Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 9, Problem 9.25E
Variable versus absorption costing. The Tomlinson Company manufactures trendy, high-quality, moderately priced watches. As Tomlinson’s senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Tomlinson’s 2017 income statement. The following data are for the year ended December 31, 2017:
| Beginning inventory, January 1, 2017 | 90,000 units |
| Ending inventory, December 31, 2017 | 34,000 units |
| 2017 sales | 433,000 units |
| Selling price (to distributor) | $24.00 per unit |
| Variable manufacturing cost per unit, including direct materials | $5.40 per unit |
| Variable operating (marketing) cost per unit sold | $1.20 per unit sold |
| Fixed |
$1,852,200 |
| Denominator-level machine-hours | 6,300 |
| Standard production rate | 60 units per machine-hour |
| Fixed operating (marketing) costs | $1,130,000 |
Assume
Required
- 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2017.
- 2. What is Tomlinson’s operating income as percentage of revenues under each costing method?
- 3. Explain the difference in operating income between the two methods.
- 4. Which costing method would you recommend to the CFO? Why?
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The Zwatch Company manufactures trendy, high-quality moderately priced watches. As Zwatch’s senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Zwatch’s 2019 income statement. The following data are for the year ended December 31, 2019:
Beginning inventory, January 1, 2019 85,000 units
Ending inventory, December 31, 2019 34,500 units
2019 sales 345,400 units
Selling price (to distributor) $22.00 per unit
Variable manufacturing cost per unit, including direct materials $5.10 per unit
Variable operating (marketing) cost per unit sold $1.10 per unit sold
Fixed manufacturing costs $1,440,000
Denominator-level machine-hours 6,000
Standard production rate 50 units per machine-hour
Fixed operating (marketing) costs $1,080,000
Assume standard costs per unit are the same for units in beginning inventory and units produced during the year. Also, assume no price, spending, or efficiency variances. Any…
Compute cost of goods sold for 2017 using the following information.
Finished goods inventory, Dec. 31, 2016
Work in process inventory, Dec. 31, 2016
Work in process inventory, Dec. 31, 2017
Cost of goods manufactured, 2017
Finished goods inventory, Dec. 31, 2017
Cost of Goods Sold is Computed as:
Cost of goods sold
$ 348,000
87,000
73,200
915,700
337,000
Clinton Company makes specialty cases for smart phones and other handheld devices. The company has experienced strong growth, and you are especially interested in how well Clinton is managing its inventory balances. You have collected the following information for the current year.
Inventory at the beginning of year
$ 1,555 million
Inventory at the end of year, before any adjustments
1,267 million
Total cost of goods sold, before any adjustments
17,844 million
The company values inventory using the LIFO cost flow assumption.
Instructions
Prepare a schedule (a computer worksheet would serve well) showing the impact of the following items on Clinton's inventory turnover.
a. Shipping contracts changed 2 months ago from f.o.b. shipping point to f.o.b. destination. At the end of the year, $5 million of products are en route to China (and will not arrive until after financial statements are released). Current inventory balances do not reflect this change in policy.
b. During…
Chapter 9 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 9 - Differences in operating income between variable...Ch. 9 - Why is the term direct costing a misnomer?Ch. 9 - Do companies in either the service sector or the...Ch. 9 - Explain the main conceptual issue under variable...Ch. 9 - Companies that make no variable-cost/fixed-cost...Ch. 9 - The main trouble with variable costing is that it...Ch. 9 - Give an example of how, under absorption costing,...Ch. 9 - What are the factors that affect the breakeven...Ch. 9 - Critics of absorption costing have increasingly...Ch. 9 - What are two ways of reducing the negative aspects...
Ch. 9 - Prob. 9.11QCh. 9 - Describe the downward demand spiral and its...Ch. 9 - Will the financial statements of a company always...Ch. 9 - Prob. 9.14QCh. 9 - The difference between practical capacity and...Ch. 9 - In comparing the absorption and variable cost...Ch. 9 - Queen Sales, Inc. has just completed its first...Ch. 9 - King Tooling has produced and sold the following...Ch. 9 - The following information relates to Drexler Inc.s...Ch. 9 - Prob. 9.20MCQCh. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-21). The...Ch. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-23). The...Ch. 9 - Variable versus absorption costing. The Tomlinson...Ch. 9 - Absorption and variable costing. (CMA) Miami,...Ch. 9 - Absorption versus variable costing. Horace Company...Ch. 9 - Candyland uses standard costing to produce a...Ch. 9 - Capacity management, denominator-level capacity...Ch. 9 - Denominator-level problem. Thunder Bolt Inc., is a...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Variable costing versus absorption costing. The...Ch. 9 - Throughput Costing (continuation of 9-32) 1....Ch. 9 - Variable costing and absorption costing, the Z-Var...Ch. 9 - Comparison of variable costing and absorption...Ch. 9 - Effects of differing production levels on...Ch. 9 - Alternative denominator-level capacity concepts,...Ch. 9 - Motivational considerations in denominator-level...Ch. 9 - Denominator-level choices, changes in inventory...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Downward demand spiral. Market.com is about to...Ch. 9 - Absorption costing and production-volume...Ch. 9 - Operating income effects of denominator-level...Ch. 9 - Variable and absorption costing, actual costing....Ch. 9 - Prob. 9.45PCh. 9 - Cost allocation, responsibility accounting, ethics...Ch. 9 - Absorption, variable, and throughput costing....Ch. 9 - Costing methods and variances, comprehensive. Rob...
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