Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 8, Problem 36P
Dayton Lighting Company had operating income for the first 10 months of the current year of $200,000. One hundred thousand units were manufactured during this period (the same as the planned production), and 100,000 units were sold. Fixed manufacturing overhead was $2,000,000 over the 10-month period (i.e., $200,000 per month). There are no selling and administrative expenses for Dayton Lighting Company. Both variable and fixed costs are expected to continue at the same rates for the balance of the year (i.e., fixed costs at $200,000 per month and variable costs at the same variable cost per unit). There were 10,000 units in inventory on October 31. Twenty thousand units are to be produced and 19,000 units are to be sold in total over the last two months of the current year. Assume the unit variable cost is the same in the current year as in the previous year. (Hint: You cannot calculate revenue or cost of goods sold; you must work directly with contribution margin or gross margin.)
Required:
- 1. If operations proceed as described, will operating income be higher under variable or absorption costing for the current year in total? Why?
- 2. If operations proceed as described, what will operating income for the year in total be under (a) variable costing and (b) absorption costing?
- 3. Discuss the advantages and disadvantages of absorption and variable costing.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The Production Department of Hruska Corporation has submitted the following forecast of units to be produced by quarter for the
upcoming fiscal year:
Units to be produced
Each unit requires 0.25 direct labor-hours and direct laborers are paid $14.00 per hour.
In addition, the variable manufacturing overhead rate is $1.60 per direct labor-hour. The fixed manufacturing overhead is $95,000 per
quarter. The only noncash element of manufacturing overhead is depreciation, which is $35,000 per quarter.
Required:
1. Calculate the company's total estimated direct labor cost for each quarter of the upcoming fiscal year and for the year as a whole.
2. and 3. Calculate the company's total estimated manufacturing overhead cost and the cash disbursements for manufacturing
overhead for each quarter of the upcoming fiscal year and for the year as a whole.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
11,500
10,500
12,500
13,500
Complete this question by entering your answers in the tabs below.
Req 1…
Miller Company has just completed its second year of operations. In Year 1, Miller Company
produced 40,000 units and sold 35,000 units of its only product. In Year 2, the company sold 40,000
units, but increased production to 45,000 units.
The company's variable production cost is $4.85 per unit, and its fixed manufacturing
overhead cost is $660,000 a year. Fixed manufacturing overhead costs are applied to the
product on the basis of each year's units of production (i.e., a new fixed overhead rate is
computed each year). Variable selling and administrative expenses are $2.10 per unit. Fixed
selling and administrative expenses were $220,000 a year. The selling price per unit was $32
in both years.
Required:
a) Compute the unit product cost for each year under absorption costing and under variable
costing.
b) Prepare an income statement for each year, using the absorption format.
c) Prepare an income statement for each year, using the contribution format with variable
costing.
d)…
Theodore Co. has been incurring losses in the past years during the third quarter of the year. Management is considering to shutdown operations during this period to avoid continued losses. Allocated fixed operational monthly costs were determined from the records amount to P60,000. Average monthly sales during the year except the third quarter are 10,000 units. The company averages only 2,500 units monthly during the third quarter. Units are sold at a price of P30 each. Variable costs to produce and sell the units are P18 per unit. If management decides to shutdown operations they would save on allocated fixed costs 40%, but will incur additional shutdown costs of P4,000 per month.
What would be the advantage of continued operations?
Chapter 8 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 8 - Briefly explain the difference between absorption...Ch. 8 - Timing is the key in distinguishing between...Ch. 8 - The term direct costing is a misnomer. Variable...Ch. 8 - When inventory increases, will absorption-costing...Ch. 8 - Why do many managers prefer variable costing over...Ch. 8 - Explain why some management accountants believe...Ch. 8 - Prob. 7RQCh. 8 - Why do proponents of absorption costing argue that...Ch. 8 - Why do proponents of variable costing prefer...Ch. 8 - Which is more consistent with cost-volume-profit...
