Concept explainers
Variable and absorption costing, actual costing. The Iron City Company started business on January 1, 2017. Iron City manufactures a specialty honey beer, which it sells directly to state-owned distributors in Pennsylvania. Honey beer is produced and sold in six-packs, and in 2017, Iron City produced more six-packs than it was able to sell. In addition to variable and fixed manufacturing
Iron City’s CFO is convinced that the firm should use an actual costing system but is debating whether to follow variable or absorption costing. The controller notes that Iron City’s operating income for the year would be $438,000 under variable costing and $461,000 under absorption costing. Moreover the ending finished-goods inventory would be valued at $7.15 under variable costing and $8.30 under absorption costing.
Iron City incurs no variable nonmanufacturing expenses.
- 1. What is Iron City’s total contribution margin for 2017?
- 2. Iron City incurs fixed
manufacturing costs in addition to its fixed marketing and administrative costs. How much did Iron City incur in fixed manufacturing costs in 2017? - 3. How many six-packs did Iron City produce in 2017?
- 4. How much in variable manufacturing overhead did Iron City incur in 2017?
- 5. For 2017, how much in total manufacturing overhead is expensed under variable costing, either through cost of goods sold or as a period expense?
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Chapter 9 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
- SixthZ incurred the following costs during 2018: Variable costs treehouse Manufacturing: Direct Materials $500 Direct Labor $270 VMO $40 Variable Selling & Admin $75 Fixed costs per year Fixed Manufacturing Overhead $125,000 Fixed Selling & Admin $60,000 During the year, SixthZ produced 1,100 treehouses and sold 950 treehouses. The selling price of each set was $1,000. Assuming SixthZ uses variable costing, what is the unit product cost? O $941.58 O $885 O $923.64 O $810arrow_forwardWhat value, if any, would DLN get by allocating costs of each department based on the activities done in that department?arrow_forwardExcellent Motor Company makes electric cars and has two products, the Simplegreen and the Excellentgreen. To produce the Simplegreen, Excellent Motor employed assets of $10,500,000 at the beginning of 2017 and $14,450,000 of assets at the end of 2017. Other costs to manufacture the Simplegreen include the following: Direct materials $5,000 per unit Setup $1,500 per setup-hour Production $ 415 per machine-hour General administration and selling costs for Simplegreen total $7,820,000 in 2017. During the year, Excellent Motor produced 11,000 Simplegreen cars using 6,000 setup-hours and 139,000 machine-hours. It sold these cars for $12,000 each. Q. Assuming that Excellent Motor defines investment as average assets during the period, what is the return on investment for the Simplegreen division?arrow_forward
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