On December 30,a Fire Destroyed Most of the Accounting Records

question 191

Essay

On December 30,a fire destroyed most of the accounting records of the Stone Division,a small one-product manufacturing division that uses standard costs and flexible budgets.All variances are written off as additions to (or deductions from)income;none are pro-rated to inventories.You have the task of reconstructing the records for the year.The general manager informs you that the accountant has been experimenting with both absorption costing and variable costing.
The following information is available for the current year:
a. Cash on hand, December 31                                                                                   $10
b. Sales                                                                                                                         $128,000
c. Actual fixed indirect manufacturing costs                                                               21,000
d. Accounts receivable, December 31                                                                         20,000
e. Standard variable manufacturing costs per unit                                                             1
f. Variances from standard of all variable manufacturing costs                                   $5,000 U
g. Operating income, absorption-costing basis                                                             $14,400
h. Accounts payable, December 31                                                                               18,000
i. Gross profit, absorption costing at standard (before deducting variances)                                                                                                                        22,400
j. Total liabilities                                                                                                             100,000
k. Unfavorable budget variance, fixed manufacturing costs                                           1,000 U
l. Notes receivable from chief accountant                                                                       4,000
m. Contribution margin, at standard (before deducting variances)                                 48,000
n. Direct-material purchases, at standard prices                                                             50,000
o. Actual selling and administrative costs (all fixed)                                                     6,000

Required:
Compute the following items (ignore income tax effects).
1. Operating income on a variable-costing basis.
2. Number of units sold.
3. Number of units produced.
4. Number of units used as the denominator to obtain fixed indirect cost application rate per unit on absorption-costing basis.
5. Did inventory (in units) increase or decrease? Explain.
6. By how much in dollars did the inventory level change (a) under absorption costing, (b) under variable costing?
7. Variable manufacturing cost of goods sold, at standard prices.
8. Manufacturing cost of goods sold at standard prices, absorption costing.

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Definitions:

Perceptual Constancy

The psychological feature that allows individuals to perceive objects as unchanging despite changes in sensory input such as lighting, distance, or angle.

Perceptual Constancy

The brain's ability to recognize that an object remains the same even when its appearance changes due to variations in the environment.

Size

The overall dimensions or magnitude of a physical object or entity, often measured in terms of length, width, height, or volume.

Perceptual Constancy

is the psychological phenomenon in which the perception of an object remains unchanged despite changes in the sensory input, such as lighting, distance, or angle.