Related questions with answers

Pandora Pillow Company's planned production for the year just ended was 10,00010,000 units. This production level was achieved, but only 9,0009,000 units were sold. Other data follow:

 Direct material used $40,000 Direct labor incurred 20,000 Fixed manufacturing overhead 25,000 Variable manufacturing overhead 12,000 Fixed selling and administrative expenses 30,000 Variable selling and administrative expenses 4,500 Finished-goods inventory, January 1  None \begin{array}{lr} \text{ Direct material used } & \$ 40,000 \\ \text{ Direct labor incurred } & 20,000 \\ \text{ Fixed manufacturing overhead } & 25,000 \\ \text{ Variable manufacturing overhead } & 12,000 \\ \text{ Fixed selling and administrative expenses } & 30,000 \\ \text{ Variable selling and administrative expenses } & 4,500 \\ \text{ Finished-goods inventory, January 1 } & \text{ None } \end{array}

There were no work-in-process inventories at the beginning or end of the year.

1.1. What would be Pandora Pillow Company's finished-goods inventory cost on December 3131 under the variable-costing method?

2.2. Which costing method, absorption or variable costing, would show a higher operating income for the year? By what amount?

3.3. Suppose Pandora Pillow Company uses throughput costing, and direct material is its only unit-level cost. What would be Pandora's finished-goods inventory on December 3131?

Easton Pump Company's planned production for the year just ended was 20,00020,000 units. This production level was achieved, and 21,00021,000 units were sold. Other data follow:

 Direct material used $600,000 Direct labor incurred 300,000 Fixed manufacturing overhead 420,000 Variable manufacturing overhead 200,000 Fixed selling and administrative expenses 350,000 Variable selling and administrative expenses 105,000 Finished-goods inventory, January 1 2,000 units \begin{array}{lr} \text{ Direct material used } & \$ 600,000 \\ \text{ Direct labor incurred } & 300,000 \\ \text{ Fixed manufacturing overhead } & 420,000 \\ \text{ Variable manufacturing overhead } & 200,000 \\ \text{ Fixed selling and administrative expenses } & 350,000 \\ \text{ Variable selling and administrative expenses } & 105,000 \\ \text{ Finished-goods inventory, January 1 } & \quad 2,000 \text { units } \end{array}

There were no work-in-process inventories at the beginning or end of the year.

1.1. What would be Easton Pump Company's finished-goods inventory cost on December 3131 under the variable-costing method?

2.2. Which costing method, absorption or variable costing, would show a higher operating income for the year? By what amount?

Question

Bianca Bicycle Company manufactures mountain bikes with a variable cost of $200\$ 200. The bicycles sell for $350\$ 350 each. Budgeted fixed manufacturing overhead for the most recent year was $2,200,000\$ 2,200,000. Planned and actual production for the year were the same.

Under each of the following conditions, state (a) whether income is higher under variable or absorption costing and (b)(b) the amount of the difference in reported income under the two methods. Treat each condition as an independent case.

 1.  Production 20,000 units  Sales 23,000 units  2.  Production 10,000 units  Sales 10,000 units  3.  Production 11,000 units  Sales 9,000 units \begin{array}{llr} \text{ 1. } & \text{ Production } & 20,000 \text { units } \\ & \text{ Sales } & 23,000 \text { units } \\ \text{ 2. } & \text{ Production } & 10,000 \text { units } \\ & \text{ Sales } & 10,000 \text { units } \\ \text{ 3. } & \text{ Production } & 11,000 \text { units } \\ &\text{ Sales } & 9,000 \text { units } \end{array}

Solution

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In this problem, we must identify which income is higher under the two-income reporting method and compute the amount of difference under these methods.

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