$9-26$ Variable costing versus absorption costing. $($LO $3)$ The Garvis Company

uses an absorption$-$costing system based on standard costs. Variable

manufacturing cost consists of direct material cost of $$4\mathrm{.}50$ per unit and other

variable manufacturing costs of $$1\mathrm{.}50$ per unit. The standard production rate is

$20$ units per machine$-$hour. Total budgeted and actual fixed manufacturing

overhead costs are $$840,000.$ Fixed manufacturing overhead is allocated at $$14$

per machine$-$hour based on fixed manufacturing costs of $$840,00060,000$

machine$-$hours, which is the level Garvis uses as its denominator level.

The selling price is $$10$ per unit. Variable operating $($nonmanufacturing$)$ cost$,$

which is driven by units sold, is $$2$ per unit. Fixed operating

$($nonmanufacturing$)$ costs are $$240,000.$ Beginning inventory in $2022$ is $60,000$

units; ending inventory is $80,000$ units. Sales in $2022$ are $1,080,000$ units.

The same standard unit costs persisted throughout $2021$ and $2022.$ For

simplicity, assume that there are no price, spending, or efficiency variances. Requierd

$1.$prepare an income statement for $2022$ assuming that the production$-$

volume variance is written off at year$-$end as an adjustment to cost of

goods sold.

$2.$The president has heard about variable costing. She asks you to recast

the $2022$ statement as it would appear under variable costing.

$3.$Explain the difference in operating income as calculated in requirements

$1$ and $2.$

$4.$Graph how fixed manufacturing overhead is accounted for under

absorption costing. That is$,$ there will be two lines: one for the budgeted

fixed manufacturing overhead $($which is equal to the actual fixed

manufacturing overhead in this case$)$ and one for the fixed

manufacturing overhead allocated. Show the production$-$volume

variance in the graph.

$5.$Critics have claimed that a widely used accounting system has led to

undesirable buildups of inventory levels. $($a$)$ Is variable costing or

absorption costing more likely to lead to such buildups? Why? $($b$)$ What

$6.$can managers do to counteract undesirable inventory buildups?Prepare an income statement under throughput costing for the year

ended December $31,2022$ for Garvis Company.

$7.$Reconcile the difference between the contribution margin and

throughput margin for Garvis in $2022.$ Then reconcile the operating

income between variable costing and throughput costing for Garvis in

$8.$

Advocates of throughput costing say it provides managers less incentive

to produce for inventory than either variable costing or$,$ especially,

absorption costing. Do you agree? Why or why not? Under what

circumstances might you recommend that Garvis use throughput

costing?