(R. Marple, adapted) It is the end of 2017. Z-Var Corporation began operations in January 2016. The company is so named because it has no variable costs (Zero VARiable). All its costs are fixed; they do not vary with output. Z-Var Corp. is located on the bank of a river and has its own hydroelectric plant to supply power, light, and heat. The company manufactures a synthetic fertilizer from air and river water and sells its product at a price that is not expected to change. It has a small staff of employees, all paid fixed annual salaries. The output of the plant can be increased or decreased by pressing a few buttons on a keyboard. The following budgeted and actual data are for the operations of Z-Var. The company uses budgeted production as the denominator level and writes off any production-volume variance to cost of goods sold. 2016 2017 30,000 tons O tons 90 per ton Sales 30,000 tons Production 60,000 tons 90 per ton Selling price Costs (all fixed): $2,580,000 $2,580,000 Manufacturing Operating (nonmanufacturing) $ 102,000 $ 102,000 * Management adopted the policy, effective January 1, 2017, of producing only as much product as needed to fill sales orders. During 2017, sales were the same as for 2016 and were filled entirely from inventory at the start of 2017.
(R. Marple, adapted) It is the end of 2017. Z-Var Corporation began operations in January 2016. The company is so named because it has no variable costs (Zero VARiable). All its costs are fixed; they do not vary with output. Z-Var Corp. is located on the bank of a river and has its own hydroelectric plant to supply power, light, and heat. The company manufactures a synthetic fertilizer from air and river water and sells its product at a price that is not expected to change. It has a small staff of employees, all paid fixed annual salaries. The output of the plant can be increased or decreased by pressing a few buttons on a keyboard. The following budgeted and actual data are for the operations of Z-Var. The company uses budgeted production as the denominator level and writes off any production-volume variance to cost of goods sold. 2016 2017 30,000 tons O tons 90 per ton Sales 30,000 tons Production 60,000 tons 90 per ton Selling price Costs (all fixed): $2,580,000 $2,580,000 Manufacturing Operating (nonmanufacturing) $ 102,000 $ 102,000 * Management adopted the policy, effective January 1, 2017, of producing only as much product as needed to fill sales orders. During 2017, sales were the same as for 2016 and were filled entirely from inventory at the start of 2017.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Assume that the performance of the top manager of Z-Var is evaluated and rewarded largely on the basis of reported operating income. Which costing method would the manager prefer? Why?
Transcribed Image Text:(R. Marple, adapted) It is the end
of 2017. Z-Var Corporation began operations in January 2016. The company is so named because it has no
variable costs (Zero VARiable). All its costs are fixed; they do not vary with output.
Z-Var Corp. is located on the bank of a river and has its own hydroelectric plant to supply power, light,
and heat. The company manufactures a synthetic fertilizer from air and river water and sells its product at
a price that is not expected to change. It has a small staff of employees, all paid fixed annual salaries. The
output of the plant can be increased or decreased by pressing a few buttons on a keyboard.
The following budgeted and actual data are for the operations of Z-Var. The company uses budgeted
production as the denominator level and writes off any production-volume variance to cost of goods sold.
2016
2017
30,000 tons
O tons
90 per ton
Sales
30,000 tons
Production
60,000 tons
90 per ton
Selling price
Costs (all fixed):
$2,580,000
$2,580,000
Manufacturing
Operating (nonmanufacturing)
$ 102,000
$ 102,000
* Management adopted the policy, effective January 1, 2017, of producing only as much product as needed
to fill sales orders. During 2017, sales were the same as for 2016 and were filled entirely from inventory at
the start of 2017.
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