Variable costing and absorption costing, the Z-Var Corporation. (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 a Sales 30,000 tons 30,000 tons Production 60,000 tons 0 tons Selling price $ 90 per ton $ 90 per ton Costs (all fixed): Manufacturing $2,580,000 $2,580,000 Operating (nonmanufacturing) $ 102,000 $ 102,000 1. Prepare income statements with one column for 2016, one column for 2017, and one column for the two years together using (a) variable costing and (b) absorption costing. 2. What is the breakeven point under (a) variable costing and (b) absorption costing? 3. What inventory costs would be carried in the balance sheet on December 31, 2016 and 2017 under each method? 4. 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?
Variable costing and absorption costing, the Z-Var Corporation. (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 a Sales 30,000 tons 30,000 tons Production 60,000 tons 0 tons Selling price $ 90 per ton $ 90 per ton Costs (all fixed): Manufacturing $2,580,000 $2,580,000 Operating (nonmanufacturing) $ 102,000 $ 102,000 1. Prepare income statements with one column for 2016, one column for 2017, and one column for the two years together using (a) variable costing and (b) absorption costing. 2. What is the breakeven point under (a) variable costing and (b) absorption costing? 3. What inventory costs would be carried in the balance sheet on December 31, 2016 and 2017 under each method? 4. 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?
Variable costing and absorption costing, the Z-Var Corporation. (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
2017a
Sales
30,000 tons
30,000 tons
Production
60,000 tons
0 tons
Selling price
$ 90 per ton
$ 90 per ton
Costs (all fixed):
Manufacturing
$2,580,000
$2,580,000
Operating (nonmanufacturing)
$ 102,000
$ 102,000
1. Prepare income statements with one column for 2016, one column for 2017, and one column for the two years together using (a) variable costing and (b) absorption costing.
2. What is the breakeven point under (a) variable costing and (b) absorption costing?
3. What inventory costs would be carried in the balance sheet on December 31, 2016 and 2017 under each method?
4. 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?
Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning