Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

With the information given above (reference Ch. 9: Inventory Costing and Capacity Analysis in cost accounting) in excel solve the following questions. Be sure to

image text in transcribed

With the information given above (reference Ch. 9: Inventory Costing and Capacity Analysis in cost accounting) in excel solve the following questions. Be sure to include the formulas.

image text in transcribed

rate. INVENTORY COSTING & CAPACITY ANALYSIS Free work cells Overhead Allocation with Capacity Considerations Answer cells Jeanie Smith is the plant controller for Castle Lager Brewery, a privately-held brewery in New England. Castle is considering raising capital in the upcoming year so Jeanie is taking a serious look at how her accounting practices might affect the reported income for the company. Castle uses normal job costing, i.e. overhead is allocated into production using a budgeted allocation rate per barrel. All overhead variances are written off to COGS at year-end. Jeanie wants to examine how using different denominator-levels in the budgeted allocation rate FOR FIXED COSTS might affect the income for the company. OPTION 1: VARIABLE COSTING Under Variable Costing, only variable manufacturing costs are treated as product costs and are capitalized into inventory (i.e. initially recorded as inventory assets and later expensed as COGS). Any fixed manufacturing costs incurred are treated as period costs and are immediately expensed as COGS. Since no fixed cost is allocaed into inventory, under Variable Costing there is no fixed overhead allocation OPTION 2: ABSORPTION COSTING, Under Absorption Costing, both variable and fixed manufacturing costs are treated as product costs and THEORETICAL CAPACITY are capitalizaed into inventory (i.e. initially recorded as inventory assets and later expensed as COGS). "Theoretical Capacity" represents the volume that a factory could hypothetically produce at full efficiency, 100% utilization, and ideal conditions. OPTION 3: ABSORPTION COSTING, PRACTICAL Under Absorption Costing, both variable and fixed manufacturing costs are treated as product costs and CAPACITY are capitalizaed into inventory (i.e. initially recorded as inventory assets and later expensed as COGS). "Practical Capacity" represents a factory's theoretical capacity adjusted for (reduced for) unavoidable stoppages, scheduled maintenance, and holidays and weekends. OPTION 4: ABSORPTION COSTING, NORMAL Under Absorption Costing, both variable and fixed manufacturing costs are treated as product costs and CAPACITY are capitalizaed into inventory (i.e. initially recorded as inventory assets and later expensed as COGS). "Normal Capacity" represents the average demand level over several years, considering season, cyclical and trend information. OPTION 5: ABSORPTION COSTING, BUDGETED VOLUME Under Absorption Costing, both variable and fixed manufacturing costs are treated as product costs and are capitalizaed into inventory (i.e. initially recorded as inventory assets and later expensed as COGS). "Budgeted Volume" represents the current year's expected demand level. The Brewery is able to produce 0.5 barrels per hour at maximum efficiency. Due to unavoidable operating interruptions, production actually averages 0.475 barrels per working hour. There are three 8-hour shifts each day. Due to union and legal restrictions, the plant actually operates three 7-hour shifts per day and works 28 days per 30-day average month. Based on the current budget, Castle estimates that it will only be able to sell only 2,500 barrels this year but that demand in the future will normalize around 2,800 barrels. Answer cells must remain in the same location so do not insertidelete columns or rows in the file. Unless otherwise indicated, numerio answers must include a formula or refere REQUIRED: For each option: 1. Calculate the fixed overhead allocation rate that will be established at the beginning of the year. 2. Calculate the amount of fixed overhead that will be allocated into inventory throughout the year. 3. Calculate the amount of over-or (under-) allocated fixed overhead for the year. 4. Calculate the amount of fixed overhead that will be (1) expensed to COGS for units sold and (2) written off to COGS for under-allocation. OPTION 1 VARIABLE COSTING OPTION 2: OPTION 3: OPTION 4: OPTIONS: ABSORPTIO ABSORPTIO ABSORPTIO ABSORPTIO NCOSTING, NCOSTING, NCOSTING, NCOSTING, THEORETICA PRACTICAL NORMAL BUDGETED L CAPACITY CAPACITY CAPACITY VOLUME Budgeted Fixed Overhead Yvoan harteneriese numbers. Youndarteneruese numbers Denominator Level used in the Budgeted F-OH Allocation Rate Budgeted Fixed Overhead Allocation Rate $ $ $ $ Units produced Fixed Overhead Allocated into Inventory Actual fixed overhead Over-(Under-) allocated fixed overhead $ $ $ $ $ $ $ Fixed overhead expensed to COGS for sold units Fixed overhead written off to COGS (+for expense, - for benefit) Total Fixed overhead expensed in year $ REQUIRED: Complete the following statements: (Assuming that inventory levels are growing over time) As the denominator level increases, the allocation rate per unit As the denominator level increases, the amount of overhead booked into the value of inventory As the denominator level increases, the overhead expensed for sold units As the denominator level increases, the overhead expensed for under-allocated