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Management Accounting

Tutorial Question 8.15 and 8.19
by

maisarah abedin

on 17 October 2012

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Transcript of Management Accounting

Tutorial Question 8.15 and 8.19 Management Accounting
CTEB 2203 Easton Pump Company’s planned production for the year just
ended was 20,000 units. This production level was achieved,
and 21,000 units were sold. Other data follow:

Direct material used………………..................…………………...$600,000
Direct labor incurred…………………..…………………….....…......300,000
Fixed manufacturing overhead…………………..……………..….420,000
Variable manufacturing overhead……………….......……….…200,000
Fixed selling and administrative expenses………...…….…..350,000
Variable selling and administrative expenses..………….…105,000
Finished-goods inventory, January 1………………….……2,000 units

There were no work-in-process inventories at the beginning or
end of the year. 1.       What would be Easton Pump Company’s finished-goods inventory cost on December 31 under the variable-costing method? 2.  Which costing method, absorption or variable costing, would show a higher operating income for the year? By that amount? Name: Maisarah binti Zainon Abedin
Matric No: CEB110091
Lecturer's Name: Dr. Kamisah binti Ismail Finished-goods inventory, January 1 2,000 units
Add: Units Produced 20,000 units
Total Produced 22,000 units
Less: Units Sold 21,000 units
Finished-goods inventory, December 31 1, 000 units

Variable costing:
Direct material used $600,000
Direct labor incurred 300,000
Variable manufacturing overhead 200,000
Total 1,100,000

Cost per unit produced = $1,100,000
20,000 units

= $55 per unit Absorption costing:
Predetermined fixed-overhead rate = fixed manufacturing overhead
planned production
= $420,000
20,000 units
= $21

Difference in fixed overhead
expensed under absorption = Change in inventory in units x
and variable costing Predetermined fixed-overhead rate
= 1,000 units x $21
= $21,000 Since inventory increased during the year, income reported under absorption costing will be $21,000 higher than income reported under variable costing. Ending inventory:
1,000 units x $55 per unit = $55,000 Inventoriable costs under
absorption costing:

Direct material used $420,000
Direct labor 90,000
Variable manufacturing overhead 75,000
Fixed manufacturing overhead 240,000
Total 825,000


Inventoriable costs under
variable costing:

Direct material used $420,000
Direct labor 90,000
Variable manufacturing overhead 75,000
Total 585,000 Information taken from Anatolian Pipe Company's records for the most recent year is as follows:

Direct material used.......................................$420,000
Direct labor...........................................................90,000
Variable manufacturing overhead....................75,000
Fixed manufacturing overhead........................240,000
Variable selling and administrative costs.......40,000
Fixed selling and administrative costs.............37,000 1.  Assuming Anatolian Pipe Company uses absorption costing, compute the inventoriable
costs for the year.

2.  Compute the year's inventoriable costs using variable costing. THE END QUESTION 8.15 QUESTION 8.19 FACULTY OF BUSINESS AND ACCOUNTANCY REFERENCES Hilton, R.W., & Platt, D.E. (2011). Managerial Accounting. 9th ed.
McGraw-Hill

Hansen, D.R. & Mowen, M. M. (2007). Management Accounting.
8th ed. Thomson Learning.
Full transcript