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Exam 9: Income Effects of Denominator Level on Inventory Valuation

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Question 51

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Answer the following question(s) using the information below.A manufacturing firm is able to produce 1,000 pairs of shoes per hour, at maximum efficiency.There are three eight-hour shifts each day.Due to unavoidable operating interruptions, production averages 800 units per hour.In the month of June the plant actually operated only 25 days due to avoidable shut downs. -External reporting requires the use of ________ capacity in the denominator, taking into account off-limits idle capacity.

A) theoretical
B) practical
C) budget
D) normal
E) practical or normal

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Question 52

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Answer the following question(s) using the information below.Bunwell Company produces a specialty item.Management has provided the following information: -What is the total throughput contribution at Bunwell Company?

A) $1,350,000
B) $1,200,000
C) $950,000
D) $600,000
E) $1,950,000

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Question 53

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Theoretical capacity is rarely used to calculate the budgeted fixed manufacturing cost per case because it departs significantly from the real capacity available to a company.

Plate Company just hired its fourth production manager in three years.All three previous managers had quit because they could not get the company above the break-even point, even though sales had increased somewhat each year.The company was operating at about 60 percent of plant capacity.The flatware industry was growing, so increased sales were not out of the question.I.R.Dumm took the job as manager of the production division with a very attractive salary package.After interviewing for the position, he proposed a salary and bonus package that would give him a very small salary but a large bonus if he took the operating income (using absorption costing)above the break-even point during his very first year.Required: What do you think Mr.Dumm had in mind for increasing the company's operating income?

The denominator-level concept based on capacity utilization for the anticipated level of output that will satisfy customer demand for a single operating cycle is the

Answer the following question(s) using the information below.Heinrich Corporation budgeted fixed manufacturing costs of $6,000 during 2012.Other information for 2012 includes: The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level.Manufacturing variances are closed to cost of goods sold. -The production-volume variance is

Explain three methods under absorption costing that managers can use to improve operating income.

Unused capacity is considered wasted resources and the result of poor planning.

Variable costing includes all direct manufacturing costs and all manufacturing overhead costs.

Answer the following question(s) using the information below.Heinrich Corporation budgeted fixed manufacturing costs of $6,000 during 2012.Other information for 2012 includes: The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level.Manufacturing variances are closed to cost of goods sold. -Fixed manufacturing costs included in ending inventory total

One possible means of determining the difference between absorption and variable costing based operating incomes is

________ utilization is an average that provides no meaningful feedback to the marketing manager for a particular year.

Normandeau Corporation manufactures and sells laptop computers and uses standard costing.For the month of September there was no beginning inventory, there were 1,500 units produced and 1,250 units sold.The manufacturing variable cost per unit is $770 and the operating cost per unit was $625.The fixed manufacturing cost is $450,000 and the fixed operating cost is $75,000.The selling price per unit is $1,850.Required: Prepare the income statement for Normandeau Corporation for September under variable costing.

Longview Golf Company sells a special putter for $20 each.In March it sold 28,000 putters while manufacturing 30,000.There was no beginning inventory on March 1.Production information for March was: Required: a.Compute the cost per unit under both absorption and variable costing. b.Compute the ending inventories under both absorption and variable costing. c.Compute operating income under both absorption and variable costing.

When comparing the operating incomes between absorption costing and variable costing, and beginning finished inventory exceeds ending finished inventory, it may be assumed that

Use the information below to answer the following question(s) .Car Tunes produces car radios.Actual fixed manufacturing overhead is the same as the budgeted amount, $330,000.Production in September increased by 10% over the previous month's production.August production was 5,000 radios.The production level is the same as the budgeted denominator level.At the end of September, 1,000 radios remained in stock.In August, all of the radios were sold by the end of the month and there was no remaining work in process inventory. -What is the Car Tune's September cost of goods sold amount if absorption costing is used?

Answer the following question(s) using the information below.A manufacturing firm is able to produce 1,000 pairs of shoes per hour, at maximum efficiency.There are three eight-hour shifts each day.Due to unavoidable operating interruptions, production averages 800 units per hour.In the month of June the plant actually operated only 25 days due to avoidable shut downs. -The Canada Revenue Agency effectively eliminates the use of certain denominator-level concepts through its income tax rulings.The accepted concept(s) for tax purpose is (are)

Energy Foods produces food products for people active in sports.The following budgeted volume and costs has been provided for one of their post-workout beverages: Required: What is the inventoriable cost per drink under each of the following methods? a.absorption costing b.variable costing c.throughput costing

Use the information below to answer the following question(s) .Urban Body Products Ltd.manufactures body wash liquid soap.The controller has provided the following information and stated that standard costing is used for manufacturing, marketing, and administrative costs. There were no beginning or ending inventories of materials or work-in-process. -What would Urban Body Products Ltd.operating income (loss) be for February using the variable costing approach?

The new plant manager has lots of ideas for change.His bonus is tied directly to plant profit, and last month he had the accounting department change from absorption costing to variable costing, as he heard at a meeting that contribution margin was usually higher than gross margin.This month, he wants to change to throughput costing, in hopes that throughput contribution will be greater than contribution margin.The relevant data are: Sales $150,000; opening inventory $2,500; variable cost of goods manufactured $24,000; ending inventory using variable costing $8,000; variable marketing cost $15,200; and, there are no variable cost variances.The above numbers are the same for throughput costing except as follows: direct materials in goods manufactured $13,200; and, ending inventory $4,400.Required: a.Calculate the contribution margin and throughput margin. b.Does this appear to be a sensible strategy by the plant manager?