Question
Case 8-43, Chapter 8 (Managerial Accounting - Creating Value in Dynamic Business Environment -- 11th Edition by Hilton) Huron Chalk Company manufactures sidewalk chalk which
Case 8-43, Chapter 8 (Managerial Accounting - Creating Value in Dynamic Business Environment -- 11th Edition by Hilton)
Huron Chalk Company manufactures sidewalk chalk which it sells online by the box at $25 per unit. Huron uses an actual costing system, which means that the actual costs of direct material, direct labor, and manufacturing overhead are entered into work-in-process inventory. The actual application rate for manufacturing overhead is computed each year; actual manufacturing overhead is divided by actual production (in units) to compute the application rate. Information for Hurons first two years of operations is as follows: Year 1 Year 2 Sales (in units) ................................................................................................................. 2,500 2,500 Production (in units) ......................................................................................................... 3,000 2,000 Production costs: Variable manufacturing costs ....................................................................................... $10,500 $ 7,000 Fixed manufacturing overhead ..................................................................................... 21,000 21,000 Selling and administrative expenses: Variable ...................................................................................................................... 12,500 12,500 Fixed .......................................................................................................................... 10,000 10,000
Refer to the information given in the preceding case for Huron Chalk Company . Required: 1. Reconcile Hurons operating income reported under absorption and variable costing, during each year, by comparing the following two amounts on each income statement: Cost of goods sold Fixed cost (expensed as a period expense) 2. What was Hurons total operating income across both years under absorption costing and under variable costing? Case 842 Comparison of Absorption and Variable Costing (LO 8-2, 8-3, 8-4) 1. Operating income, year 1: $13,750 2. Contribution margin, year 2: $41,250 Ex Case 843 Analysis of Differences in Absorption-Costing and Variable-Costing Income Statements; Continuation of Preceding Case (LO 8-1, 8-4) 1. Year 1, absorption costing operating income: $13,750 4. Total of all costs expensed across both years: $104,500 Cases Chapter 8 Variable Costing and the Costs of Quality and Sustainability 349 3. What was the total sales revenue across both years under absorption costing and under variable costing? 4. What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing? 5. Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue across both years [requirement (3)]: ( a ) under absorption costing and ( b ) under variable costing. 6. Comment on the results obtained in requirements (1), (2), (3), and (4) in light of the following assertion: Timing is the key in distinguishing between absorption and variable costing.
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