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It is the end of 2013. The Gibson Company began operations in January 2012. The company is so named because it has no variable costs.
It is the end of 2013. The Gibson Company began operations in January 2012. The company is so named because it has no variable costs. All its costs are fixed, they do not vary with output. The Gibson Company is located on the bank of a river and has its own hydroelectric plant to supply power, light, and heat. The company manufactures a synthetic fertilizer from air and river water and sells its product at a price that is not expected to change. It has a small staff of employees, all paid fixed annual salaries. The output of the plant can be increased or decreased by adjusting a few dials on a control panel. The following budgeted and actual data are for the operations of the Gibson Company. Data Table Gibson uses budgeted production as the denominator level and writes off any production-volume variance to cost of goods sold 2012 2013 (a) 12.500 tons 12.500 tons Sales 25,000 tons Production 0 tons 20 per ton 20 per ton Selling price Costs (all fixed) 250,000 250,000 Manufacturing 15,000 Operating (nonmanufacturing) 15,000 (a) Management adopted the policy, effective January 1, 2013, of producing only as much product as needed to fill sales orders. During 2013, sales were the same as for 2012 and were filled entirely from inventory at the start of 2013
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