Assignment 1
Question #1
Consider the following information:
| |Q1 |Q2 |Q3 |
|Beginning inventory (units) |0 |300 |300 |
|Actual units produced |1,000 |800 |1,250 |
|Budgeted units to be produced |1,000 |1,000 |1,000 |
|Units sold |700 |800 |1,500 |
|Manufacturing costs per unit produced |$900 |$900 |$900 |
|Marketing costs per unit sold |$600 |$600 |$600 |
|Fixed manufacturing costs |$400,000 |$400,000 |$400,000 |
|Fixed marketing costs |$140,000 |$140,000 |$140,000 |
|Selling price per unit |$2,500 |$2,500 |$2,500 |
There are no price, efficiency, or spending variances, and any production-volume variance is directly written off to cost of goods in the quarter in which it occurs.
a) Prepare income statements for Q1, Q2, and Q3 using variable costing and absorption costing.
b) Explain the differences in operating income between the two costing systems for each quarter. Be specific!
Question #2
a) Under which inventory costing method would managers have an incentive to build excess inventory? Be sure to justify your answer.
b) What can a manager do to reduce the incentive to build excess inventory? Be specific!
Question #3
a) What role does the choice of capacity level impact income reported under variable costing? Be specific!
b) What role does the choice of capacity
Consider the following information:
| |Q1 |Q2 |Q3 |
|Beginning inventory (units) |0 |300 |300 |
|Actual units produced |1,000 |800 |1,250 |
|Budgeted units to be produced |1,000 |1,000 |1,000 |
|Units sold |700 |800 |1,500 |
|Manufacturing costs per unit produced |$900 |$900 |$900 |
|Marketing costs per unit sold |$600 |$600 |$600 |
|Fixed manufacturing costs |$400,000 |$400,000 |$400,000 |
|Fixed marketing costs |$140,000 |$140,000 |$140,000 |
|Selling price per unit |$2,500 |$2,500 |$2,500 |
There are no price, efficiency, or spending variances, and any production-volume variance is directly written off to cost of goods in the quarter in which it occurs.
a) Prepare income statements for Q1, Q2, and Q3 using variable costing and absorption costing.
b) Explain the differences in operating income between the two costing systems for each quarter. Be specific!
Question #2
a) Under which inventory costing method would managers have an incentive to build excess inventory? Be sure to justify your answer.
b) What can a manager do to reduce the incentive to build excess inventory? Be specific!
Question #3
a) What role does the choice of capacity level impact income reported under variable costing? Be specific!
b) What role does the choice of capacity