405 Chapter 9

Paris Perfumes has provided the following data for the previous year: Units sold during the previous year 25,000 units Selling price per unit $75 Direct materials per unit $35 Direct manufacturing labor per unit $10 Variable manufacturing overhead per unit $5 Fixed manufacturing costs $250,000 Budgeted production at the beginning of the year 27,000 units Variable marketing cost per unit $3 Fixed marketing cost $30,000 Number of units in opening inventory 0 Number of units in ending inventory 2,000 units What was the throughput margin for the previous year for Paris Perfumes?

$1,000,000

Cherrystone Pottery has provided the following data for the previous year: Units sold during the previous year 25,000 units Selling price per unit $85 Direct materials per unit $35 Direct manufacturing labor per unit $15 Variable manufacturing overhead per unit $10 Fixed manufacturing costs $250,000 Budgeted production at the beginning of the year 27,000 units Variable marketing cost per unit $3 Fixed marketing cost $30,000 Number of units in opening inventory 0 Number of units in ending inventory 2,000 units What was the throughput margin for the previous year for Cherrystone Pottery?

$1,250,000

Albatro Switches has provided the following data for the previous year: Units sold during the previous year 5,000 units Selling price per unit $10 Direct materials per unit $2 Direct manufacturing labor per unit $2 Variable manufacturing overhead per unit $1 Fixed manufacturing costs $8,000 Budgeted production at the beginning of the year 5,000 units Number of units in opening inventory 0 units Number of units in ending inventory 1,000 units Assuming that Albatro Switches uses master-budget capacity utilization for determining denominator-level of activity, what was the production-volume variance for the previous year?

$1,600 F

Wood Products Inc. has provided the following data for the previous year: Units sold during the previous year 12,000 units Selling price per unit $125 Direct materials per unit $25 Direct manufacturing labor per unit $20 Variable manufacturing overhead per unit $40 Fixed manufacturing costs $150,000 Budgeted production at the beginning of the year 15,000 units Variable marketing cost per unit $5 Fixed marketing cost $25,000 Number of units in opening inventory 0 Number of units in ending inventory 3,000 units What was the profit of Wood Products Inc. for the previous year if the method of inventory costing adopted was absorption costing?

$275,000

Gilbert Novelties has provided the following data for the previous year: Units sold during the previous year 5,000 units Selling price per unit $20 Direct materials per unit $4 Direct manufacturing labor per unit $4 Variable manufacturing overhead per unit $2 Fixed manufacturing costs $16,000 Budgeted production at the beginning of the year 5,000 units Number of units in opening inventory 0 units Number of units in ending inventory 1,000 units Assuming that Gilbert Novelties uses master-budget capacity utilization for determining denominator-level of activity, what was the production-volume variance for the previous year?

$3,200 F

Herb Nature Products has provided the following data for the previous year: Units sold during the previous year 10,000 units Selling price per unit $100 Direct materials per unit $25 Direct manufacturing labor per unit $15 Variable manufacturing overhead per unit $10 Fixed manufacturing costs $100,000 Budgeted production at the beginning of the year 12,000 units Variable marketing cost per unit $5 Fixed marketing cost $25,000 Number of units in opening inventory 0 unit Number of units in ending inventory 2,000 units What was the profit of Herb Nature Products for the previous year if the method of inventory costing was variable costing?

$325,000

Whistler Containers has provided the following data for the previous year: Units sold during the previous year 10,000 units Selling price per unit $200 Direct materials per unit $50 Direct manufacturing labor per unit $30 Variable manufacturing overhead per unit $20 Fixed manufacturing costs $200,000 Budgeted production at the beginning of the year 12,000 units Variable marketing cost per unit $10 Fixed marketing cost $50,000 Number of units in opening inventory 0 unit Number of units in ending inventory 2,000 units What was the profit of Whistler Containers for the previous year if the method of inventory costing was variable costing?

$650,000

Bethel Manufacturing has provided the following data for the previous year: Units sold during the previous year 12,000 units Selling price per unit $250 Direct materials per unit $50 Direct manufacturing labor per unit $40 Variable manufacturing overhead per unit $80 Fixed manufacturing costs $300,000 Budgeted production at the beginning of the year 15,000 units Variable marketing cost per unit $10 Fixed marketing cost $50,000 Number of units in opening inventory 0 Number of units in ending inventory 3,000 units What was the profit of Bethel Manufacturing for the previous year if the method of inventory costing adopted was absorption costing?

