NEW MyLab Accounting with Pearson eText -- Access Card -- for Financial Accounting
10th Edition
ISBN: 9780133437287
Author: Walter T. Harrison Jr., Charles T. Horngren, C. William Thomas
Publisher: PEARSON
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Chapter 9, Problem 9.32P
Motivational considerations in denominator-level capacity selection (continuation of 9-37).
- 1. If the plan manager of the Jacksonville Brewery gets a bonus based on operating income, which denominator-level capacity concept would he prefer to use? Explain.
Required
- 2. What denominator-level capacity concept would Castle Lager prefer to use for U S. income-tax reporting? Explain.
- 3. How might the IRS limit the flexibility of an absorption-costing company like Castle Lager attempting to minimize its taxable income?
9-31 Variable and absorption costing and breakeven points. Camino, a leading firm in the sports industry, produces basketballs for the consumer market. For the year ended December 31, 2017, Camino sold 400,0 basketballs at an average selling price of $12 per unit. The following information also relates to 2017 (assume constant unit costs and no variances of any kind):
| Inventory, January 1, 2017: | 0 basketballs |
| Inventory, December 31, 2017: | 20,000 basketballs |
| Fixed |
$380,000 |
| Fixed administrative costs: | $660,000 |
| Direct materials costs: | $ 3 per basketball |
| Direct labor costs: | $ 4 per basketball |
- 1. Calculate the breakeven point (in basketballs sold) in 2017 under:
- a. Variable costing
- b. Absorption costing
- 2. Suppose direct materials costs were $4 per basketball instead. Assuming all other data are the same, calculate the minimum number of basketballs Camino must have sold in 2017 to attain a target operating income of $120,000 under:
- a. Variable costing
- b. Absorption costing
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Motivational considerations in denominator-level capacity selection (continuation of 9-31). 1. If the plant manager of the Jacksonville Brewery gets a bonus based on operating income, which denominator-level capacity concept would he prefer to use? Explain. 2. What denominator-level capacity concept would Castle Lager prefer to use for U.S. income-tax reporting? Explain. 3. How might the IRS limit the exibility of an absorption-costing company like Castle Lager attempting to minimize its taxable income?
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Chapter 9 Solutions
NEW MyLab Accounting with Pearson eText -- Access Card -- for Financial 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 - Prob. 9.16ECh. 9 - Prob. 9.17ECh. 9 - Prob. 9.18ECh. 9 - Prob. 9.19ECh. 9 - Prob. 9.20ECh. 9 - Prob. 9.21ECh. 9 - Prob. 9.22ECh. 9 - Prob. 9.23ECh. 9 - Capacity management, denominator-level capacity...Ch. 9 - Prob. 9.25ECh. 9 - Prob. 9.26ECh. 9 - Prob. 9.27ECh. 9 - Prob. 9.28PCh. 9 - Prob. 9.29PCh. 9 - Prob. 9.30PCh. 9 - Prob. 9.31PCh. 9 - Motivational considerations in denominator-level...Ch. 9 - Prob. 9.33PCh. 9 - Prob. 9.34PCh. 9 - Prob. 9.35PCh. 9 - Prob. 9.36PCh. 9 - Prob. 9.37PCh. 9 - Prob. 9.38PCh. 9 - Prob. 9.39PCh. 9 - Prob. 9.40PCh. 9 - Prob. 9.41PCh. 9 - Prob. 9.42P
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