COST ACCOUNTING
16th Edition
ISBN: 9781323169261
Author: Horngren
Publisher: PEARSON C
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Chapter 9, Problem 9.39P
Denominator-level choices, changes in inventory levels, effect on operating income. Magic Me is a manufacturer of magic kits. It uses absorption costing based on
There are no price, spending, or efficiency variances. Actual operating costs equal budgeted operating costs. The production-volume variance is written off to cost of goods sold. For each choice of denominator level, the budgeted production cost per unit is also the cost per unit of beginning inventory.
- 1. What is the production-volume variance in 2017 when the denominator level is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization?
Required
- 2. Prepare absorption costing–based income statements for Magic Me Corporation using theoretical capacity practical capacity and normal capacity utilization as the denominator levels.
- 3. Why is the operating income under normal capacity utilization lower than the other two scenarios?
- 4. Reconcile the difference in operating income based on theoretical capacity and practical capacity with the difference in fixed manufacturing
overhead included in inventory.
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Magic Me is a manufacturer of magic kits. It uses absorption costing based on standard costs and reports the following data for 2017:
There are no price, spending, or efficiency variances. Actual operating costs equal budgeted operating costs. The production-volume variance is written off to cost of goods sold. For each choice of denominator level, the budgeted production cost per unit is also the cost per unit of beginning inventory
Q. Prepare absorption costing–based income statements for Magic Me Corporation using theoretical capacity, practical capacity, and normal capacity utilization as the denominator levels.
Magic Me is a manufacturer of magic kits. It uses absorption costing based on standard costs and reports the following data for 2017:
There are no price, spending, or efficiency variances. Actual operating costs equal budgeted operating costs. The production-volume variance is written off to cost of goods sold. For each choice of denominator level, the budgeted production cost per unit is also the cost per unit of beginning inventory
Q. Why is the operating income under normal capacity utilization lower than the other two scenarios?
Donaldson Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs and reports the following data for 2014:
(Click the icon to view the data.)
There are no price, spending, or efficiency variances. Actual operating costs equal budgeted operating costs. The production-volume variance is written off to cost of goods sold. For each choice of denominator
level, the budgeted production cost per unit is also the cost per unit of beginning inventory.
- X
Data Table
Theoretical capacity
Practical capacity
Normal capacity utilization
Selling price
Beginning inventory
Production
Less:
Print
Difference in operating income
$
Sales volume
Variable budgeted manufacturing cost
$
Total budgeted fixed manufacturing costs
$ 2,915,000
Total budgeted operating (non-manuf.) costs (all fixed) $ 200,000
Done
275,000 units
265,000 units
233,200 units
39 per unit
Less:
35,000 units
235,000 units
250,000 units
Requirement 3. Why is the operating income under…
Chapter 9 Solutions
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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