overhead As the denominator level increases, the total overhead expensed rate. INVENTORY COSTING & CAPACITY ANALYSIS Free work cells Overhead Allocation with Capacity Considerations Answer cells Jeanie Smith is the plant controller for Castle Lager Brewery, a privately-held brewery in New England. Castle is considering raising capital in the upcoming year so Jeanie is taking a serious look at how her accounting practices might affect the reported income for the company. Castle uses normal job costing, i.e. overhead is allocated into production using a budgeted allocation rate per barrel. All overhead variances are written off to COGS at year-end. Jeanie wants to examine how using different denominator-levels in the budgeted allocation rate FOR FIXED COSTS might affect the income for the company. OPTION 1: VARIABLE COSTING Under Variable Costing, only variable manufacturing costs are treated as product costs and are capitalized into inventory (i.e. initially recorded as inventory assets and later expensed as COGS). Any fixed manufacturing costs incurred are treated as period costs and are immediately expensed as COGS. Since no fixed cost is allocaed into inventory, under Variable Costing there is no fixed overhead allocation OPTION 2: ABSORPTION COSTING, Under Absorption Costing, both variable and fixed manufacturing costs are treated as product costs and THEORETICAL CAPACITY are capitalizaed into inventory (i.e. initially recorded as inventory assets and later expensed as COGS). "Theoretical Capacity" represents the volume that a factory could hypothetically produce at full efficiency, 100% utilization, and ideal conditions. OPTION 3: ABSORPTION COSTING, PRACTICAL Under Absorption Costing, both variable and fixed manufacturing costs are treated as product costs and CAPACITY are capitalizaed into inventory (i.e. initially recorded as inventory assets and later expensed as COGS). "Practical Capacity" represents a factory's theoretical capacity adjusted for (reduced for) unavoidable stoppages, scheduled maintenance, and holidays and weekends. OPTION 4: ABSORPTION COSTING, NORMAL Under Absorption Costing, both variable and fixed manufacturing costs are treated as product costs and CAPACITY are capitalizaed into inventory (i.e. initially recorded as inventory assets and later expensed as COGS). "Normal Capacity" represents the average demand level over several years, considering season, cyclical and trend information. OPTION 5: ABSORPTION COSTING, BUDGETED VOLUME Under Absorption Costing, both variable and fixed manufacturing costs are treated as product costs and are capitalizaed into inventory (i.e. initially recorded as inventory assets and later expensed as COGS). "Budgeted Volume" represents the current year's expected demand level. The Brewery is able to produce 0.5 barrels per hour at maximum efficiency. Due to unavoidable operating interruptions, production actually averages 0.475 barrels per working hour. There are three 8-hour shifts each day. Due to union and legal restrictions, the plant actually operates three 7-hour shifts per day and works 28 days per 30-day average month. Based on the current budget, Castle estimates that it will only be able to sell only 2,500 barrels this year but that demand in the future will normalize around 2,800 barrels. Answer cells must remain in the same location so do not insertidelete columns or rows in the file. Unless otherwise indicated, numerio answers must include a formula or refere REQUIRED: For each option: 1. Calculate the fixed overhead allocation rate that will be established at the beginning of the year. 2. Calculate the amount of fixed overhead that will be allocated into inventory throughout the year. 3. Calculate the amount of over-or (under-) allocated fixed overhead for the year. 4. Calculate the amount of fixed overhead that will be (1) expensed to COGS for units sold and (2) written off to COGS for under-allocation. OPTION 1 VARIABLE COSTING OPTION 2: OPTION 3: OPTION 4: OPTIONS: ABSORPTIO ABSORPTIO ABSORPTIO ABSORPTIO NCOSTING, NCOSTING, NCOSTING, NCOSTING, THEORETICA PRACTICAL NORMAL BUDGETED L CAPACITY CAPACITY CAPACITY VOLUME Budgeted Fixed Overhead Yvoan harteneriese numbers. Youndarteneruese numbers Denominator Level used in the Budgeted F-OH Allocation Rate Budgeted Fixed Overhead Allocation Rate $ $ $ $ Units produced Fixed Overhead Allocated into Inventory Actual fixed overhead Over-(Under-) allocated fixed overhead $ $ $ $ $ $ $ Fixed overhead expensed to COGS for sold units Fixed overhead written off to COGS (+for expense, - for benefit) Total Fixed overhead expensed in year $ REQUIRED: Complete the following statements: (Assuming that inventory levels are growing over time) As the denominator level increases, the allocation rate per unit As the denominator level increases, the amount of overhead booked into the value of inventory As the denominator level increases, the overhead expensed for sold units As the denominator level increases, the overhead expensed for under-allocated overhead As the denominator level increases, the total overhead expensed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting, Chapters 1-13

Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac

25th Edition

1285069625, 9781285069623

More Books

Students also viewed these Accounting questions

Question

Explain the role of research design in HRD evaluation

Answered: 1 week ago