Quarryman Corporation Case SP 2020

Part I: Quarryman Corporation manufactures and sells 50-inch electronic products that can do just about anything any electronic device can do. They use a standard cost system. Actual data relating to January, February, and March 2020 are as follows:

	January	February	March
Unit data:
Beginning Inventory	0	100	100
Production	1,600	1,500	1,600
Sales	1,500	1,500	1,590
Variable Costs:
Var. Manufacturing Cost per unit produced	$1,000	$1,000	$1,000
Var. Marketing cost per unit sold	$700	$700	$700
Fixed Costs:
Manufacturing Costs	$515,000	$515,000	$515,000
Marketing and Admin Costs	$160,000	$160,000	$160,000

The selling price per unit is $3,300. The budgeted level of production used to calculate the budgeted fixed manufacturing costs per unit was 1,600 units in January, 1,500 units in February, and 1,600 units in March. They were so accurate at predicting their costs there are no price, efficiency, spending or volume variances. They set standard costs each month. In other words, when using absorption costing, they accurately determined they would produce 1,600 units in January, 1,500 in February and 1,600 in March.

1. Prepare income statements for Quarryman Corporation in January, February, and March 2020 using: (a) variable costing and (b) absorption costing. Prepare your income statement to the nearest dollar.

To keep it simple you can assume that the cost of product sold per unit in February and March is the same as cost of units produced during that month. In other words, you do not need to assume that 100 of the units sold in February were sold at Januarys cost per unit, and the same goes for March. This is the same as assuming the firm is using the LIFO inventory assumption.

2. Calculate and explain the difference in operating income for January, February, and March under variable costing and absorption costing. In other words, provide a reconciliation between the absorption costing and the variable costing operating income calculations. If the operating profit calculations are different, quantify the difference and explain where it is. Inevitably there may be some very minor rounding issues when you do a reconciliation. Do not be concerned with minor rounding issues. I will not deduct any points if your reconciliation is a few dollars off due to rounding.

Part II: The variable manufacturing costs per unit of Quarryman Corporation are as follows:

	January	February	March
Direct materials cost per unit	$535	$535	$535
Direct manufacturing labor cost per unit	$190	$190	$190
MOH cost per unit	$275	$275	$275
	$1,000	$1,000	$1,000

3. Prepare income statement for Quarryman Corporation in January, February and March 2020 under throughput costing.

4. Contrast the results of throughput costing with those of variable costing. If you calculate different profit figures, reconcile the difference. In other words, tell me where the difference is, and quantify it. Again, do not be concerned with minor rounding issues, as they are not material.

5. Once again, you are controller of this organization. Your boss, the general manager, has suddenly taken an interest in this activity. He or she says to you: I really like this idea. Theres only one requirement for me to approve this. I would like the option of selecting which method we use each year. For example, one year I might think absorption costing is the best way to display our results to headquarters. Another year I might think throughput costing is the way to show our results. Give me that choice, and we can go ahead with this idea. Are there any problems with your bosss idea? What would you tell him or her?