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Osborne Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs and reports the following data for the year. (Click
Osborne Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs and reports the following data for the year. (Click the icon to view the data.) There are no rate or efficiency variances. Actual operating costs equal budgeted operating costs. The production-volume variance is written off to COGS. For each choice of denominator level, the budgeted production cost per unit is also the cost per unit of beginning inventory. Data table Requirement 1. What is the production-volume variance for the year when the denominator level is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization? Begin by determining the formula that is used to calculate the production-volume variance. (Abbreviation used: mfg = manufacturing.) Production- ( X ) = volume variance Next, calculate the production-volume variance for each denominator level (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization. Label each variance as favourable (F) or unfavourable (U). Requirement 2. Prepare absorption costing-based statements of comprehensive income for Osborne Corporation using theoretical capacity, practical capacity, and normal capacity utilization as the denominator levels. Prepare the statements of comprehensive income one at a time, starting with theoretical capacity. Label each variance as favourable (F) or unfavourable (U). (Use parentheses or a minus sign for an operating loss.) Requirement 3. Why is the operating income under normal capacity utilization lower than the other two scenarios? During the year, Osborne had in inventory levels. The located to each unit of production, and, when those units are sold, the Normal utilization capacity is the capacity of the three; hence in this year, when production was that sales, the absorption-costing based operating income is the smallest when normal capacity utilization is used as the denominator level. Requirement 4. Reconcile the difference in operating income based on theoretical capacity and practical capacity with the difference in fixed manufacturing overhead included in inventory. (Abbreviation used: mfg= manufacturing.) Less: Less: Difference in operating income = Difference in fixed mfg overhead included in inventory
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