of goods sold. For 2017, there was no flexible budget variance for fixed
overhead. In addition, the direct labor variance represents a price variance.
1. Match each method below with the appropriate income statement (A, B, C, or D):
Required
Actual Absorption costing
Normal Absorption costing
Standard Absorption costing
Standard Variable costing
2. During 2017, how did Blackstar's level of finished-goods inventory change? In other words, is it pos-
sible to know whether Blackstar's finished-goods inventory increased, decreased, or stayed constant
during the year?
3. From the four income statements, can you determine how the actual volume of production during the
year compared to the denominator (expected) volume level?
4. Did Blackstar have a favorable or unfavorable variable overhead spending variance during 2017?

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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