Consider the Following Cost and Production Information for Barnard Steel

question 37

Essay

Consider the following cost and production information for Barnard Steel Building Company, Inc.
Additional information:
∙ Sales revenue: $20,000,000.
∙ Beginning inventory: $1,150,000.
∙ Sales of part D-1340: 80 units.
∙ Sales of all other parts are the same as the number of units produced.
∙ Sales price of part D-1340: $35,500 per unit
∙ The only spending increase was for materials cost due to increased production. All other spending as shown above was unchanged.
Barnard Steel Building Company uses the variable costing method.
Required:
(a) Compute the (1) contribution margin, (2) operating income, and (3) ending inventory for Barnard Steel Building Company.
(b) Assume that sales of part D-1340 increase by 30 units to 110 units during the given period (production remains constant). Re-compute the above amounts.
(c) Jaime Porter, the controller of Barnard Steel Building Company, is considering the use of absorption costing instead of variable costing to be in line with financial reporting requirements. She knows that the use of a different costing method will give rise to different incentives. Explain to her how alternative methods of calculating product costs create different incentives.

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Definitions:

Marginal Social Cost

The total cost to society, including both private and external costs, of producing one additional unit of a good or service.

Common Property Resource

A type of resource for which ownership or access rights are shared among individuals or a community, leading to potential issues of overuse or depletion without effective management.

Lighthouse

A tower equipped with a powerful light used to guide or warn ships at sea.

Public Good

A Public Good is a commodity or service that is provided without profit to all members of a society, either by the government or a private individual or organization.