Home Insert Page Layout Formulas Data Review B 300,000 units 279,070 units 232,558 units 50 per unit 40,000 units 240,000 units 260,000 units 10 per unit $3,000,000 10 Total budgeted operating (non-manuf.) costs (all fixed) S 500,000| 1 Theoretical capacity 2 Practical capacity 3 Normal capacity utilization 4 Selling price 5 Beginning inventory 6 Production 7 Sales volume 8 Variable budgeted manufacturing cost 9 Total budgeted fixed manufacturing costs 24

Question

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. 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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B
300,000 units
279,070 units
232,558 units
50 per unit
40,000 units
240,000 units
260,000 units
10 per unit
$3,000,000
10 Total budgeted operating (non-manuf.) costs (all fixed) S 500,000|
1 Theoretical capacity
2 Practical capacity
3 Normal capacity utilization
4 Selling price
5 Beginning inventory
6 Production
7 Sales volume
8 Variable budgeted manufacturing cost
9 Total budgeted fixed manufacturing costs
24
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Home Insert Page Layout Formulas Data Review B 300,000 units 279,070 units 232,558 units 50 per unit 40,000 units 240,000 units 260,000 units 10 per unit $3,000,000 10 Total budgeted operating (non-manuf.) costs (all fixed) S 500,000| 1 Theoretical capacity 2 Practical capacity 3 Normal capacity utilization 4 Selling price 5 Beginning inventory 6 Production 7 Sales volume 8 Variable budgeted manufacturing cost 9 Total budgeted fixed manufacturing costs 24

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