Appendix Absorption costing income statement On June 30, the end of the first month of operations, Tudor Manufacturing Co. prepared the following income statement, based on the variable existing concept: Sales (420,000 units) 7,450,000 Variable cost of goods sold: Variable cost of goods manufactured (500,000 units x 14 per unit) 7,000,000 Less ending inventory (80,000 units x 14 per unit) 1,120,000 Variable cost of goods sold 5,880,000 Manufacturing margin 1,570,000 Variable selling and administrative expenses 80,000 Contribution margin 1,490,000 Fixed costs: Fixed manufacturing costs 160,000 Fixed selling and administrative expenses 75,000 235,000 Income from operations 1,255,000 a. Prepare an absorption costing income statement. b. Reconcile the variable costing income from operations of 1,255,000 with the absorption costing income from operations determined in (a).

Salespersons' report and analysis Walthman Industries Inc. employs seven salespersons to sell and distribute- its product throughout the state. Data taken from reports received from the .salespersons during the year ended December 31 are as follows: Instructions 1. Prepare a table indicating contribution margin, variable cost of goods sold as a percent of sales, variable selling expenses as a percent of sales, and contribution margin ratio by salesperson. (Round whole percent to one digit after decimal point.) 2. Which salesperson generated the highest contribution margin ratio for the year and why? 3. Briefly list factors other than contribution margin that should be considered in evaluating the performance of salespersons.

Single plantwide rate and activity-based costing Whirlpool Corporation conducted an activity-based costing study of its Evansville, Indiana, plant in order to identify its most profitable products. Assume that we select three representative refrigerators (out of 333): one low-, one medium-, and one high-volume refrigerator. Additionally, we assume the following activity-base information for each of the three refrigerators: Prior to conducting the study, the factory overhead allocation was based on a single machine hour rate. The machine hour rate was 200 per hour. After conducting the activity-based costing study, assume that three activities were used to allocate the factory overhead. The new activity rate information is assumed to be as follows: Machining Activity Setup Activity Sales order Processing Activity Activity rate 160 240 55 A. Complete the following table, using the single machine hour rate to determine the per-unit factory overhead for each refrigerator (Column A) and the three activity-based rates to determine the activity-based factory overhead per unit (Column B). Finally, compute the percent change in per-unit allocation from the single to activity-based rate methods (Column C). (Round per-unit overhead to two decimal places and percents to one decimal place.) Product Volume Class Column A Single Rate Overhead Allocation per Unit Column B ABC Overhead Allocation per Unit Column C Percent Change in Allocation (Col. B - Col. A)/Col. A Low Medium High B. Why is the traditional overhead rate per machine hour greater under the single rate method than under the activity-based method? C. Interpret Column C in your table from part (A).

Identifying activity bases in an activity-based cost system Select Foods Inc. uses activity-based costing to determine product costs. For each activity listed in the left column, match an appropriate activity base from the right column. You may use items in the activity-base list more than once or not at all. Activity Activity Base Accounting reports Engineering change orders Customer return processing Kilowatt hours used Electric power Number of accounting reports Human resources Number of customers Inventory control Number of customer orders Invoice and collecting Number of customer returns Machine depreciation Number of employees Materials handling Number of inspections Order shipping Number of inventory transactions Payroll Number of machine hours Production control Number of material moves Production setup Number of payroll checks processed Purchasing Number of production orders Quality control Number of purchase orders Sales order processing Number of sales orders Number of setups