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    Exercise Inventory Costing

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    Ratri
    The document discusses Queen Sales, Inc.'s costs for its first year of operations totaling $155,600. It also provides cost information for Drexler Inc. and asks to calculate period costs under absorption and variable costing. Finally, it discusses Osawa Inc. and Zeta Company's costs under absorption and variable costing, asking to prepare income statements and recommend a costing method for Zeta.

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    Exercise Inventory Costing

    Uploaded by

    Ratri
    20 views2 pages
    The document discusses Queen Sales, Inc.'s costs for its first year of operations totaling $155,600. It also provides cost information for Drexler Inc. and asks to calculate period costs under absorption and variable costing. Finally, it discusses Osawa Inc. and Zeta Company's costs under absorption and variable costing, asking to prepare income statements and recommend a costing method for Zeta.

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    The document discusses Queen Sales, Inc.'s costs for its first year of operations totaling $155,600. It also provides cost information for Drexler Inc. and asks to calculate period costs under absorption and variable costing. Finally, it discusses Osawa Inc. and Zeta Company's costs under absorption and variable costing, asking to prepare income statements and recommend a costing method for Zeta.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    20 views2 pages

    Exercise Inventory Costing

    Uploaded by

    Ratri
    The document discusses Queen Sales, Inc.'s costs for its first year of operations totaling $155,600. It also provides cost information for Drexler Inc. and asks to calculate period costs under absorption and variable costing. Finally, it discusses Osawa Inc. and Zeta Company's costs under absorption and variable costing, asking to prepare income statements and recommend a costing method for Zeta.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    9-17 Queen Sales, Inc. has just completed its first year of operations.

    The company
    has not had any sales to date. Queen has incurred the following costs associated with
    its production as of December 31, Year 1:

    Direct materials $45,000


    Production labor 35,000
    Bookkeeper salary 28,000
    Factory utilities 18,500
    Office rent 12,000
    Factory supervisor salary 9,600
    Machine maintenance contract 7,500

    Under absorption costing, what is the inventory amount shown on the balance sheet at
    December 31, Year 1?
    a. $155,600
    b. $115,600
    c. $98,500
    d. $80,000

    9-19 The following information relates to Drexler Inc.’s Year 3 financials:

    Direct labor $420,000


    Direct materials 210,000
    Variable overhead 205,000
    Fixed overhead 355,000
    Variable SG&A expenses 150,000
    Fixed SG&A expenses 195,000

    Year 3 period costs for Drexler, under both the absorption and variable cost methods,
    will be

    Absorption Cost Method Variable Cost Method


    a. $345,000 $700,000
    b. $345,000 $905,000
    c. $550,000 $700,000
    d. $550,000 $905,000
    9-26 Absorption and variable costing. (CMA) Osawa, Inc., planned and actually
    manufactured 200,000 units of its single product in 2014, its first year of operation.
    Variable manufacturing cost was $20 per unit produced. Variable operating
    (nonmanufacturing) cost was $10 per unit sold. Planned and actual fixed
    manufacturing costs were $600,000. Planned and actual fixed operating
    (nonmanufacturing) costs totaled $400,000. Osawa sold 120,000 units of product at
    $40 per unit.

    Required:
    1. Osawa’s 2014 operating income using absorption costing is (a) $440,000, (b)
    $200,000, (c) $600,000, (d) $840,000, or (e) none of these. Show supporting
    calculations.
    2. Osawa’s 2014 operating income using variable costing is (a) $800,000, (b)
    $440,000, (c) $200,000, (d) $600,000, or (e) none of these. Show supporting
    calculations.

    9-25 Variable versus absorption costing. The Zeta Company manufactures trendy,
    good-looking, moderately priced umbrellas. As Zeta’s senior financial analyst, you
    are asked to recommend a method of inventory costing. The CFO will use your
    recommendation to prepare Zeta’s 2017 income statement. The following data are for
    the year ended December 31, 2017:

    Beginning inventory, January 1, 2017 100,000 units


    Ending inventory, December 31, 2017 50,000 units
    2017 sales 400,000 units
    Selling price (to distributor) $25 per unit
    Variable manufacturing cost per unit, including direct $6 per unit
    materials
    Variable operating (marketing) cost per unit sold $2 per unit sold
    Fixed manufacturing costs $1,625,000
    Denominator-level machine-hours 6,500
    Standard production rate 50 units per machine-
    hour
    Fixed operating (marketing) costs $1,100,000

    Required:
    Assume standard costs per unit are the same for units in beginning inventory and units
    produced during the year. Also, assume no price, spending, or efficiency variances.
    Any production-volume variance is written off to cost of goods sold in the month in
    which it occurs.
    1. Prepare income statements under variable and absorption costing for the year
    ended December 31, 2017.
    2. What is Zeta’s operating income as percentage of revenues under each costing
    method?
    3. Explain the difference in operating income between the two methods.
    4. Which costing method would you recommend to the CFO? Why?

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