w inc produces a single product. The following data pertain to one month\'s oper
ID: 2418117 • Letter: W
Question
w inc produces a single product. The following data pertain to one month's operations Units in beginning inventory Units produced Units sold Variable costs per unit 4,500 3.500 s8 $5 Selling and administrative Fxed costs in total: 58.000 Manufactuning Selling and administrative $17,000 20. What is the carrying value on the balance sheet of the ending finished goods inventory under absorption costing? Under variable costing? 21 For the month referred to above, will net operating income under variable costing will be same, greater than or less than net operating income under absorption costingExplanation / Answer
Beginning inventory
0
Add Units Produced
4500
Less Units Sold
3500
Ending Inventory
1000
Under Absorption Costing
Under Variable Costing
Ending Inventory
1000 units
1000 units
Variable Costs
Manufacturing @$8
$8000
$8000
Fixed Manufacturing Overhead
$1777.78
Carrying Value
$9777.78
$8000
Note: The fixed Manufacturing Overhead costs are not included in the unit cost under variable costing which is considered as a period cost.
Fixed Manufacturing overhead = $8000
Units Produced = 4500
Fixed Manufacturing overhead Per Unit $8000/4500 =1.777778
21.
Under Absorption Costing
Under Variable Costing
Units Sold
3500 units
3500 units
Cost of Goods Sold
Beginning inventory
$0
$0
ADD Manufacturing Cost
$44000
$36000
Cost of Goods Available for Sale
$44000
$36000
Less Cost of Ending Inventory
$9777.78
$8000
Cost of Goods Sold
34222.22
$28000
Add Fixed Costs
Manufacturing Expenses
$8000
Selling And Administrative Exp.
Variable
$17500
$17500
Fixed
$17000
$17000
Total Cost
68722.22
$70500
From the above calculations we can assume that the net income under Variable costing will be less than that of absorption costing as in variable costing the fixed Manufacturing overheads are considered as Period costs.
11.
Relation Between Absorption Costing and Variable Costing
Production equals Sales
Net Operating Income Will be same
Production Exceed Sales
Net operating Income Under Absorption costing will be greater than that of variable costing
Sales Exceeds Production
Net operating Income Under Absorption costing will be lesser than that of variable costing
12.
1. ABC requires segregation of management process in to planning and operation. The lack of clarity in the segregation security in the faulty application of ABC concept.
1. It is essentially not the panacea for all its
2. It may lead to weaker customer segmentation and also absorbs a lot of resources
3. The implementation of ABC Agenda should be driver by the top management if it is not driver so and moved by the accountant, it will not get firm white support for this concept
4. ABC needs total commitment from the members of the non finance operations also otherwise the initiatives which are highly integrated with the operating team could not be implemented.
13. 1. The Increase in Fixed costs will cause the increase in BEP in Units
2. The Reduction in the Contribution margin will also cause for the increase in BEP Units
Beginning inventory
0
Add Units Produced
4500
Less Units Sold
3500
Ending Inventory
1000
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