Finch-Hutton Machine Works Ltd

question 177

Essay

Finch-Hutton Machine Works Ltd.uses standard costing based on a practical capacity of 1,050 tractor bearings per month.The actual production for the month of January was 980.The standard variable cost per unit is $11 and budgeted monthly fixed manufacturing overhead is $78,750.Actual costs for January were $11,760 and $78,400 for variable and fixed respectively.There was no work-in-process inventory at the beginning or end of January.The finished goods inventory had no balance at the beginning of January; January sales were 900 units at $135 per unit.Non-manufacturing costs totalled $38,000.Variances are pro-rated to inventory and cost of goods sold based on the balances in the accounts before proration.Required:
1.Prepare an income statement in gross margin format using absorption costing.2.Determine the balance of the January ending finished goods inventory.3.Determine the variances in as much detail as possible then prepare the journal entries to clear the variance accounts.

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Definitions:

Double Taxation

Double Taxation is a tax principle referring to income taxes being paid twice on the same source of earned income. It can occur when income is taxed at both the corporate level and personal level, or in two different countries.

Corporation

A legal entity that is separate and distinct from its owners, who are shareholders; it has rights and liabilities independent of those owners and can enter into contracts, sue, and be sued.

Sole Proprietorships

A business structure where a single individual owns and operates the business, bearing full responsibility for its debts and obligations.

Capital

Wealth in the form of money or other assets owned by a person or organization or available for a purpose such as starting a company or investing.