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:

Quality Appliances' capacity per year in units, independently of the mix of products

manufactured, is:

Practical capacity: 20,000 units

Normal capacity: 18,000 units

Master budget capacity: 15,000 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 are the

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.

The company allocates fixed manufacturing overhead costs to each product using normal

capacity. The opening and ending balance of Raw Materials Control Account is $0. 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 are

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

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.

Unit data 600 9,000 9,500 $300 finished goods 1,000 6,000 6,600 $150 inventorv (units Production (units) Sales (units Selling price per unit Variable costs 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 $70 $50 $30 $40 $90 $40 $30 $20 Total Fixed Manufacturing Overhead costs per year Total Fixed Operating costs (marketing and admin) per year $300,000 $60,000 Unit data 600 9,000 9,500 $300 finished goods 1,000 6,000 6,600 $150 inventorv (units Production (units) Sales (units Selling price per unit Variable costs 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 $70 $50 $30 $40 $90 $40 $30 $20 Total Fixed Manufacturing Overhead costs per year Total Fixed Operating costs (marketing and admin) per year $300,000 $60,000