A manufacturing company prepares income statements using both absorption and variable costing methods. At the end of a period actual sales revenues, total gross profit, and total contribution margin approximated budgeted figures, whereas net income was substantially greater than the budgeted amount. There were no beginning or ending inventories. The most likely explanation of the net income increase is that, compared to budget, actual * a. manufacturing fixed costs had increased. b. selling and administrative fixed expenses had decreased. c. sales prices and variable costs had increased proportionately. d. sales prices had declined proportionately less than variable costs

A manufacturing company prepares income statements using both absorption and variable costing methods. At the end of a period actual sales revenues, total gross profit, and total contribution margin approximated budgeted figures, whereas net income was substantially greater than the budgeted amount. There were no beginning or ending inventories. The most likely explanation of the net income increase is that, compared to budget, actual * a. manufacturing fixed costs had increased. b. selling and administrative fixed expenses had decreased. c. sales prices and variable costs had increased proportionately. d. sales prices had declined proportionately less than variable costs

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Description: A manufacturing company prepares income statements using both absorption and variable costing methods. At the end of a period actual sales revenues, total gross profit, and total contribution margin approximated budgeted figures, whereas net income w

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 7E: The following data were adapted from a recent income statement of The Procter Gamble Company (PG):...

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During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Year 2 $ 1,827,000 1,073,000 754,000 333,000 $ 421,000 Year 1 Sales (@ $63 per unit) Cost of goods sold (@ $37 per unit) Gross margin Selling and administrative expenses* Net operating income $1,197,000 703,000 494,000 303,000 $ 191,000 * $3 per unit variable; $246,000 fixed each year. The company's $37 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($456,000 - 24,000 units) Absorption costing unit product cost 9 8 1 19 $ 37 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the two years are: Units produced Units sold Year 1 24,000 19,000 Year 2 24,000 29,000 Required: 1. Prepare a variable costing contribution format income statement…
Matching graphs with descriptions of cost and revenue behavior. (D. Green, adapted) Given here are a number of graphs. The horizontal axis of each graph represents the units produced over the year, and the vertical axis represents total cost or revenues. Indicate by number which graph best fits the situation or item described (a–h). Some graphs may be used more than once; some may not apply to any of the situations. Direct material costs Supervisors’ salaries for one shift and two shifts A cost-volume-profit graph Mixed costs—for example, car rental fixed charge plus a rate per mile driven Depreciation of plant, computed on a straight-line basis Data supporting the use of a variable-cost rate, such as manufacturing labor cost of $14 per unit produced Incentive bonus plan that pays managers $0.10 for every unit produced above some level of production Interest expense on $2 million borrowed at a fixed rate of interest
Under variable costing, which of the following costs are assigned to inventory? Variable Selling & Administrative Costs variable Factory Overhead Costs (A) Yes No b)No yes c)Yes Yes d) No No 8.Which of the following would appear on both the budgeted income statement and on the schedule of expected cash disbursements for operating expenses? (A) Depreciation expense (B) Rent expense (C) Sales commission expense (D) Both B and C 9.Which of the following is not an underlying assumption of the cost-volume-profit graph? (A) Expenses are categorized into fixed and variable (B) Revenues and expenses are linear over the relevant range (C) Efficiency and productivity will be unchanged (D) Sales mix will not be…
Que. No. 1a. When production is greater than sales which method’s net operating income will be higher, AC or VC and why? Be precise and to the point in writing the answer. Que. No. 1b. Sharp Company manufactures a product for which the following data and information related to inventory is available. The company uses variable costing for internal management reports and absorption costing for external reports to the shareholders, creditors, and the government. The company has provided the following data:Year-1Year-2Year-3Inventories:Beginning (units)200160180Ending (units)160180220Variable Costing net operating income$1,080,400$1,032,400$996,400The company’s fixed manufacturing overhead per unit was constant at $650 for all the three years.Required: 1. Determine each year’s absorption costing net operating income. Present your answer in the form of a reconciliation report. (you must show all calculations)2. In year four, the company’s variable costing net operating income was $984,400…
