Cost Accounting (14th Edition)

9-30 Comparison of variable costing and absorption costing. Hinkle Company uses standard costing.
Tim Bartina, the new president of Hinkle Company, is presented with the following data for 2012:
ASSIGNMENT MATERIAL 335
A
B
C
1
2
Hinkle Company
Income Statements for the Year Ended December 31, 2012
3
Variable Absorption
4
Costing Costing
5 R evenues
$9,000,000 $9,000,000
6 Cost of goods sold (at standard costs)
4,680,000 5,860,000
7
8
9
Fixed manufacturing overhead (budgeted)
Fixed manufacturing overhead variances (all unfavorable):
Spending
1,200,000
100,000
-
100,000
10 Production volume - 400,000
11 Total marketing and administrative costs (all fixed) 1,500,000 1,500,000
12 Total costs 7,480,000 7,860,000
13 Operating income $1,520,000 $1,140,000
14
15 Inventories (at standard costs)
16 December 31, 2011 $1,200,000 $1,720,000
17 December 31, 2012 66,000 206,000
1. At what percentage of denominator level was the plant operating during 2012?
2. How much fixed manufacturing overhead was included in the 2011 and the 2012 ending inventory under
absorption costing?
3. Reconcile and explain the difference in 2012 operating incomes under variable and absorption costing.
4. Tim Bartina is concerned: He notes that despite an increase in sales over 2011, 2012 operating income
has actually declined under absorption costing. Explain how this occurred.
Required
9-31 Effects of differing production levels on absorption costing income: Metrics to minimize
inventory buildups. University Press produces textbooks for college courses. The company recently
hired a new editor, Leslie White, to handle production and sales of books for an introduction to accounting
course. Leslie’s compensation depends on the gross margin associated with sales of this book.
Leslie needs to decide how many copies of the book to produce. The following information is available
for the fall semester 2011:
Estimated sales
20,000 books
Beginning inventory
0 books
Average selling price
$80 per book
Variable production costs
$50 per book
Fixed production costs
$400,000 per semester
The fixed cost allocation rate is based on expected sales and is
therefore equal to $400,000/20,000 books = $20 per book
Leslie has decided to produce either 20,000, 24,000, or 30,000 books.
1. Calculate expected gross margin if Leslie produces 20,000, 24,000, or 30,000 books. (Make sure you
include the production-volume variance as part of cost of goods sold.)
2. Calculate ending inventory in units and in dollars for each production level.
Required