17E MANAGERIAL ACCOUNTING CUSTOM
17th Edition
ISBN: 9781266776328
Author: Garrison
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 6, Problem 27P
| PROBLEM 6-27 Incentives Created by Absorption Costing; Ethics and the Manager LO6-2 |
| Carlos Cavalas, the manager of Echo Products: Brazilian Division, is trying to set the production schedule for the last quarter of the year. The Brazilian Division had planned to sell 3,600 units during the year, but by September 30 only the following activity had been reported: |
| Units | ||||
| Inventory, January 1 | 0 | |||
| Production | 2,400 | |||
| Sales | 2,400 | |||
| Inventory, September 30 | 400 |
| The division can rent warehouse space to store up to 1,000 units. The minimum inventory level that the division should carry is 50 units. Mr. Cavalas is aware that production must be at least 200 units per quarter in order to retain a nucleus of key employees. Maximum production capacity is 1,500 units per quarter. |
| Demand has been soft, and the sales |
Required:
| Assume that the division is using variable costing. How many units should be scheduled for production during the last quarter of the year? (The basic formula for computing the required production for the quarter is: Required production = Expected sales - Desired ending inventory - Beginning inventory). Show computations and explain your answer. Will the number of units scheduled for production affect the division's reported income or loss for the year? Explain. |
| Assume that the division is using absorption costing and that the divisional manager is given an annual bonus based on divisional operating income. If Mr. Cavalas wants to maximize his division's operating income for the year, how many units should be scheduled for production during the last quarter9 [See the formula in (1) above. Explain. |
| Identify the ethical issues involved in the decision Mr. Cavalas must make about the level of production for the last quarter of the year. |
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Question 5.1
Stark and Company would like to evaluate one of the product lines that they sell to the defense
department. Every month the Stark and Company produce an identical number of units, although the
sales in units differ from month to month.
Selling price
Units in beginning inventory
$105
110
Units produced
6,400
Units sold
6,100
Units in ending inventory
Variable costs per unit:
410
Direct materials
$62
Direct labour
$48
Variable manufacturing overhead
Variable selling and administrative
Fixed costs:
$3
$7
Fixed manufacturing overhead
Fixed selling and administrative
$64,000
$35,600
Submission Instructions:
1. Under variable costing, identify the unit product cost for the month.
2. What is the unit product cost for the month under absorption costing?
3. Prepare an income statement for the month using the contribution format and the
variable costing method.
4. Prepare an income statement for the month using the absorption costing method.
puestion 5.3
DC-Marvel would like to evaluate one of the product lines that they sell to defense department. Every
month the company produces an identical number of units, although the sales in units differ from
month to month.
Product B
Selling price
$109
Units in beginning inventory
Units produced
Units sold
360
6,900
7,200
Variable costs per unit:
$29
$31
Direct materials
Direct labour
Variable manufacturing overhead
$2
Variable selling and administrative
$7
Fixed costs:
$53,500
$145,000
Fixed manufacturing overhead
Fixed selling and administrative
Submission Instructions:
1. Compute the Contribution Margin.
2. Compute the Operating Income under Variable Costing.
3. Prepare a reconciliation from your Operating Income under Variable Costing to Operating
Income under Absorption Costing. Show the differences between each method.
QUESTION 7
Quiet Corp. currently makes 2000 subcomponents a year in one of its factories. The unit costs to produce are:
Description
Per unit
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
$4
4
2
IMI
An outside supplier has offered to provide Quiet Corp. with the 2000 subcomponents at a $17 per unit price. Fixed overhead is not avoidable. If Quiet Corp. decides to
buy from the outside supplier, the impact to net income will be ?
If positive, enter the number, if negative, place a-sign before your number
Chapter 6 Solutions
17E MANAGERIAL ACCOUNTING CUSTOM
Ch. 6.A - Prob. 1ECh. 6.A - EXERCISE 6A-2 Super-Variable Costing and Variable...Ch. 6.A - Prob. 3ECh. 6.A - PROBLEM 6A-4 Super-Variable Costing and Variable...Ch. 6.A - Prob. 5PCh. 6 - Prob. 1QCh. 6 - Are selling and administrative expenses treated as...Ch. 6 - Explain how fixed manufacturing overhead costs are...Ch. 6 - What are the arguments in favor of treating fixed...Ch. 6 - What are the arguments in favor of treating fixed...