Ch. 8 - Explain how the accounting definition of an asset...Ch. 8 - List and define four types of product quality...Ch. 8 - Explain the difference between observable and...Ch. 8 - Prob. 14RQCh. 8 - What is meant by a products grade, as a...Ch. 8 - Prob. 16RQCh. 8 - Prob. 17RQCh. 8 - Explain three strategies of environmental cost...Ch. 8 - Prob. 19RQCh. 8 - Manta Ray Company manufactures diving masks with a...Ch. 8 - Information taken from Tuscarora Paper Companys...Ch. 8 - Easton Pump Companys planned production for the...Ch. 8 - Pandora Pillow Companys planned production for the...Ch. 8 - Bianca Bicycle Company manufactures mountain bikes...Ch. 8 - Refer to the data given in the preceding exercise...Ch. 8 - Prob. 26ECh. 8 - Prob. 27ECh. 8 - The following costs were incurred by Osaka Metals...Ch. 8 - San Mateo Circuitry manufactures electrical...Ch. 8 - Prob. 31ECh. 8 - Skinny Dippers, Inc. produces nonfat frozen...Ch. 8 - Yellowstone Company began operations on January 1...Ch. 8 - Outback Corporation manufactures tactical LED...Ch. 8 - Great Outdoze Company manufactures sleeping bags,...Ch. 8 - Dayton Lighting Company had operating income for...Ch. 8 - Prob. 37PCh. 8 - Chataqua Can Company manufactures metal cans used...Ch. 8 - Advanced Technologies (AT) produces two...Ch. 8 - Laser News Technology, Inc. manufactures...Ch. 8 - Prob. 42CCh. 8 - Refer to the information given in the preceding...Ch. 8 - Prob. 44C
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
- Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A is made by Gent, with these per-unit costs in a month when 4.000 units were produced: Variable manufacturing overhead is applied at $1.00 per unit. The other $0.30 of overhead consists of allocated fixed costs. Gent will need 6,000 units of part A for the next years production. Cory Corporation has offered to supply 6,000 units of part A at a price of $7.00 per unit. It Gent accepts the offer, all of the variable costs and $1,200 of the fixed costs will be avoided. Should Gent Designs accept the offer from Cory Corporation?arrow_forwardBethany Company has just completed the first month of producing a new product but has not yet shipped any of this product. The product incurred variable manufacturing costs of 5,000,000, fixed manufacturing costs of 2,000,000, variable marketing costs of 1,000,000, and fixed marketing costs of 3,000,000. Under the variable costing concept, the inventory value of the new product would be: a. 5,000,000. b. 6,000,000. c. 8,000,000. d. 11,000,000.arrow_forwardKerr Manufacturing sells a single product with a selling price of $600 with variable costs per unit of $360. The companys monthly fixed expenses are $72,000. What is the companys break-even point in units? What is the companys break-even point in dollars? Prepare a contribution margin income statement for the month of January when they will sell 500 units. How many units will Kerr need to sell in order to realize a target profit of $120,000? What dollar sales will Kerr need to generate in order to realize a target profit of $120,000? Construct a contribution margin income statement for the month of June that reflects $600,000 in sales revenue for Kerr Manufacturing.arrow_forward
- Bolger and Co. manufactures large gaskets for the turbine industry. Bolgers per-unit sales price and variable costs for the current year are as follows: Bolgers total fixed costs aggregate to 360,000. Bolgers labor agreement is expiring at the end of the year, and management is concerned about the effects of a new labor agreement on its break-even point in units. The controller performed a sensitivity analysis to ascertain the estimated effect of a 10-per-unit direct labor increase and a 10,000 reduction in fixed costs. Based on these data, the break-even point would: a. decrease by 1,000 units. b. decrease by 125 units. c. increase by 375 units. d. increase by 500 units.arrow_forwardPatterson Corporation expects to incur 70,000 of factory overhead and 60,000 of general and administrative costs next year. Direct labor costs at 5 per hour are expected to total 50,000. If factory overhead is to be applied per direct labor hour, how much overhead will be applied to a job incurring 20 hours of direct labor? a. 120 b. 260 c. 28 d. 140arrow_forwardRemarkable Enterprises requires four units of part A for every unit of Al that it produces. Currently, part A is made by Remarkable, with these per-unit costs in a month when 4,000 units were produced: Variable manufacturing overhead is applied at $1.60 per unit. The other $0.50 of overhead consists of allocated fixed costs. Remarkable will need 8,000 units of part A for the next years production. Altoona Corporation has offered to supply 8,000 units of part A at a price of $8.00 per unit. If Remarkable accepts the offer, all of the variable costs and $2,000 of the fixed costs will be avoided. Should Remarkable accept the offer from Altoona Corporation?arrow_forward
