High Tension Transformers, Inc., manufactures heavy-duty transformers for electrical switching stations. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data: Year 1 Year 2 Year 3 Inventories: Beginning (units) 180 150 160 Ending (units) 150 160 200 Variable costing net operating income $292,400 $269,200 $251,800 The company’s fixed manufacturing overhead per unit was constant at $450 for all three years. Required: i. Determine each year’s absorption costing net operating income. Present your answer in the form of a reconciliation report. ii. In Year 4, the company’s variable costing net operating income was $240,200 and its absorption costing net operating income was $267,200. Did inventories increase or decrease during Year 4? How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
High Tension Transformers, Inc., manufactures heavy-duty transformers for electrical switching stations. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data:
Year 1 Year 2 Year 3 Inventories:
Beginning (units) 180 150 160 Ending (units) 150 160 200 Variable costing net operating income $292,400 $269,200 $251,800
The company’s fixed manufacturing
Required: i. Determine each year’s absorption costing net operating income. Present your answer in the form of a reconciliation report. ii. In Year 4, the company’s variable costing net operating income was $240,200 and its absorption costing net operating income was $267,200. Did inventories increase or decrease during Year 4? How much fixed
Sales $1,500,000 Variable expenses 588,000 Contribution margin 912,000 Fixed expenses 945,000 Net operating loss $ (33,000)
In an effort to isolate the problem, the president has asked for an income statement segmented by geographic market. Accordingly, the Accounting Department has developed the following data:
Geographic Market South Central North Sales $400,000 $600,000 $500,000 Variable expenses as a percentage of sales 52% 30% 40% Traceable fixed expenses $240,000 $330,000 $200,000
Required: i. Prepare a contribution format income statement segmented by geographic market, as desired by the president. ii. The company’s sales manager believes that sales in the Central geographic market could be increased by 15% if monthly advertising were increased by $25,000. Would you recommend the increased advertising? Show computations to support your answer.
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