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 43C
Refer to the information given in the preceding case for Lehighton Chalk Company.
Required:
- 1. Reconcile Lehighton’s operating income reported under absorption and variable costing, during each year, by comparing the following two amounts on each income statement:
- Cost of goods sold
- Fixed cost (expensed as a period expense)
- 2. What was Lehighton’s total operating income across both years under absorption costing and under variable costing?
- 3. What was the total sales revenue across both years under absorption costing and under variable costing?
- 4. What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing?
- 5. Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue across both years [requirement (3)]: (a) under absorption costing and (b) under variable costing.
- 6. Comment on the results obtained in requirements (1), (2), (3), and (4) in light of the following assertion: Timing is the key in distinguishing between 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
Accounting records for The Ralston Company show the following for the most recent fiscal year.
Units produced and sold
Total revenues and costs
Sales revenue
Direct materials costs
Direct labor costs
Variable manufacturing overhead
Fixed manufacturing overhead
Variable marketing and administrative costs
Fixed marketing and administrative costs
Required:
a. Prepare a gross margin Income statement.
b. Prepare a contribution margin Income statement.
Required A Required B
Complete this question by entering your answers in the tabs below.
Prepare a gross margin income statement.
Gross Margin Income Statement
59,500
McCracken Aerial, Inc., produces and sells a unique type of TV antenna. The company
has just opened a new plant to manufacture the antenna, and the following cost and
revenue data have been provided for the first month of the plant's operation in the form of
a worksheet.
Beginning inventory.
Units produced
80,000
Units sold
70,000
Selling price per unit
Selling and administrative expenses:
$30
Variable per unit ..
Fixed (total) ...
$1
$160,000
Manufacturing costs
Direct materials cost per unit
$10
Direct labor cost per unit ...
Variable manufacturing overhead cost per unit.
Fixed manufacturing overhead cost (total) .
$4
$2
$640,000
The following data were adapted from a recent income statement of Procter & Gamble Company:
Based on the data given, prepare a variable costing income statement for Procter &
Gamble Company, assuming that the company maintained constant inventory levels
during the period.
If Procter & Gamble reduced its inventories during the period, what impact
would that have on the income from operations determined under absorption costing?
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
- Summarized data for Walrus Co. for its first year of operations are: A. Prepare an income statement under absorption costing B. Prepare an income statement under variable costingarrow_forwardSummarized data for Backdraft Co. for its first year of operations are as follows: A. Prepare an income statement under absorption costing B. Prepare an income statement under variable costingarrow_forwardTo determine the effect of different levels of production on the company’s income, move to cell B7 (Actual production). Change the number in B7 to the different production levels given in the table below. The first level, 100,000, is the current level. What happens to the operating income on both statements as production levels change? Enter the operating incomes in the following table. Does the level of production affect income under either costing method? Explain your findings.arrow_forward
- 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…arrow_forwardCompute the following: The amount of ending inventory reported under absorption costing method If the number of units is equal to its production of 1,200 units, the amount of ending inventory reported under absorption costing method If 1,350 units were sold instead, what would be the operating income under variable costing method?arrow_forwardGreat Outdoze Company manufactures sleeping bags, which sell for $66.10 each. The variable costs of production are as follows: Direct material Direct labor Variable manufacturing overhead $19.10 10.30 7.40 k Budgeted fixed overhead in 20x1 was $157,500 and budgeted production was 25,000 sleeping bags. The year's actual production was 25,000 units, of which 21,300 were sold. Variable selling and administrative costs were $1.30 per unit sold; fixed selling and administrative costs were $22,000. atarrow_forward
- Absorption and Variable Costing Income Statements During the first month of operations ended July 31, YoSan Inc. manufactured 12,000 flat panel televisions, of which 11,300 were sold. Operating data for the month are summarized as follows: Sales Manufacturing costs: Direct materials Direct labor Variable manufacturing cost Fixed manufacturing cost Selling and administrative expenses: Variable Fixed $1,020,000 300,000 264,000 132,000 $158,200 72,800 $2,034,000 1,716,000 231,000arrow_forward1. How would a product life-cycle income statement differ from the above income statements? 2. Prepare a three-year life-cycle income statement for both products. Which product appears to be more profitable and why? 3. Prepare a schedule showing each cost category as a percentage of total annual costs. What do you think this indicates about the profitability of each product over the three-year life cycle?arrow_forward1. Assume that the company uses absorption costing A) compute the unit product cost B) prepare an income statement for a year(do not leave empty spaces;input a 0 whatever it is required) 2. Assume the company uses variable costing A) compute the unit product cost B) prepare an income statmement(input 0 on empty spaces)arrow_forward
- Using absorption costing:(i) Calculate the production cost per unit. (ii) Prepare an income statement for the year.arrow_forwardQue. 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…arrow_forwardSome financial information for each of three companies is reflected below in columns A, B, and C. Use your knowledge of CVP relationships to fill in the missing pieces numbered (1) through (9). Consider each company (i.e., column) separately. (Round variable cost per unit and contribution margin ratio to 2 decimal places, e.g. 0.24.) Selling price Total fixed costs Sales volume (units) Variable cost/unit Operating income Tax rate After-tax profit Contribution margin ratio A $4 $12,900 31,000 3720 (1) $21,820 30 % (2) $15,274 34,720 (3) B $750 2,700 $360 25% $692,250 (4) (5) (6) $450,000 $43.20 $262,800 40% 0.55arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
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 LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
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 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
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
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Cost Accounting - Definition, Purpose, Types, How it Works?; Author: WallStreetMojo;https://www.youtube.com/watch?v=AwrwUf8vYEY;License: Standard YouTube License, CC-BY