- Astro Company sold 22,000 units of its only product and reported income of $70,200 for the current year. During a planning session for next year's activities, the production manager notes that variable costs can be reduced 46% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $154,000. Total units sold and the selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($54 per unit) Variable costs ($48 per unit) Contribution margin Fixed costs Income Sales level required in dollars Numerator: 3. Compute the sales level required in both dollars and units to earn $240,000 of target income for next year with the machine installed. (Do not round intermediate calculations. Round your answers to 2 decimal places. Round "Contribution margin ratio" to nearest whole percentage) Sales level required in units Numerator: $ 1,188,000 1,056,000 1…arrow_forwardNUBD Co. has been incurring losses in the past years during the third quarter of the year. Management is considering to shutdown operations during this period to avoid continued losses. Allocated fixed operational monthly costs were determined from the records amount to P60,000. Average monthly sales during the year except the third quarter are 10,000 units. The company averages only 2,500 units monthly during the third quarter. Units are sold at a price of P30 each. Variable costs to produce and sell the units are P18 per unit. If management decides to shutdown operations they would save on allocated fixed costs 40%, but will incur additional shutdown costs of P4,000 per month. What would be the advantage of continued operations?arrow_forwardBalcom Enterprises is planning to introduce a new product that will sell for $110 a unit. Manufacturing cost estimates for 27,000 units for the first year of production are: • Direct materials $1,269,000. • Direct labor $528,000 (based on $16 per hour x 33,000 hours). Although overhead has not be estimated for the new product, monthly data for Balcom's total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows: Dependent variable Independent variable Intercept Coefficient on independent variable Coefficient of correlation R² Multiple Choice Based on this information, what is the total overhead cost for an estimated activity level of 43,000 direct labor-hours? $392,000 $144,000 $804,000 Factory overhead costs Direct labor hours. $134,000 $ $258.000 6.00 0.953 0.842arrow_forward
- Astro Company sold 22,000 units of its only product and reported income of $70,200 for the current year. During a planning session for next year's activities, the production manager notes that variable costs can be reduced 46% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $154,000. Total units sold and the selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($54 per unit) Variable costs ($48 per unit) Contribution margin Fixed costs Income $ 1,188,000 1,056,000 132,000 61,800 $ 70,200 1. Compute the break-even point in dollar sales for next year assuming the machine is installed. (Round your answers to 2 decimal places.)arrow_forwardAstro Company sold 22,000 units of its only product and reported income of $70,200 for the current year. During a planning session for next year's activities, the production manager notes that variable costs can be reduced 46% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $154,000. Total units sold and the selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($54 per unit) Variable costs ($48 per unit) Contribution margin Fixed costs Income 1. Compute the break-even point in dollar sales for next year assuming the machine is installed. (Round your answers to 2 decimal places.) Contribution Margin per unit Contribution Margin Ratio Numerator: $ 1,188,000 1,056,000 132,000 61,800 $70,200 $ Proposed Denominator: 0.00 Contribution Margin Ratioarrow_forwardRivera Co. sold 20,000 units of its only product and reported income of $20,000 for the current year. During a planning session for next year's activities, the production manager notes that variable costs can be reduced 25% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $113,000. The selling price will not change. Contribution Margin Income Statement For Year Ended December 31 Sales (20,000 × $37.50 per unit).. Variable costs (20,000 × $30 per unit). Contribution margin.. Fixed costs Income.... $750,000 600,000 150,000 130,000 $ 20,000 Required 1. Compute the break-even point in dollar sales for next year assuming the machine is installed. 2. Prepare a contribution margin income statement for next year that shows the expected results with the machine installed. Assume sales are $750,000. 3. Compute the sales level required in both dollars and units to earn $87,000 of target income for next year…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Financial 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 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
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
Cost Accounting - Definition, Purpose, Types, How it Works?; Author: WallStreetMojo;https://www.youtube.com/watch?v=AwrwUf8vYEY;License: Standard YouTube License, CC-BY