The contribution margin income statementa. reports expenses based on cost behavior pattern rather than cost function.b. unitizes fixed costs.c. shows contribution margin rather than operating income as the bottom line.d. is sometimes used for financial reporting purposes.e. none of the above.Use the following information for Questions 9 and 10.O’Brien, Inc.’s, 2013 contribution margin income statement shows thefollowing:Sales @ $10 per unit . . . . . . . . . . . . . $ 160,000Less: Variable expense . . . . . . . . . . . (128,000)Contribution margin. . . . . . . . . . . . . . $ 32,000Less: Fixed expenses . . . . . . . . . . . . (44,000)Operating income (loss) . . . . . . . . . . . $ (12,000)
1 Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below: WILLIAMS PRODUCTS INC. Income Statement-School Knapsacks For the Quarter Ended June 30 Sales Variable expenses: Variable manufacturing expenses Sales commissions Shipping Total variable expenses Contribution margin Fixed expenses: Salary of product-line manager General factory overhead Depreciation of equipment (no resale value) Advertising-traceable Insurance on inventories Purchasing department Total fixed expenses Operating loss "Allocated on the basis of machine-hours. *Allocated on the basis of sales dollars. $58,800 23,100 6,300 7,500 42,100* 14,000 48,700 3,300 26,440 $210,000 88,200 121,800 142,040 $(20,240) Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the company's total general factory…
There would be a difference between the absorption operating income and variable operating income, if: Select one: O O a. There was an increase in period costs. b. A company sold less than the number of units produced in a given period. c. A company used the contribution margin statement instead of the conventional income statement. d. There was no beginning or ending inventories.
7. Under variable costing, which of the following costs are assigned to inventory? Variable Selling & Administrative Costs Variable Factory Overhead Costs (A) Yes No (B) No Yes (C) Yes Yes (D) No No 8. Which of the following would appear on both the budgeted income statement and on the schedule of expected cash disbursements for operating expenses? (A) Depreciation expense (B) Rent expense (C) Sales commission expense (D) Both B and C 9. Which of the following is not an underlying assumption of the cost-volume-profit graph? (A) Expenses are categorized into fixed and variable (B) Revenues and expenses are linear over the relevant range (C) Efficiency and productivity will be unchanged (D) Sales mix will not be constant
Alydar, Inc., manufactures and sells automotive tools through three divisions: Eastern, Southern, and International. Each division is evaluated as a profit center. Data for each division for last year are as follows: Eastern Southern International Sales $3,150,000 $987,000 $6,500,000 Cost of goods sold 1,580,000 680,000 4,100,000 Selling and administrative expenses 337,000 280,000 620,000 Alydar, Inc., had corporate administrative expenses equal to $585,000; these were not allocated to the divisions. Required: 1. Prepare a segmented income statement for Alydar, Inc., for last year. Alydar, Inc. Segmented Income Statement For last year Eastern Total Southern International
A variable cost is a cost thata. varies per unit at every level of activity.b. occurs at various times during the year.c. varies in total in proportion to changes in the level of activity.d. may or may not be incurred, depending on management’s discretion.
Requirements:1. Compute the net income for each month using variable costing. 2. Compute the monthly breakeven point under variable costing. 3. Explain to Ms. Gale why profits have moved erratically over the three month period shown inthe absorption costing statements above and why profits have not been more closely rated tochanges in sales volume. 4. Identify and discuss the advantages and disadvantages of using the variable costing method forinternal reporting purposes. 5. Reconcile the absorption costing and the variable costing net operating income figures for eachmonth.
Income Statements under Absorption Costing and Variable Costing Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (70,400 units) during the first month, creating an ending inventory of 6,400 units. During February, the company produced 64,000 units during the month but sold 70,400 units at $90 per unit. The February manufacturing costs and selling and administrative expenses were as follows: Manufacturing costs in February 1 beginning inventory: Variable Fixed Total Manufacturing costs in February: Variable Fixed Total Selling and administrative expenses in February: Variable Fixed Total Number of Units Cost of goods sold: 6,400 $36.00 6,400 14.00 64,000 64,000 Unit Cost 70,400 70,400 Total Cost $230,400 89,600 $50.00 $320,000 $36.00 $2,304,000 15.40 985,600 $51.40 $3,289,600 $18.20 $1,281,280 7.00 492,800 $25.20 $1,774,080 a. Prepare an income statement according to the absorption…