Cost Accounting
A Managerial Emphasis
14thEdition
Questions & Solutions
Charles T. Horngren
Srikant M. Datar
Madhav V . RajanInventory Costing and Capacity AnalysisChapter - 9 Assignment Material
Questions
9-1 Differences in operating income between variable costing and absorption costing are due solely
to accounting for fixed costs. Do you agree? Explain.
9-2 Why is the term direct costing a misnomer?
9-3 Do companies in either the service sector or the merchandising sector make choices about
absorption costing versus variable costing?
9-4 Explain the main conceptual issue under variable costing and absorption costing regarding the
timing for the release of fixed manufacturing overhead as expense.
9-5 “Companies that make no variable-cost/fixed-cost distinctions must use absorption costing, and thosethat do make variable-cost/fixed-cost distinctions must use variable costing.” Do you agree? Explain. ASSIGNMENT MA
TERIAL /H17033329
9-6 The main trouble with variable costing is that it ignores the increasing importance of fixed costs in
manufacturing companies. Do you agree? Why?
9-7 Give an example of how
, under absorption costing, operating income could fall even though the
unit sales level rises.
9-8 What are the factors that affect the breakeven point under (a) variable costing and (b) absorp-tion costing?
9-9 Critics of absorption costing have increasingly emphasized its potential for leading to undesirableincentives for managers. Give an example.
9-1
0What are two ways of reducing the negative aspects associated with using absorption costing toevaluate the performance of a plant manager?
9-1
1What denominator
-level capacity concepts emphasize the output a plant can supply? What
denominator-level capacity concepts emphasize the output customers demand for products pro-duced by a plant?
9-1
2Describe the downward demand spiral and its implications for pricing decisions.
9-1
3Will the financial statements of a company always differ when different choices at the start of theaccounting period are made regarding the denominator
-level capacity concept?
9-1
4What is the IRS’
s requirement for tax reporting regarding the choice of a denominator-level
capacity concept?
9-1
5“The difference between practical capacity and master
-budget capacity utilization is the best
measure of management’s ability to balance the costs of having too much capacity and having toolittle capacity.” Do you agree? Explain.
Exercises
9-1
6Va
riable and absorpti on costi ng, explai ning operati ng-income di fferences. Nascar Motors assembles
and sells motor vehicles and uses standard costing. Actual data relating to April and May 2011 are as follows:
1
2345678
9
10
11D C B A
April May
Unit data Beginning inventory 0 150
0 0 4 0 0 5 n o i t c u d o r P
0 2 5 0 5 3 s e l a S
Variable costs Manufacturing cost per unit produced 10,000 $ 10,000 Operating (marketing) cost per unit sold 3,000 3,000Fixed costs Manufacturing costs $2,000,000 $2,000,000 Operating (marketing) costs 600,000 600,000$
The selling price per vehicle is $24,000. The budgeted level of production used to calculate the budgeted
fixed manufacturing cost per unit is 500 units. There are no price, efficiency
, or spending variances. Any
production-volume variance is written off to cost of goods sold in the month in which it occurs.
Required 1.Prepare April and May 2011 income statements for Nascar Motors under (a) variable costing and(b)
absorption costing.
2.Prepare a numerical reconciliation and explanation of the difference between operating income foreach month under variable costing and absorption costing.
9-1
7Throughput costing (continuation of 9-16). The variable manufacturing costs per unit of Nascar
Motors are as follows:
1
789C B A
April
May
Direct material cost per unit $6,700 $6,700
Direct manufacturing labor cost per unit 1,500 1,500
Manufacturing overhead cost per unit 1,800 1,800
A Managerial Emphasis
14thEdition
Questions & Solutions
Charles T. Horngren
Srikant M. Datar
Madhav V . RajanInventory Costing and Capacity AnalysisChapter - 9 Assignment Material
Questions
9-1 Differences in operating income between variable costing and absorption costing are due solely
to accounting for fixed costs. Do you agree? Explain.
9-2 Why is the term direct costing a misnomer?
9-3 Do companies in either the service sector or the merchandising sector make choices about
absorption costing versus variable costing?
9-4 Explain the main conceptual issue under variable costing and absorption costing regarding the
timing for the release of fixed manufacturing overhead as expense.
9-5 “Companies that make no variable-cost/fixed-cost distinctions must use absorption costing, and thosethat do make variable-cost/fixed-cost distinctions must use variable costing.” Do you agree? Explain. ASSIGNMENT MA
TERIAL /H17033329
9-6 The main trouble with variable costing is that it ignores the increasing importance of fixed costs in
manufacturing companies. Do you agree? Why?
9-7 Give an example of how
, under absorption costing, operating income could fall even though the
unit sales level rises.
9-8 What are the factors that affect the breakeven point under (a) variable costing and (b) absorp-tion costing?
9-9 Critics of absorption costing have increasingly emphasized its potential for leading to undesirableincentives for managers. Give an example.
9-1
0What are two ways of reducing the negative aspects associated with using absorption costing toevaluate the performance of a plant manager?
9-1
1What denominator
-level capacity concepts emphasize the output a plant can supply? What
denominator-level capacity concepts emphasize the output customers demand for products pro-duced by a plant?
9-1
2Describe the downward demand spiral and its implications for pricing decisions.
9-1
3Will the financial statements of a company always differ when different choices at the start of theaccounting period are made regarding the denominator
-level capacity concept?
9-1
4What is the IRS’
s requirement for tax reporting regarding the choice of a denominator-level
capacity concept?
9-1
5“The difference between practical capacity and master
-budget capacity utilization is the best
measure of management’s ability to balance the costs of having too much capacity and having toolittle capacity.” Do you agree? Explain.
Exercises
9-1
6Va
riable and absorpti on costi ng, explai ning operati ng-income di fferences. Nascar Motors assembles
and sells motor vehicles and uses standard costing. Actual data relating to April and May 2011 are as follows:
1
2345678
9
10
11D C B A
April May
Unit data Beginning inventory 0 150
0 0 4 0 0 5 n o i t c u d o r P
0 2 5 0 5 3 s e l a S
Variable costs Manufacturing cost per unit produced 10,000 $ 10,000 Operating (marketing) cost per unit sold 3,000 3,000Fixed costs Manufacturing costs $2,000,000 $2,000,000 Operating (marketing) costs 600,000 600,000$
The selling price per vehicle is $24,000. The budgeted level of production used to calculate the budgeted
fixed manufacturing cost per unit is 500 units. There are no price, efficiency
, or spending variances. Any
production-volume variance is written off to cost of goods sold in the month in which it occurs.
Required 1.Prepare April and May 2011 income statements for Nascar Motors under (a) variable costing and(b)
absorption costing.
2.Prepare a numerical reconciliation and explanation of the difference between operating income foreach month under variable costing and absorption costing.
9-1
7Throughput costing (continuation of 9-16). The variable manufacturing costs per unit of Nascar
Motors are as follows:
1
789C B A
April
May
Direct material cost per unit $6,700 $6,700
Direct manufacturing labor cost per unit 1,500 1,500
Manufacturing overhead cost per unit 1,800 1,800