550,000

Which of the following is a true statement?

Absorption costing allows for more management manipulation of margins than does variable costing.

Jade Electronics has a budgeted manufacturing fixed cost of $1,000,000 for the upcoming budget period. The following particulars are provided. Theoretical capacity 1,000 units Practical capacity 800 units Average customer demand over next five years 900 units Expected capacity utilization for the current period 700 units Which of the following statements is most likely to be true for Jade Electronics?

Budgeted fixed cost per unit is highest when master-budget capacity utilization is used as denominator-level capacity.

Bertram Products has a budgeted manufacturing fixed cost of $2,000,000 for the upcoming budget period. The following particulars are provided. Theoretical capacity 1,000 units Practical capacity 800 units Average customer demand over next five years 900 units Expected capacity utilization for the current period 700 units Which of the following statements is most likely to be true for Bertram Products?

Budgeted fixed cost per unit is lowest when theoretical capacity is used as denominator-level capacity.

Which of the following statements is true in relation to capacity costs?

Capacity costs arise in both manufacturing and nonmanufacturing parts of the value chain. Capacity cost issues affect service-sector companies.

Which of the following statements is true in relation to variable and absorption costing?

Total inventoriable cost per unit produced will be higher under absorption costing as compared to variable costing.

Which of the following statements best defines absorption costing?

It is a method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.

Which of the following is NOT a challenge faced by companies when planning for and controlling capacity?

Practical capacity is a particularly challenging denominator level to predict. Managers cannot use engineering studies to estimate practical capacity.

Most proponents of activity-based costing argue that managers should use ________ as the denominator level to calculate activity cost rates.

practical capacity

For reasons such as ________, most proponents of activity-based costing argue that managers should use practical capacity as the denominator level to calculate activity cost rates.

pricing and capacity management

Absorption costing is a method of inventory costing in which all __________ are included as __________ costs.

variable manufacturing costs and all fixed manufacturing costs; inventoriable

Which of the following statements is true of absorption costing?

It enables a manager to increase margins and operating income by producing more ending inventory.

Which of the following is FALSE regarding the downward demand spiral?

It is typically found when a company uses theoretical capacity as a denominator level.

Sheen Industries has provided the following data for the previous year: Units sold during the previous year 5,000 units Selling price per unit $20 Direct materials per unit $4 Direct manufacturing labor per unit $4 Variable manufacturing overhead per unit $2 Fixed manufacturing costs $16,000 Budgeted production at the beginning of the year 5,000 units Number of units in opening inventory 0 unit Number of units in ending inventory 1,000 units The CEO of the company is of the opinion that the budgeted fixed manufacturing cost should be allocated on the basis of master-budget capacity utilization. However, the finance controller is of the opinion that budgeted fixed manufacturing cost should be allocated on the basis of practical capacity of 8,000 units. Which of the following statements is most likely to be true for Sheen Industries?

Production-volume variance will be $3,200 favorable in case master-budget capacity utilization is used as denominator base.

Brookville Company has provided the following data for the previous year: Units sold during the previous year 5,000 units Selling price per unit $40 Direct materials per unit $8 Direct manufacturing labor per unit $8 Variable manufacturing overhead per unit $4 Fixed manufacturing costs $32,000 Budgeted production at the beginning of the year 5,000 units Number of units in opening inventory 0 unit Number of units in ending inventory 1,000 units The CEO of the company is of the opinion that the budgeted fixed manufacturing cost should be allocated on the basis of master-budget capacity utilization. However, the finance controller is of the opinion that budgeted fixed manufacturing cost should be allocated on the basis of practical capacity of 8,000 units. Which of the following statements is most likely to be true for Brookville Company?

Production-volume variance will be $6,400 favorable in case master-budget capacity utilization is used as denominator base.

If Morsch Equipment had a closing stock of 500 units at the end of the year, which of the following statements will be true? Assume Morsch Equipment had no opening stock and there was no production-volume variance.

Profits under variable costing will be lower than profits under absorption costing.

Purcell Products has budgeted the following at the beginning of the previous year. Direct materials per unit $30.00 Direct manufacturing labor $50.00 Variable manufacturing overhead per unit $60.00 Fixed manufacturing cost per unit produced $60.00 Total inventoriable cost per unit produced $200.00 Out of 2,000 units produced in the previous year, only 1,700 units were sold at a price of $280. Which of the following statements is true for Purcell Products?

Profits will be higher under absorption costing by $18,000 as compared to profits under variable costing.