The owners want to understand these numbers and how they can use the information to run the business. 1. Identify and describe two limitations of using absorption costing. 2. Explain why there is a difference in net income between variable costing and absorption costing. Show your calculations.
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Brown Printing, a small family-owned business, began operations on March 1, manufacturing premium quality books. The owners have expertise in printing but no accounting knowledge or experience. The company’s independent accountant compiled the following data for the month of March. They have also requested an income statement.
|
Sales price |
$90 per book |
|
Number of units produced |
15,000 books |
|
Number of units sold |
10,000 books |
|
Direct materials cost |
$15 per book |
|
Direct labor cost |
$6 per book |
|
Variable manufacturing |
$4 per book |
|
Fixed manufacturing overhead |
$240,000 per month |
|
Selling cost |
$3 per book |
|
Administrative expenses |
$160,000 per month |
The owners want to understand these numbers and how they can use the information to run the business.
1. Identify and describe two limitations of using absorption costing.
2. Explain why there is a difference in net income between variable costing and absorption costing. Show your calculations.
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- Brown Printing, a small family-owned business, began operations on March 1, manufacturing premium quality books. The owners have expertise in printing but no accounting knowledge or experience. The company’s independent accountant compiled the following data for the month of March. They have also requested an income statement. Sales price $90 per book Number of units produced 15,000 books Number of units sold 10,000 books Direct materials cost $15 per book Direct labor cost $6 per book Variable manufacturing overhead $4 per book Fixed manufacturing overhead $240,000 per month Selling cost $3 per book Administrative expenses $160,000 per month The owners want to understand these numbers and how they can use the information to run the business. Explain why there is a difference in net income between variable costing and absorption costing. Show your calculations. 2. Define and explain throughput costing.Brown Printing, a small family-owned business, began operations on March 1, manufacturing premium quality books. The owners have expertise in printing but no accounting knowledge or experience. The company’s independent accountant compiled the following data for the month of March. They have also requested an income statement. Sales price $90 per book Number of units produced 15,000 books Number of units sold 10,000 books Direct materials cost $15 per book Direct labor cost $6 per book Variable manufacturing overhead $4 per book Fixed manufacturing overhead $240,000 per month Selling cost $3 per book Administrative expenses $160,000 per month The owners want to understand these numbers and how they can use the information to run the business. 1a. Calculate the unit cost of goods sold using absorption costing. 1b Prepare the income statement for March using absorption costing. 2a. Identify and describe two advantages of…Brown Printing, a small family-owned business, began operations on March 1, manufacturing premium quality books. The owners have expertise in printing but no accounting knowledge or experience. The company’s independent accountant compiled the following data for the month of March. They have also requested an income statement. Sales price $90 per book Number of units produced 15,000 books Number of units sold 10,000 books Direct materials cost $15 per book Direct labor cost $6 per book Variable manufacturing overhead $4 per book Fixed manufacturing overhead $240,000 per month Selling cost $3 per book Administrative expenses $160,000 per month The owners want to understand these numbers and how they can use the information to run the business. Define and explain absorption and variable costing. a. Calculate the unit cost of goods sold using variable costing.b. Prepare the income statement for March using variable…
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- One Stop Electrical Shop are merchandisers of household fixtures & fittings. The business began the last quarter of 2020 (October to December) with 25 Starburst Wall Clocks at a total cost of $153,000. The following transactions took place during the quarter.October 10 100 clocks were purchased on account at a cost of $6,225 each. In addition, One Stop paid $120 cash on each clock to have the inventory shipped from the vendor’s warehouse to their warehouseOctober 31 During the month 90 clocks were sold at a price of $8,300 each. (20 of these clocks sold were on account to a long-standing customer of the business)November 1 A new batch of 60 clocks was purchased at a total cost of $406,500November 10 5 of the clocks purchased on November 1 were returned to the supplier, as they were damagedNovember 30 The sales for November were 58 clocks which yielded total sales revenue of $498,800December 2 Owing to increased demand, a further 110 clocks were purchased at a cost of $7,400 each…One Stop Electrical Shop are merchandisers of household fixtures & fittings. The business began the last quarter of 2020 (October to December) with 25 Starburst Wall Clocks at a total cost of $153,000. The following transactions took place during the quarter.October 10 100 clocks were purchased on account at a cost of $6,225 each. In addition, One Stop paid $120 cash on each clock to have the inventory shipped from the vendor’s warehouse to their warehouseOctober 31 During the month 90 clocks were sold at a price of $8,300 each. (20 of these clocks sold were on account to a long-standing customer of the business)November 1 A new batch of 60 clocks was purchased at a total cost of $406,500November 10 5 of the clocks purchased on November 1 were returned to the supplier, as they were damagedNovember 30 The sales for November were 58 clocks which yielded total sales revenue of $498,800December 2 Owing to increased demand, a further 110 clocks were purchased at a cost of $7,400 each…One Stop Electrical Shop are merchandisers of household fixtures & fittings. The business began the last quarter of 2020 (October to December) with 25 Starburst Wall Clocks at a total cost of $153,000. The following transactions took place during the quarter.October 10 100 clocks were purchased on account at a cost of $6,225 each. In addition, One Stop paid $120 cash on each clock to have the inventory shipped from the vendor’s warehouse to their warehouseOctober 31 During the month 90 clocks were sold at a price of $8,300 each. (20 of these clocks sold were on account to a long-standing customer of the business)November 1 A new batch of 60 clocks was purchased at a total cost of $406,500November 10 5 of the clocks purchased on November 1 were returned to the supplier, as they were damagedNovember 30 The sales for November were 58 clocks which yielded total sales revenue of $498,800December 2 Owing to increased demand, a further 110 clocks were purchased at a cost of $7,400 each…
- One Stop Electrical Shop are merchandisers of household fixtures & fittings. The business began the last quarter of 2020 (October to December) with 25 Starburst Wall Clocks at a total cost of $153,000. The following transactions took place during the quarter.October 10 100 clocks were purchased on account at a cost of $6,225 each. In addition, One Stop paid $120 cash on each clock to have the inventory shipped from the vendor’s warehouse to their warehouseOctober 31 During the month 90 clocks were sold at a price of $8,300 each. (20 of these clocks sold were on account to a long-standing customer of the business)November 1 A new batch of 60 clocks was purchased at a total cost of $406,500November 10 5 of the clocks purchased on November 1 were returned to the supplier, as they were damagedNovember 30 The sales for November were 58 clocks which yielded total sales revenue of $498,800December 2 Owing to increased demand, a further 110 clocks were purchased at a cost of $7,400 each…John Stern operates a retail store. The business is studying order processing costs behavior and has gathered the following data for a recent seven-month period. Month Sales Order Order Processing Costs June 3,000 $40,000 July 1,500 $28,000 August 4,000 $65,000 September 2,800 $39,000 October 2,300 $32,000 November 1,000 $20,000 December 2,000 $30,000 Requirements; a) Using the “line of best fit”, determine Stern’s fixed cost per month and the variable cost per sales order b) In view of Stern’s cost behavior pattern, which of the two methods appear more appropriate? Explain your answer.Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University. Tami’s Creations, Inc. Income Statement For the Quarter Ended March 31 Sales (28,050 units) $ 1,122,000 Variable expenses: Variable cost of goods sold $ 462,825 Variable selling and administrative 193,545 656,370 Contribution margin 465,630 Fixed expenses: Fixed manufacturing overhead 297,450 Fixed selling and administrative 190,680 488,130 Net operating loss $ ( 22,500) Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as…