MyLab Accounting with Pearson eText -- Access Card -- for Horngren's Cost Accounting
16th Edition
ISBN: 9780134476384
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 9, Problem 9.25E
Variable versus absorption costing. The Tomlinson Company manufactures trendy, high-quality, moderately priced watches. As Tomlinson’s senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Tomlinson’s 2017 income statement. The following data are for the year ended December 31, 2017:
| Beginning inventory, January 1, 2017 | 90,000 units |
| Ending inventory, December 31, 2017 | 34,000 units |
| 2017 sales | 433,000 units |
| Selling price (to distributor) | $24.00 per unit |
| Variable manufacturing cost per unit, including direct materials | $5.40 per unit |
| Variable operating (marketing) cost per unit sold | $1.20 per unit sold |
| Fixed |
$1,852,200 |
| Denominator-level machine-hours | 6,300 |
| Standard production rate | 60 units per machine-hour |
| Fixed operating (marketing) costs | $1,130,000 |
Assume
Required
- 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2017.
- 2. What is Tomlinson’s operating income as percentage of revenues under each costing method?
- 3. Explain the difference in operating income between the two methods.
- 4. Which costing method would you recommend to the CFO? Why?
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Variable versus absorption costing. The Tomlinson Company manufactures trendy, high-quality, moderately priced watches. As Tomlinson’s senior nancial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Tomlinson’s 2017 income statement. The following data are for the year ended December 31, 2017:
Variable versus absorption costing. The Tomlinson Company manufactures trendy, high-quality, moderately priced watches. As Tomlinson’s senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Tomlinson’s 2017 income statement. The following data are for the year ended December 31, 2017:
Preparing variable and absorption costing income statements
This problem continues the Piedmont Computer Problem situation from Chapter 20. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is $750 and the weighed-average variable cost per unit is $450. The company does not expect the sales mix to vary for the next year. Assume the beginning balance in Finished Goods Inventory is $0. Additional data for the first month of 2020:
Requirements
Compute the product cost per unit produced under absorption costing and under variable costing.
Prepare income statements for January 2020 using:
absorption costing.
variable costing.
3. Is operating income higher under absorption costing or variable costing in January? What causes the difference?
Chapter 9 Solutions
MyLab Accounting with Pearson eText -- Access Card -- for Horngren's Cost Accounting
Ch. 9 - Differences in operating income between variable...Ch. 9 - Why is the term direct costing a misnomer?Ch. 9 - Do companies in either the service sector or the...Ch. 9 - Explain the main conceptual issue under variable...Ch. 9 - Companies that make no variable-cost/fixed-cost...Ch. 9 - The main trouble with variable costing is that it...Ch. 9 - Give an example of how, under absorption costing,...Ch. 9 - What are the factors that affect the breakeven...Ch. 9 - Critics of absorption costing have increasingly...Ch. 9 - What are two ways of reducing the negative aspects...
Ch. 9 - Prob. 9.11QCh. 9 - Describe the downward demand spiral and its...Ch. 9 - Will the financial statements of a company always...Ch. 9 - Prob. 9.14QCh. 9 - The difference between practical capacity and...Ch. 9 - In comparing the absorption and variable cost...Ch. 9 - Queen Sales, Inc. has just completed its first...Ch. 9 - King Tooling has produced and sold the following...Ch. 9 - The following information relates to Drexler Inc.s...Ch. 9 - Prob. 9.20MCQCh. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-21). The...Ch. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-23). The...Ch. 9 - Variable versus absorption costing. The Tomlinson...Ch. 9 - Absorption and variable costing. (CMA) Miami,...Ch. 9 - Absorption versus variable costing. Horace Company...Ch. 9 - Candyland uses standard costing to produce a...Ch. 9 - Capacity management, denominator-level capacity...Ch. 9 - Denominator-level problem. Thunder Bolt Inc., is a...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Variable costing versus absorption costing. The...Ch. 9 - Throughput Costing (continuation of 9-32) 1....Ch. 9 - Variable costing and absorption costing, the Z-Var...Ch. 9 - Comparison of variable costing and absorption...Ch. 9 - Effects of differing production levels on...Ch. 9 - Alternative denominator-level capacity concepts,...Ch. 9 - Motivational considerations in denominator-level...Ch. 9 - Denominator-level choices, changes in inventory...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Downward demand spiral. Market.com is about to...Ch. 9 - Absorption costing and production-volume...Ch. 9 - Operating income effects of denominator-level...Ch. 9 - Variable and absorption costing, actual costing....Ch. 9 - Prob. 9.45PCh. 9 - Cost allocation, responsibility accounting, ethics...Ch. 9 - Absorption, variable, and throughput costing....Ch. 9 - Costing methods and variances, comprehensive. Rob...
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