The Write Way manufactures double sided pens- a pen on one side, a highlighteron the other. As the accounting manager, Shade is responsible for presenting three different versions of the company's income statement to the rest of the management team at year-end. Team members are very familiar with absorbtion costing, as they have been evaluating gross margin amounts and percentages for years. They are lesss keen on how fixed-MOH impacts the income statment, so Shade gathers the following current information. The information includes three possible capacity levels for calculating the fixed-MOH rate. Shade also notes there are no price or efficiency variances this period. Any fixed-MOH volume variase is written off to COGS.Theoretical level - 80,000 units Practical level - 60,000 units Normal level - 50,000 units Actual production - 65,000 units Sales Volume - 60,000 units Budgeted fixed-MOH cost - $240,000 Budgeted DM cost - $2.25 per unit Budgeted DL cost -$1.30 per unit Budgeted variable- MOH cost - $0.40 per unit Selling price - $15.00 per unit a. Calculate the fixed-MOH volume variance for each possible capacity level this year; specify amount and sign. b. Prepare partial income statements through gross margin for each denominator level. c. Calculate the difference in income from each denominator level to the next, and explain any income differences. d. If Shade needs to report on how well the company utilized its capacity, what would she say if the company uses the theoretical level? The practical level? The normal level? e. What gross margin percentage is earned under teh theoretical level? practical level? normal level? Should the denominator level affect the price the company charges for its product? Explain
The Write Way manufactures double sided pens- a pen on one side, a highlighteron the other. As the
Theoretical level - 80,000 units
Practical level - 60,000 units
Normal level - 50,000 units
Actual production - 65,000 units
Sales Volume - 60,000 units
Budgeted fixed-MOH cost - $240,000
Budgeted DM cost - $2.25 per unit
Budgeted DL cost -$1.30 per unit
Budgeted variable- MOH cost - $0.40 per unit
Selling price - $15.00 per unit
a. Calculate the fixed-MOH volume variance for each possible capacity level this year; specify amount and sign.
b. Prepare partial income statements through gross margin for each denominator level.
c. Calculate the difference in income from each denominator level to the next, and explain any income differences.
d. If Shade needs to report on how well the company utilized its capacity, what would she say if the company uses the theoretical level? The practical level? The normal level?
e. What gross margin percentage is earned under teh theoretical level? practical level? normal level? Should the denominator level affect the price the company charges for its product? Explain
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