Question 6: 18 Marks Alpha Containers uses an absorption costing system based on standard costs. For...

 

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Question 6: 18 Marks Alpha Containers uses an absorption costing system based on standard costs. For the month of November the standards were as follows: Variable manufacturing costs were: Material cost per unit, Labour cost per unit, Variable overhead per unit, Denominator activity is 60,000 hours Standard production rate per hour, 10 units Fixed factory overhead per hour, $7.00 Sales for the month were 540,000 units Sales price per unit, $10.00 Variable selling and administrative costs, related to units sold, were $5.00 per unit. Fixed selling and administrative costs were $20,000. Total budgeted and actual fixed factory overhead was $420,000. Beginning inventory balance was 30,000 units and the ending balance was 40,000 units. There were no price, spending or efficiency variances. The same standard unit costs persisted as in previous months. $1.50 $2.00 $0.50 Required: a) Prepare an income statement under the absorption costing method. Write-off over/under applied overhead to cost of goods sold. (7 Marks) b) Compute what the income would have been under the variable costing method. Include the reconciliation between variable-costing and absorption costing. (4 Marks) c) What difference would it make if they were to use "throughput costing"? Compute the operating income using throughput costing and include the reconciliation between throughput costing and absorption costing. (4 Marks) d) What ethical issue is likely to be raised if a bonus program based solely on the amount of operating income generated by the absorption costing method is recommended? (2 Marks) e) How might this be avoided? (1 Marks) Question 6: 18 Marks Alpha Containers uses an absorption costing system based on standard costs. For the month of November the standards were as follows: Variable manufacturing costs were: Material cost per unit, Labour cost per unit, Variable overhead per unit, Denominator activity is 60,000 hours Standard production rate per hour, 10 units Fixed factory overhead per hour, $7.00 Sales for the month were 540,000 units Sales price per unit, $10.00 Variable selling and administrative costs, related to units sold, were $5.00 per unit. Fixed selling and administrative costs were $20,000. Total budgeted and actual fixed factory overhead was $420,000. Beginning inventory balance was 30,000 units and the ending balance was 40,000 units. There were no price, spending or efficiency variances. The same standard unit costs persisted as in previous months. $1.50 $2.00 $0.50 Required: a) Prepare an income statement under the absorption costing method. Write-off over/under applied overhead to cost of goods sold. (7 Marks) b) Compute what the income would have been under the variable costing method. Include the reconciliation between variable-costing and absorption costing. (4 Marks) c) What difference would it make if they were to use "throughput costing"? Compute the operating income using throughput costing and include the reconciliation between throughput costing and absorption costing. (4 Marks) d) What ethical issue is likely to be raised if a bonus program based solely on the amount of operating income generated by the absorption costing method is recommended? (2 Marks) e) How might this be avoided? (1 Marks)

Answer rating: 100% (QA)

a Income statement under absorption costing Sales 540000 units x 1000 per unit 5400000 Cost of goods sold Beginning inventory 30000 units x 600 per un... View the full answer