COST ACCOUNTING
16th Edition
ISBN: 9781323169261
Author: Horngren
Publisher: PEARSON C
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 9, Problem 9.39P
Denominator-level choices, changes in inventory levels, effect on operating income. Magic Me is a manufacturer of magic kits. It uses absorption costing based on
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.
- 1. What is the production-volume variance in 2017 when the denominator level is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization?
Required
- 2. Prepare absorption costing–based income statements for Magic Me Corporation using theoretical capacity practical capacity and normal capacity utilization as the denominator levels.
- 3. Why is the operating income under normal capacity utilization lower than the other two scenarios?
- 4. Reconcile the difference in operating income based on theoretical capacity and practical capacity with the difference in fixed manufacturing overhead included in inventory.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
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. Prepare absorption costing–based income statements for Magic Me Corporation using theoretical capacity, practical capacity, and normal capacity utilization as the denominator levels.
Donaldson Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs and reports the following data for 2014:
(Click the icon to view the data.)
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.
- X
Data Table
Theoretical capacity
Practical capacity
Normal capacity utilization
Selling price
Beginning inventory
Production
Less:
Print
Difference in operating income
$
Sales volume
Variable budgeted manufacturing cost
$
Total budgeted fixed manufacturing costs
$ 2,915,000
Total budgeted operating (non-manuf.) costs (all fixed) $ 200,000
Done
275,000 units
265,000 units
233,200 units
39 per unit
Less:
35,000 units
235,000 units
250,000 units
Requirement 3. Why is the operating income under…
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. Why is the operating income under normal capacity utilization lower than the other two scenarios?
Chapter 9 Solutions
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...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- 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.What is the production-volume variance in 2017 when the denominator level is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization?arrow_forwardFind the values of the missing items. Assume that the actual sales volume equals actual production volume. (There are no inventory level changes.) (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.) Sales revenue Variable manufacturing costs Variable marketing and administrative costs Contribution margin Reported Income Statement (2,600 units) $ 132,600 $ 85,000 Manufacturing Variance $ 4,420 F Marketing and Administrative Variance Sales Price Variance Flexible Budget Sales Activity (2,600 Variance units) $ 143,000 1,520 F Master Budget (2,700 units) 16,200arrow_forwardThe May 2024 revenue and cost information for Boise Outfitters, Inc. follows: 1(Click the icon to view the revenue and cost information.) Prepare a standard cost income statement for management through gross profit. Report all standard cost variances for management's use. Has management done a good or poor job of controlling costs? Explain. (Use a minus sign or parentheses to enter any contra expenses. Enter all other amounts as positive numbers.) Boise Outfitters, Inc. Standard Cost Income Statement For the Month Ended May 31, 2024 (1) Sales Revenue $540,000 (2) Cost of Goods Sold at standard $344,000 (3) Manufacturing Cost Variances: (4) Direct Materials Cost Variance (5) Direct Materials Efficiency Variance (6) Direct Labor Cost Variance 4,800 (7) Direct Labor Efficiency Variance (8) Variable…arrow_forward
- The May 2018 revenue and cost information for Boise Outfitters, Inc. follows: (Click the icon to view the revenue and cost information.) Prepare a standard cost income statement for management through gross profit. Report all standard cost variances for management's use. Has management done a good or poor job of controlling costs? Explain. (Use a minus sign or parentheses to enter any contra expenses. Enter all other amounts as positive numbers.) Boise Outfitters, Inc. - X Data table Standard Cost Income Statement For the Month Ended May 31, 2018 Sales Revenue (at standard) Cost of Goods Sold (at standard) Direct Materials Cost Variance Direct Materials Efficiency Variance Direct Labor Cost Variance Direct Labor Efficiency Variance Variable Overhead Cost Variance