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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
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
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
Total 1,100,000

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

= \$55 per unit Absorption costing:
planned production
= \$420,000
20,000 units
= \$21

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
Total 825,000

Inventoriable costs under
variable costing:

Direct material used \$420,000
Direct labor 90,000
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