EBK HORNGREN'S COST ACCOUNTING
16th Edition
ISBN: 9780134475998
Author: Rajan
Publisher: YUZU
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Textbook Question
Chapter 9, Problem 9.30E
Denominator-level problem. Thunder Bolt Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominator-level concept to use. The G36 motorcycles sell for an average price of $8,200. Budgeted fixed manufacturing
- a. Theoretical capacity--based on three shifts, completion of five motorcycles per shift, and a 360-day year--3 × 5 × 360 = 5,400.
- b. Practical capacity--theoretical capacity adjusted for unavoidable interruptions, breakdowns, and so forth--3 × 4 × 320 = 3,840.
- c. Normal capacity utilization--estimated at 3,240 units.
- d. Master-budget capacity utilization--the strengthening stock market and the growing popularity of motorcycles have prompted the marketing department to issue an estimate for 2017 of 3,600 units.
- 1. Calculate the budgeted fixed
manufacturing overhead cost rates under the four denominator-level concepts. - 2. What are the benefits to Thunder Bolt, Inc., of using either theoretical capacity or practical capacity?
- 3. Under a cost-based pricing system, what are the negative aspects of a master-budget denominator level? What are the positive aspects?
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Denominator-level problem. Thunder Bolt, Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominatorlevel concept to use. The G36 motorcycles sell for an average price of $8,200. Budgeted xed manufacturing overhead costs for 2017 are estimated at $6,480,000. Thunder Bolt, Inc., uses subassembly operators that provide component parts. The following are the denominator-level options that management has been considering:
Thunder Bolt, Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominatorlevel concept to use. The G36 motorcycles sell for an average price of $8,200. Budgeted fixed manufacturing overhead costs for 2017 are estimated at $6,480,000. Thunder Bolt, Inc., uses subassembly operators that provide component parts. The following are the denominator-level options that management has been considering:
a. Theoretical capacity—based on three shifts, completion of five motorcycles per shift, and a 360-day year—3 * 5 * 360 = 5,400.
b. Practical capacity—theoretical capacity adjusted for unavoidable interruptions, breakdowns, and so forth—3 * 4 * 320 = 3,840.
c. Normal capacity utilization—estimated at 3,240 units.
d. Master-budget capacity utilization—the strengthening stock market and the growing popularity of motorcycles have prompted the marketing department to issue an estimate for 2017 of…
Thunder Bolt, Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominatorlevel concept to use. The G36 motorcycles sell for an average price of $8,200. Budgeted fixed manufacturing overhead costs for 2017 are estimated at $6,480,000. Thunder Bolt, Inc., uses subassembly operators that provide component parts. The following are the denominator-level options that management has been considering:
a. Theoretical capacity—based on three shifts, completion of five motorcycles per shift, and a 360-day year—3 * 5 * 360 = 5,400.
b. Practical capacity—theoretical capacity adjusted for unavoidable interruptions, breakdowns, and so forth—3 * 4 * 320 = 3,840.
c. Normal capacity utilization—estimated at 3,240 units.
d. Master-budget capacity utilization—the strengthening stock market and the growing popularity of motorcycles have prompted the marketing department to issue an estimate for 2017 of…
Chapter 9 Solutions
EBK HORNGREN'S COST ACCOUNTING
Ch. 9 - Differences in operating income between variable...Ch. 9 - Why is the term direct costing a misnomer?Ch. 9 - Do companies in either the service sector or the...Ch. 9 - Explain the main conceptual issue under variable...Ch. 9 - Companies that make no variable-cost/fixed-cost...Ch. 9 - The main trouble with variable costing is that it...Ch. 9 - Give an example of how, under absorption costing,...Ch. 9 - What are the factors that affect the breakeven...Ch. 9 - Critics of absorption costing have increasingly...Ch. 9 - What are two ways of reducing the negative aspects...
Ch. 9 - Prob. 9.11QCh. 9 - Describe the downward demand spiral and its...Ch. 9 - Will the financial statements of a company always...Ch. 9 - Prob. 9.14QCh. 9 - The difference between practical capacity and...Ch. 9 - In comparing the absorption and variable cost...Ch. 9 - Queen Sales, Inc. has just completed its first...Ch. 9 - King Tooling has produced and sold the following...Ch. 9 - The following information relates to Drexler Inc.s...Ch. 9 - Prob. 9.20MCQCh. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-21). The...Ch. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-23). The...Ch. 9 - Variable versus absorption costing. The Tomlinson...Ch. 9 - Absorption and variable costing. (CMA) Miami,...Ch. 9 - Absorption versus variable costing. Horace Company...Ch. 9 - Candyland uses standard costing to produce a...Ch. 9 - Capacity management, denominator-level capacity...Ch. 9 - Denominator-level problem. Thunder Bolt Inc., is a...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Variable costing versus absorption costing. The...Ch. 9 - Throughput Costing (continuation of 9-32) 1....Ch. 9 - Variable costing and absorption costing, the Z-Var...Ch. 9 - Comparison of variable costing and absorption...Ch. 9 - Effects of differing production levels on...Ch. 9 - Alternative denominator-level capacity concepts,...Ch. 9 - Motivational considerations in denominator-level...Ch. 9 - Denominator-level choices, changes in inventory...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Downward demand spiral. Market.com is about to...Ch. 9 - Absorption costing and production-volume...Ch. 9 - Operating income effects of denominator-level...Ch. 9 - Variable and absorption costing, actual costing....Ch. 9 - Prob. 9.45PCh. 9 - Cost allocation, responsibility accounting, ethics...Ch. 9 - Absorption, variable, and throughput costing....Ch. 9 - Costing methods and variances, comprehensive. Rob...
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