MANAG.ACCOUNTING-CONNECT ACCESS >CUSTOM<
17th Edition
ISBN: 9781266862434
Author: Garrison
Publisher: MCG CUSTOM
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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. |
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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
MANAG.ACCOUNTING-CONNECT ACCESS >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
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