PRACTICE PROBLEM 1 Quality Appliances Ltd manufactures and sells microwaves (M) and small electric ovens (O), and uses standard costing. Actual data relating to 2018 are as follows: Unit data Beginning finished goods inventory (units) Production (units) Sales (units) Selling price per unit Variable costs 600 1,000 9,000 6,000 9,500 $300 6,600 $150 Direct material cost per unit produced Direct manufacturing labour cost per unit produced Variable manufacturing overhead cost per unit produced Operating (marketing) cost per unit sold Total Fixed Manufacturing Overhead costs per year Total Fixed Operating costs (marketing and admin) per year $70 $50 $30 $40 $90 $40 $30 $20 $300,000 $60,000 Quality Appliances' capacity per year in units, independently of the mix of products manufactured, is: Practical capacity: Normal capacity: Master budget capacity: 15,000 units 20,000 units 18,000 units There are no price or efficiency variances for direct labour or direct materials, and no variances for variable manufacturing overhead. Unit costs for the beginning inventory same as actual costs per unit in 2018. Any fixed manufacturing overhead variances are prorated based on ending WIP Control, FG Control, and COGS balances. are the The company allocates fixed manufacturing overhead costs to each product using normal capacity. The opening and ending balance of Raw Materials Control Account is S0. The ending WIP Control Account Balance is $0. The budgeted amount of fixed manufacturing overhead for the period was $306,000. Questions 1. In T-Account Format, prepare all relevant entries including account names and amounts to record the manufacturing process. Include any relevant adjusting entries. 2. Prepare only one income statement for the whole company for the year 2018 using perpetual inventory system and absorption costing. 3. Using the reconciliation method between operating income under absorption and variable costing calculate the operating income under variable costing and explain why they different 4. Which capacity used as the denominator level in absorption costing will result in the highest unit cost of microwaves? Why unit cost is higher? What would be the are inventoriable unit cost of each microwave? 5. If the manager of Quality Appliances had produced a higher number of units of both products for the same units sold, what would be the effect on operating income under absorption costing and under throughput costing? Explain