Cost Accounting (14th Edition)

PROBLEM FOR SELF-STUDY 325
1. Compute the budgeted fixed manufacturing cost per unit in 2012, 2013, and 2014.
2. Explain the difference between absorption-costing operating income and variablecosting
operating income in 2012, 2013, and 2014, focusing on fixed manufacturing
costs in beginning and ending inventory.
3. Why are these differences smaller than the differences in Exhibit 9-2?
4. Assume the same preceding information, except that for 2012, the master-budget
capacity utilization is 10,000 units instead of 8,000. How would Stassen’s absorptioncosting
income for 2012 differ from the $1,500,000 shown previously? Show
your computations.
Required
Solution
1.
2.
Budgeted fixed
manufacturing
cost per unit
Absorption-costing
operating
income
Budgeted fixed manufacturing costs
=
Budgeted production units
= $480,000
8,000 units
= $60 per unit
-
Variable-costing
operating
income
2012: $1,500,000 - $1,380,000 = ($60 per unit * 2,000 units) - ($600 per unit * 0 units)
$120,000 = $120,000
2013: $1,560,000 - $1,650,000 = ($60 per unit * 500 units) - ($60 per unit * 2,000 units)
- $90,000 = -$90,000
2014: $2,340,000 - $2,190,000 = ($60 per unit * 3,000 units) - ($60 per unit * 500 units)
$150,000 = $150,000
3. Subcontracting a large part of manufacturing has greatly reduced the magnitude of
fixed manufacturing costs. This reduction, in turn, means differences between
absorption costing and variable costing are much smaller than in Exhibit 9-2.
4. Given the higher master-budget capacity utilization level of 10,000 units, the budgeted
fixed manufacturing cost rate for 2012 is now as follows:
$480,000
= $48 per unit
10,000 units
The manufacturing cost per unit is $323 ($275 + $48). So, the production-volume variance
for 2012 is
(10,000 units - 8,000 units) * $48 per unit = $96,000 U
The absorption-costing income statement for 2012 is as follows:
=
Fixed manufacturing
costs in ending inventory -
under absorption costing
Fixed manufacturing costs
in beginning inventory
under absorption costing
Revenues: $1,000 per unit * 6,000 units
$6,000,000
Cost of goods sold:
Beginning inventory 0
Variable manufacturing costs: $275 per unit * 8,000 units
2,200,000
Fixed manufacturing costs: $48 per unit * 8,000 units
ƒƒƒ384,000
Cost of goods available for sale 2,584,000
Deduct ending inventory: $323 per unit * 2,000 units
ƒƒ(646,000)
Cost of goods sold (at standard costs) 1,938,000
Adjustment for production-volume variance
ƒƒƒƒ96,000 U
Cost of goods sold
ƒ2,034,000
Gross margin 3,966,000
Marketing costs: $1,380,000 fixed + ($185 per unit) * (6,000 units sold) ƒ2,490,000
Operating income $1,476,000