ariable Costing for Management AnalysistherTIF 7-1 Absorption costing operating incomeThe Southern Division manager of Texcaliber Inc. is growing concerned that the division willnot be able to meet its current period income objectives. The division uses absorption costingfor internal profit reporting and had an appropriate level of inventory at the beginning of theperiod. The division manager knows that he can boost profits by increasing production at theend of the period. The increased production will allocate fixed costs over a greater number ofunits, reducing cost of goods sold and increasing earnings. Unfortunately, it is unlikely that addi-tional production will be sold, resulting in a large ending inventory balance.The division manager has come to Aston Melon, the divisional controller, to determine exactlyhow much additional production is needed to increase net income enough to meet the division'sprofit objectives. Aston analyzes the data and determines that the division will need to increaseinventory by 30% in order to absorb enough fixed costs to meet the division's income objective.reports this information to the division manager.AstonIs Aston acting ethically?2S2riae

Question
Asked Nov 7, 2019

Is Aston acting ethically ? 

ariable Costing for Management Analysis
ther
TIF 7-1 Absorption costing operating income
The Southern Division manager of Texcaliber Inc. is growing concerned that the division will
not be able to meet its current period income objectives. The division uses absorption costing
for internal profit reporting and had an appropriate level of inventory at the beginning of the
period. The division manager knows that he can boost profits by increasing production at the
end of the period. The increased production will allocate fixed costs over a greater number of
units, reducing cost of goods sold and increasing earnings. Unfortunately, it is unlikely that addi-
tional production will be sold, resulting in a large ending inventory balance.
The division manager has come to Aston Melon, the divisional controller, to determine exactly
how much additional production is needed to increase net income enough to meet the division's
profit objectives. Aston analyzes the data and determines that the division will need to increase
inventory by 30% in order to absorb enough fixed costs to meet the division's income objective.
reports this information to the division manager.
Aston
Is Aston acting ethically?
2S
2riae
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ariable Costing for Management Analysis ther TIF 7-1 Absorption costing operating income The Southern Division manager of Texcaliber Inc. is growing concerned that the division will not be able to meet its current period income objectives. The division uses absorption costing for internal profit reporting and had an appropriate level of inventory at the beginning of the period. The division manager knows that he can boost profits by increasing production at the end of the period. The increased production will allocate fixed costs over a greater number of units, reducing cost of goods sold and increasing earnings. Unfortunately, it is unlikely that addi- tional production will be sold, resulting in a large ending inventory balance. The division manager has come to Aston Melon, the divisional controller, to determine exactly how much additional production is needed to increase net income enough to meet the division's profit objectives. Aston analyzes the data and determines that the division will need to increase inventory by 30% in order to absorb enough fixed costs to meet the division's income objective. reports this information to the division manager. Aston Is Aston acting ethically? 2S 2riae

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Step 1

Case Summary:

T Incorporation is growing concerned, and southern division will not able to meet its current period incoming objectives. The division manager asked to division controller of Mr. A to determine exactly how much additional production is needed to increase net income enough to meet the division’s objectives. Mr. A analyzes the data and determines that the division will need to increase inventory by 30%.

Step 2

In this case, the solution division uses the absorption costing method, and had appropriate level of beginning inventory. The division manager tries to boost profi...

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