Chapter #9. Cost Accounting.

021 B E 22 The Redmark Pen Company manufactures red "correcting" pens. Redmark has three options for determining its denominator-level capacity concept. Determine the amount of fixed overhead that will be allocated to pens under each of the three concepts, and the respective FOH production volume variance that Redmark will write off to COGS under these three concepts. In addition, prepare an absorption costing which shows the different level of operating income that the Redmark Pen Company will report for each of the three denominator level capacity concepts. Information about the company's production output, actual results and nonmanufacturing costs are listed below. 2 3 Budget Fixed Days of Hours of Pens Denominator-Level Capacity Manufacturin Production Production Produced per Concept g OH for the During the per Day Hour 4 Period Period 5 Theoretical capacity $ 824,832 358 24 1200 6 Practical capacity $ 824,832 352 1100 7 Normal capacity utilization $ 824,832 352 22 1000 8 9 10 Actual Production Results 71 Beginning FG Inventory (pens) 700,000 12 Beginning FG Inventory (costs) $ 135,000 13 Production in units (pens) 7,500,000 14 Ending inventory (pens) 500,000 15 Actual Variable manufacturing costs $ 750,000 16 Actual FOH costs $ 815,000 17 Selling price per pen $ 0.50 18 19 Nonmanufacturing Costs 20 Administrative Salaries $ 230,000 21 Advertising Expenditures $ 270,000 22 Supplies Expenditures $ 80,000 23 Insurance Costs 70.000 Info FOH Allocated Absorption is A B Budgeted Fixed Manufacturing OH per Period FOH allocation and variance Days of Hours of Production per Production per Hoodies per Hour Period Day Budgeted Denominator Level Budgeted FOH per Pen Denominator-Level Capacity Concept Theoretical capacity Practical capacity Normal capacity utilization Budgeted FOH Budgeted Variable Costs Total Budgeted Manufacturing Costs per Pen FOH costs Allocated FOH Production Volume Variance per Pen per Pen Denominator-Level Capacity Concept Theoretical capacity Practical capacity Normal capacity utilization F11 A D 1 2 B C Absorption costing income statement Redmark Pen Company Absorption Costing Income Statement For the Year Ended 12-31-19 3 4 Theoretical Capacity Practical Capacity Normal Capacity Utilization 5 6 Revenues 7 Cost of goods sold: 8 Beginning inventory 9 Variable manufacturing costs 10 Fixed Costs Allocated 11 Cost of goods available for sale 12 Deduct: ending inventory 13 Adjustments for variances 14 COGS 15 Gross profit 16 Nonmanufacturing costs 17 Operating income 18 19 20 21 22 23 24 25 26 27 28