ACCT 301 Lecture Notes - Total Absorption Costing
Document Summary
Get access
Related Documents
Related Questions
| Outback, Ltd., manufactures tactical LED flashlights in Melbourne, Australia. The firm uses an absorption-costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding planned and actual operations for 20x4 follow: |
|
| Budgeted Costs | ||||||||
|
| |||||||||
| Per Unit | Total | Actual Costs | |||||||
| Direct material | $ | 12.20 | $ | 1,634,800 | $ | 1,512,800 | |||
| Direct labor | 9.30 | 1,246,200 | 1,153,200 | ||||||
| Variable manufacturing overhead | 4.30 | 576,200 | 533,200 | ||||||
| Fixed manufacturing overhead | 4.50 | 603,000 | 613,000 | ||||||
| Variable selling expenses | 7.50 | 1,005,000 | 877,500 | ||||||
| Fixed selling expenses | 7.80 | 1,045,200 | 1,045,200 | ||||||
| Variable administrative expenses | 2.80 | 375,200 | 327,600 | ||||||
| Fixed administrative expenses | 2.80 | 375,200 | 384,200 | ||||||
|
| |||||||||
| Total | $ | 51.20 | $ | 6,860,800 | $ | 6,446,700 | |||
|
| |||||||||
| Planned Activity | Actual Activity | |||
| Sales in units | 134,000 | 117,000 | ||
| Production in units | 134,000 | 124,000 | ||
| Beginning finished-goods inventory in units | 43,000 | 43,000 | ||
| The budgeted per-unit cost figures were based on the company producing and selling 134,000 units in 20x4. Outback uses a predetermined overhead rate for applying manufacturing overhead to its product. A total manufacturing overhead rate of $8.80 per unit was employed for absorption costing purposes in 20x4. Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year. The 20x4 beginning finished-goods inventory for absorption costing purposes was valued at the 20x3 budgeted unit manufacturing cost, which was the same as the 20x4 budgeted unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for 20x4 was $72.00 per unit. |
| Required: |
| 1. | Compute the value of Outbackâs 20x4 ending finished-goods inventory under absorption costing. (Do not round intermediate calculations.) |
| 2. | Compute the value of Outbackâs 20x4 ending finished-goods inventory under variable costing. (Do not round intermediate calculations.) |
| 3. | Compute the difference between Outbackâs 20x4 reported operating income calculated under absorption costing and calculated under variable costing. (Do not round intermediate calculations.) |
1. Anderson Ltd. manufacture gearboxes for use in cars. At thestart of the
year, the management of Anderson Ltd. estimated that its costswould be:
This was based on the following:
| Direct labour Direct material Variable production overhead Fixed production overhead Administration overhead | 8 50 8 12 5 |
80 employees
2000 hours worked by each employee
40 000 gearboxes manufactured in the year as budgetedproduction
£200 unit selling price.
You have recently been employed by the company to establish astandard
costing system. At the end of the year you were able to extractthe
following information:
⢠labour costs £4.40/hour
⢠32 000 units sold
⢠£210/unit selling price
⢠160 000 hours were worked
⢠variable production overheads were £640 000
⢠fixed production overheads were £810 000
⢠administration costs were £350 000
⢠raw material prices were 10% higher than expected
⢠total expenditure on raw material was £3.696 M
⢠there were no opening or closing stocks of raw materials.
(a) You are required to prepare an operating statement for theyear, using
a standard absorption costing system.
Calculations should proceed according to the followingheadings
suffixing âAâ for Adverse and âFâ for Favourable whereappropriate.
Resulting quantities required for the statement are then enteredin the
âOperating Statement for the Yearâ sheet shown on page 6.
(All working must be shown.)
(Budgeted) Costs
Unit cost
£
Direct labour
Direct materials
Variable overhead
Fixed overhead
Admin. overhead
Total
Selling price
Standard profit (per unit)
Budgeted profit
Sales price variance
Sales quantity variance
Cost Variances
Labour Variances
Standard hours =
Standard cost/hour =
Rate variance =
Standard time =
Actual time =
Time variance =
Efficiency variance =
Material Variances
Material price =
Material usage â standard =
â actual =
Material usage variance =
Variable overheads
Standard cost =
Actual cost =
Expenditure variance =
Efficiency variance =
Fixed overheads
Expenditure variance =
Volume variance =
Admin overhead (treat as fixed)
Expenditure variance =
Volume variance =
Operating Statement for the Year
壉000 壉000
Budgeted Profit
Sales variance âprice
â quantity
Cost variances
Labour â rate
â efficiency
Material â price
â usage
Variable â expenditure
â efficiency
Fixed â expenditure
â volume
Admin â expenditure
â volume
Actual Profit
(b) Give reasons/explanations why the variances in (a) abovehave
occurred for the following:
(i) material price
(ii) labour efficiency
(iii) fixed overhead expenditure.
(c) The accountant suggests that a standard marginal costingsystem may
be more suitable. He asks you to outline the strengths and
weaknesses of both systems and recommend the most suitable.
(d) The Board of Anderson Ltd. want to adopt âidealâ standardsbecause
they feel it will encourage harder work. You are asked toproduce a
brief report giving your views.