Cahalane Corporation has provided the following data for its two most recent years of operation: Selling price per unit $ 91 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 12 Direct labor $ 5 Variable manufacturing overhead $ 5 Fixed manufacturing overhead per year $ 432,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 4 Fixed selling and administrative expense per year $ 78,000 Year 1 Year 2 Units in beginning inventory 0 1,000 Units produced during the year 9,000 12,000 Units sold during the year 8,000 10,000 Units in ending inventory 1,000 3,000 Which of the following statements is true for Year 2 The amount of fixed manufacturing overhead released from inventories is $592,000 The amount of fixed manufacturing overhead deferred in inventories is $592,000 The amount of fixed manufacturing overhead deferred in inventories is $60,000 The amount of fixed manufacturing overhead released from inventories is $60,000
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
| Selling price per unit | $ | 91 |
| Variable manufacturing cost per unit produced: | ||
| Direct materials | $ | 12 |
| Direct labor | $ | 5 |
| Variable manufacturing |
$ | 5 |
| Fixed manufacturing overhead per year | $ | 432,000 |
| Selling and administrative expenses: | ||
| Variable selling and administrative expense per unit sold | $ | 4 |
| Fixed selling and administrative expense per year | $ | 78,000 |
| Year 1 | Year 2 | |
| Units in beginning inventory | 0 | 1,000 |
| Units produced during the year | 9,000 | 12,000 |
| Units sold during the year | 8,000 | 10,000 |
| Units in ending inventory | 1,000 | 3,000 |
Which of the following statements is true for Year 2
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The amount of fixed manufacturing overhead released from inventories is $592,000
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The amount of fixed manufacturing overhead deferred in inventories is $592,000
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The amount of fixed manufacturing overhead deferred in inventories is $60,000
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The amount of fixed manufacturing overhead released from inventories is $60,000
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