Variable Overhead Efficiency Variance Fixed Overhead Cost Variance Fixed Overhead Volume Variance Print Done Gross Profit $ 560,000 344,000 700 F 6,000 F 4,700 U 2,300 F 3,000 U 750 U 1,500 U 8,700 Farrow_forwardThroughput Costing (continuation of 9-32) Prepare an income statement under throughput costing for the year ended December 31, 2017 for Garvis Company Reconcile the different between the contribution margin and throughput margin for Garvis in 2017. Then reconcile the operating income between variable costing and throughput costing for Garvis in 2017. Advocates of throughput costing say it provides managers less incentive to produce for inventory than either variable costing or, especially, absorption costing. Do you agree? Why or why not? Under what circumstances might you recommend that Garvis use throughput costing? Reference Problem:arrow_forwardThe Alamo Company reports the actual data for 2023 and 2022. There are no price, efficiency or rate variances. Any production volume varlances are written off to Cost of Goods Sold in the year it occurs. Unit Data Beginning Inventory Production Budgeted Production Sales Variable costs Manufacturing cost per unit produced Operating (marketing) cost per unit sold Fixed costs Manufacturing costs Operating (marketing) costs Selling price per unit $ ss $ $ ss $ $ 2021 10 900 1,200 880 350 $ 40 $ 69,600 $ 8,400 $ 800 $ 2022 30 1,000 1,200 950 355 42 69,600 8,400 800 Required a. Prepare a statement of comprehensive income for each year using variable costing and absorption costing. b. Reconcile the difference between the operating incomes for each year; ensure to report the number of units for beginning and ending inventory for Fixed Manufacturing costs.arrow_forward
- ty Variance OF Master Budget (19,200 units) 57,600arrow_forwardVariable 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:arrow_forwardA company that uses standard costing Group of answer choices a. shows the same per-unit cost of inventory each month. b. shows higher incomes than it would if it used actual costing. c. always has a volume variance unless normal capacity and practical capacity are the same. d. must make only one product.arrow_forward
- Find the values of the missing items (a) through (x). Assume the actual sales volume equals actual production volume. Marketing and Administrative Sales Price Variance Variance Units Sales Revenue Less: Variable Manufacturing Costs Variable marketing and administrative costs Contribution margin Fixed manufacturing costs Fixed marketing and administrative costs Operating Profit PreviousNext Reported income statement (based on actual sales volume) Manufacturing variance (a) (g) (n) (q) (r) (t) $4,320 $3,600 (0) $1,800 U $ 400 F (u) (p) (s) (v) (w) $3,600 F (X) $3,600 F Flexible Budget (based on actual sales volume (b) (h) (m) Sales Activity Variance 4,000 F (1) $19,200 (i) $4,800 $800 U $12,000 (k) $3,000 $4,000 (1) Master Budget (based on budgeted sales volume) 20,000 $30,000 (c) (d) (e) (f) $16,000 $10,000arrow_forwardplease answer the following questions: 1. Debiting Work in Process Inventory for $102,000 variable OH will result in: a. Decreasing Work in Pocess Inventory based on Actual Variable OH rate. b. Increasing Work in Pocess Inventory based on actual Variable OH rate. c. Decreasing Work in Pocess Inventory based on standard Variable OH rate. d. Increasing Work in Pocess Inventory based on standard Variable OH rate. 2. Debiting Variable Overhead Efficiency Variance means we had an unfavorable outcome. a. True b. False 3. Crediting Variable Overhead Spending Variance means we had an unfavorable outcome for Variable Overhead Spending Variance a. True b. False 4. We normally credit Factory Overhead to apply the actual cost to Overhead to the Work in Process a. True b.Falsearrow_forwardThe managerial accountant at Fast and Mean Manufacturing reported that the organization contains an automated production line to manufacture and produce its products for consumers to enjoy in the marketplace. The managerial accountant reported that the company uses the high-low method to estimate the costs in the new budget. The managerial accountant reported the following information: Compute the slope of the mixed cost, or the variable cost per unit of activity. Compute the vertical intercept, or the fixed cost component of the mixed cost. What is the mixed cost equation? Month Total machine hours total cost January 250,000 $5,500,000 February 248,000 $5,260,000 March 249,000 $5,400,000 April 248,000 $5,220,000 May 238,000 $5,180,000 June 230,000 $5,130,000arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY