The McKnight Company uses an absorption-costing system based on standard costs. Total variable manufacturing cost, including direct material cost, is $3 per unit; the standard production rate is 10 units per machine-hour. Total budgeted and actual fixed manufacturing overhead costs are $330,000. Fixed manufacturing overhead is allocated at $6 per machine-hour ($330,000 / 55,000 machine-hours of denominator level). Selling price is $5 per unit. Variable operating (nonmanufacturing) cost, which is driven by units sold, is $1 per unit. Fixed operating (nonmanufacturing) costs are $160,000. Beginning inventory in 2014 is 45,000 units; ending inventory is 50,000 units. Sales in 2014 are 490,000 units. The same standard unit costs persisted throughout 2013 and 2014. For simplicity, assume that there are no price, spending, or efficiency variances. Read the requirements. Requirement 1. Prepare an income statement for 2014 assuming that the production-volume variance is written off at year-end as an adjustment to cost of goods sold. Complete the top half of the income statement first, then complete the bottom portion. (Label the variance as favorable (F) or unfavorable (U).) ine Oon Company uses an absorION-COSUINO SVsem based on standard COSIS Total variable i X Requirements 1. 2. 3. 4. Prepare an income statement for 2014 assuming that the production-volume variance is written off at year-end as an adjustment to cost of goods sold. The president has heard about variable costing. She asks you to recast the 2014 statement as it would appear under variable costing. Explain the difference in operating income as calculated in requirements 1 and 2. Graph how fixed manufacturing overhead is accounted for under absorption costing. That is, there will be two lines: one for the budgeted fixed manufacturing overhead (which is equal to the actual fixed manufacturing overhead in this case) and one for the fixed manufacturing overhead allocated. Show the production-volume variance in the graph. Critics have claimed that a widely used accounting system has led to undesirable buildups of inventory levels. (a) Is variable costing or absorption costing more likely to lead to such buildups? Why? (b) What can be done to counteract undesirable inventory buildups? 5. Print Done Certe aronn henglama andaw the instructions to create your aranh Absorption costing Requirement 2. The president has heard about variable costing. She asks you to recast the 2014 statement as it would appear under variable costing. Complete the top half of the income statement first, then complete the bottom portion. (Enter a "0" for any $0 balances.) Variable costing MT Requirement 3. Explain the difference in operating income as calculated in requirements 1 and 2. The difference between absorption and variable costing is due solely to moving into inventories as inventories and out of inventories as they Requirement 4. Graph how fixed manufacturing overhead is accounted for under absorption costing. That is, there will be two lines: one for the budgeted fixed manufacturing overhead (which is equal to the actual fixed manufacturing overhead in this case) and one for the fixed manufacturing overhead allocated. Show the production-volume variance in the graph. Begin by drawing two lines: one for the budgeted fixed manufacturing overhead and one for the fixed manufacturing overhead allocated. Next shade the areas, by selecting the region shading tool, that would represent the favorable and unfavorable production-volume variance areas. Lastly, label the two lines and two shaded areas. (Enlarge the graph to medium size and use the line tool and region shading tool buttons displayed to draw the graph.) X /S Click the graph, choose a tool in the palette and follow the instr... IC C q - Delete $450,000 $425,000 $400,000 $375,000 $350,000 $325,000 $300,000 $275,000 $250,000 $225,000 $200,000 $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 $0+ 0 Clear Selected: none ed CO 15,000 30,000 45,000 Machine-hours 60,000 75,000 to Save Cancel Requirement 5. Critics have claimed that a widely used accounting system has led to undesirable buildups of inventory levels. (a) Is variable costing or absorption costing more likely to lead to such buildups? Why? (b) What can be done to counteract undesirable inventory buildups? a) Is variable costing or absorption costing more likely to lead to such buildups? Why? by building up inventory which costing is more likely to lead to buildups of inventory. enables managers to included in the current period's cost of goods sold. (b) Select three things that can be done to counteract undesirable inventory buildups. The McKnight Company uses an absorption-costing system based on standard costs. Total variable manufacturing cost, including direct material cost, is $3 per unit; the standard production rate is 10 units per machine-hour. Total budgeted and actual fixed manufacturing overhead costs are $330,000. Fixed manufacturing overhead is allocated at $6 per machine-hour ($330,000 / 55,000 machine-hours of denominator level). Selling price is $5 per unit. Variable operating (nonmanufacturing) cost, which is driven by units sold, is $1 per unit. Fixed operating (nonmanufacturing) costs are $160,000. Beginning inventory in 2014 is 45,000 units; ending inventory is 50,000 units. Sales in 2014 are 490,000 units. The same standard unit costs persisted throughout 2013 and 2014. For simplicity, assume that there are no price, spending, or efficiency variances. Read the requirements. Requirement 1. Prepare an income statement for 2014 assuming that the production-volume variance is written off at year-end as an adjustment to cost of goods sold. Complete the top half of the income statement first, then complete the bottom portion. (Label the variance as favorable (F) or unfavorable (U).) ine Oon Company uses an absorION-COSUINO SVsem based on standard COSIS Total variable i X Requirements 1. 2. 3. 4. Prepare an income statement for 2014 assuming that the production-volume variance is written off at year-end as an adjustment to cost of goods sold. The president has heard about variable costing. She asks you to recast the 2014 statement as it would appear under variable costing. Explain the difference in operating income as calculated in requirements 1 and 2. Graph how fixed manufacturing overhead is accounted for under absorption costing. That is, there will be two lines: one for the budgeted fixed manufacturing overhead (which is equal to the actual fixed manufacturing overhead in this case) and one for the fixed manufacturing overhead allocated. Show the production-volume variance in the graph. Critics have claimed that a widely used accounting system has led to undesirable buildups of inventory levels. (a) Is variable costing or absorption costing more likely to lead to such buildups? Why? (b) What can be done to counteract undesirable inventory buildups? 5. Print Done Certe aronn henglama andaw the instructions to create your aranh Absorption costing Requirement 2. The president has heard about variable costing. She asks you to recast the 2014 statement as it would appear under variable costing. Complete the top half of the income statement first, then complete the bottom portion. (Enter a "0" for any $0 balances.) Variable costing MT Requirement 3. Explain the difference in operating income as calculated in requirements 1 and 2. The difference between absorption and variable costing is due solely to moving into inventories as inventories and out of inventories as they Requirement 4. Graph how fixed manufacturing overhead is accounted for under absorption costing. That is, there will be two lines: one for the budgeted fixed manufacturing overhead (which is equal to the actual fixed manufacturing overhead in this case) and one for the fixed manufacturing overhead allocated. Show the production-volume variance in the graph. Begin by drawing two lines: one for the budgeted fixed manufacturing overhead and one for the fixed manufacturing overhead allocated. Next shade the areas, by selecting the region shading tool, that would represent the favorable and unfavorable production-volume variance areas. Lastly, label the two lines and two shaded areas. (Enlarge the graph to medium size and use the line tool and region shading tool buttons displayed to draw the graph.) X /S Click the graph, choose a tool in the palette and follow the instr... IC C q - Delete $450,000 $425,000 $400,000 $375,000 $350,000 $325,000 $300,000 $275,000 $250,000 $225,000 $200,000 $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 $0+ 0 Clear Selected: none ed CO 15,000 30,000 45,000 Machine-hours 60,000 75,000 to Save Cancel Requirement 5. Critics have claimed that a widely used accounting system has led to undesirable buildups of inventory levels. (a) Is variable costing or absorption costing more likely to lead to such buildups? Why? (b) What can be done to counteract undesirable inventory buildups? a) Is variable costing or absorption costing more likely to lead to such buildups? Why? by building up inventory which costing is more likely to lead to buildups of inventory. enables managers to included in the current period's cost of goods sold. (b) Select three things that can be done to counteract undesirable inventory buildups