Ch. 6 - Prob. 6QCh. 6 - Prob. 7QCh. 6 - Prob. 8QCh. 6 - Under absorption costing, how is it possible to...Ch. 6 - Prob. 10QCh. 6 - Prob. 11QCh. 6 - What costs are assigned to a segment under the...Ch. 6 - Distinguish between a trace able fixed cost and a...Ch. 6 - Explain how the contribution margin differs from...Ch. 6 - Prob. 15QCh. 6 - Prob. 16QCh. 6 - Should a company allocate its common feed costs to...Ch. 6 - A B C D E 1 Chapter 6: Applying Excel 2 3 Data 4...Ch. 6 - A B C D E 1 Chapter 6: Applying Excel 2 3 Data 4...Ch. 6 - A B C D E
1 Chapter 6: Applying...Ch. 6 - Diego Company manufactures one product that is...Ch. 6 - Prob. 2F15Ch. 6 - Prob. 3F15Ch. 6 - Prob. 4F15Ch. 6 - Prob. 5F15Ch. 6 - Diego Company manufactures one product that is...Ch. 6 - Prob. 7F15Ch. 6 - Prob. 8F15Ch. 6 - Prob. 9F15Ch. 6 - Prob. 10F15Ch. 6 - Prob. 11F15Ch. 6 - Prob. 12F15Ch. 6 - Prob. 13F15Ch. 6 - Diego Company manufactures one product that is...Ch. 6 - Prob. 15F15Ch. 6 - Prob. 1ECh. 6 - Prob. 2ECh. 6 - Prob. 3ECh. 6 - Prob. 4ECh. 6 - Prob. 5ECh. 6 - EXERCISE 6-6 Variable and Absorption Costing Unit...Ch. 6 - Prob. 7ECh. 6 - Prob. 8ECh. 6 - EXERCISE 6-9 Variable and Absorption Costing Unit...Ch. 6 - Prob. 10ECh. 6 - Prob. 11ECh. 6 - Prob. 12ECh. 6 - Prob. 13ECh. 6 - Prob. 14ECh. 6 - EXERCISE 6—15 Absorption Costing Unit Product Cost...Ch. 6 - EXERCISE 6-16 Working with a Segmented Income...Ch. 6 - Prob. 17ECh. 6 - Prob. 18PCh. 6 - Prob. 19PCh. 6 - Prob. 20PCh. 6 - PROBLEM 6—21 Segment Reporting and Decision-Making...Ch. 6 - Prob. 22PCh. 6 - Prob. 23PCh. 6 - PROBLEM 6-24 Companywide and Segment Break-Even...Ch. 6 - Prob. 25PCh. 6 - Prob. 26PCh. 6 - PROBLEM 6-27 Incentives Created by Absorption...Ch. 6 - Prob. 28PCh. 6 - Prob. 29CCh. 6 - Prob. 30C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Solve the attached Questionarrow_forwardQUESTION 4 Exxarro Llimited is considering pricing and costing for the year ahead. The following data based on expected production and sales of 15 000 units are provided for analysis: Variable manufacturing cost Fixed manufacturing cost R1 185 000 R510 000 R5 per unit sold R130 000 Sales commission Fixed administration cost Sales R210 per unit Study the information provided above and answer the following questions independently: 4.1 Calculate the break-even sales value. 4.2 Calculate the sales volume required to achieve a profit of R 800 000. 4.3 Suppose Exxaro Limited is considering a decrease of 10% per unit in the selling price of the product with the expectation that it would increase sales volume by 10%. Is this a good idea? Motivate your answer with relevant calculations.arrow_forwardPROBLEM 7 Tito Company sells several products. Information of average revenue and costs are as follows: Selling price per unitPhp20.00 Variable costs per unit: Direct materialsPhp4.00 Direct manufacturing labor Php1.60 Manufacturing overhead Php0.40 Selling costsPhp2.00 Annual fixed costs Php96,000 26. Calculate the contribution margin per unit. 27. Calculate the number of units Tito's must sell each year to break even. 28. Determine the breakeven point in peso. 29. Calculate the number of units Tito's must sell to yield a profit of Php144,000. PROBLEMarrow_forward
- Please help me with show all calculation thankuarrow_forwardHansha benarrow_forwardQuestion 6 Amundsen Company makes 60,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Variable Selling Fixed Selling Total $ 10.10 $17.40 $ 2.70 $15.00 $ 2.75 $ 3.25 $51.20 An outside supplier has offered to sell the company all of these parts it needs. If the company accepts this offer, the facilities now being used to make the part would be idle and fixed manufacturing overhead would be reduced by 80% of current cost. The variable selling costs would be reduced to 40% of current cost. Required: What is the maximum amount the company should be willing to pay an outside supplier per unit for the part?arrow_forward
- Question 8 -/1 S View Policies ons Current Attempt in Progress Support Morales Corporation produces microwave ovens. The following per unit cost information is available: direct materials $34, direct labor $29, variable manufacturing overhead $15, fixed manufacturing overhead $42, variable selling and administrative expenses $17, and fixed selling and administrative expenses $26. Its desired ROI per unit is $29. Compute the markup percentage using absorption- cost pricing. (Round answer to 2 decimal places, eg al 10.50%.) Markup percentage 8:44 PM ) 11/18/2019 hp ho l ins 12 home end delete pg up prt sc 44 ++ backspace lock 7 P Dome CO 96arrow_forwardPlease solve all questionsarrow_forwardQuestion 10.4 Big Machines Corp. has two divisions. Division Y manufactures components that can be sold in the external market place or transferred to Division Z for further processing. The following data relate to Division Y's component product. Variable manufacturing costs/unit $925 Fixed costs/unit at capacity $275 Selling price/unit $1,800 The capacity of the plant is 2,500 units per year. Division Z has offered to purchase 350 units from Division Y at a price of $1,600/unit, which is the market price of the component. The manager of Division Y has refused this offer stating that it would only return a rate of 25.00%, when the divisional target return on sales is 28.00%. The Division Y manager also states that additional fixed costs of $195,000 would be required to produce the 350 units. The corporate required rate of return is 18% of assets and the existing asset base in Division Y is $2,500,000. Required: How many units must Division Y sell in order…arrow_forward
- Question 9.4 Sweet Tunes Ltd. makes musical instruments. One of their products is a ukulele that has an annual demand of 3,000 units. The setup cost for each production batch is $900; it costs $15 to carry a ukulele in inventory for one year. Required What is the total annual relevant batch set up and carrying cost if the company uses the economic order quantity? Assume that setup costs are the same as ordering costs. The company is switching to a just-in-time system. The average order size is 200 ukuleles. What is the total annual relevant batch set up and caring cost? Compare the Enterprise Resource Planning EOQ model with the JIT model. What are the advantages and disadvantages of each?arrow_forwardPlz answer A,B&Carrow_forwardpls help asaparrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Pricing Decisions; Author: Rutgers Accounting Web;https://www.youtube.com/watch?v=rQHbIVEAOvM;License: Standard Youtube License