The Pirate Company has just completed its December 31, 2021 fiscal year. Management is reviewing its...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The Pirate Company has just completed its December 31, 2021 fiscal year. Management is reviewing its present absorption costing accounting method and is considering the variable costing method. An examination of the accounting records for 2020 and 2021 revealed the following information. A.) Cost Information (has remained the same for both 2020 and 2021): $ 90,000 $ 25,000 $5 $2 Fixed manufacturing overhead Fixed marketing expenses Variable Costs per unit: - Manufacturing costs - Marketing expenses If applicable, fixed manufacturing overhead is allocated based on units of production. B.) Other Information: Budgeted Production for 2020 Budgeted Production for 2021 Selling Price per umit (same for 2020 and 2021) Finished Goods Inventory at December 31, 2020 Fixed manufacturing overhead (FMOH) allocation rate for 2020 $2.25 / unit 40,000 units 36,000 units $13 1,000 units C) Actual Results for the 2021 Fiscal Year. Actual Production 36,000 units 32,000 units Actual Sales Required: 1.) Prepare an Income Statement for 2021 using the Variable Costing Approach and Format. (Note: Marks are awarded for proper presentation, labeling, and format). Ignore income taxes) (7 marks) 2.) Starting with the Net Income calculated in requirement 1, make the necessary reconciling adjustments to calculate what the net income would be for 2021 if Absorption Costing had been used. (NOTE: Do NOT prepare an absorption costing income statement.) (5 marks) 3.) The following questions are not specifically related to requirements 1 and 2, they are general in nature. Briefly explain each the following: (6 marks) (a) Why would the readers of financial statements (ie. investors) argue that the Variable Costing approach to costing inventory is more appropriate than the Absorption Costing approach? (b) Why would the Accounting Standards Board (ie. those who set GAAP, IFRS), argue that the Absorption Costing approach is more appropriate than the Variable Costing approach? (c) Given that Absorption Costing is required by GAAP, IFRS for extemal reporting purposes, explain how Variable Costing can still play an important role for managerial purposes. The Pirate Company has just completed its December 31, 2021 fiscal year. Management is reviewing its present absorption costing accounting method and is considering the variable costing method. An examination of the accounting records for 2020 and 2021 revealed the following information. A.) Cost Information (has remained the same for both 2020 and 2021): $ 90,000 $ 25,000 $5 $2 Fixed manufacturing overhead Fixed marketing expenses Variable Costs per unit: - Manufacturing costs - Marketing expenses If applicable, fixed manufacturing overhead is allocated based on units of production. B.) Other Information: Budgeted Production for 2020 Budgeted Production for 2021 Selling Price per umit (same for 2020 and 2021) Finished Goods Inventory at December 31, 2020 Fixed manufacturing overhead (FMOH) allocation rate for 2020 $2.25 / unit 40,000 units 36,000 units $13 1,000 units C) Actual Results for the 2021 Fiscal Year. Actual Production 36,000 units 32,000 units Actual Sales Required: 1.) Prepare an Income Statement for 2021 using the Variable Costing Approach and Format. (Note: Marks are awarded for proper presentation, labeling, and format). Ignore income taxes) (7 marks) 2.) Starting with the Net Income calculated in requirement 1, make the necessary reconciling adjustments to calculate what the net income would be for 2021 if Absorption Costing had been used. (NOTE: Do NOT prepare an absorption costing income statement.) (5 marks) 3.) The following questions are not specifically related to requirements 1 and 2, they are general in nature. Briefly explain each the following: (6 marks) (a) Why would the readers of financial statements (ie. investors) argue that the Variable Costing approach to costing inventory is more appropriate than the Absorption Costing approach? (b) Why would the Accounting Standards Board (ie. those who set GAAP, IFRS), argue that the Absorption Costing approach is more appropriate than the Variable Costing approach? (c) Given that Absorption Costing is required by GAAP, IFRS for extemal reporting purposes, explain how Variable Costing can still play an important role for managerial purposes.
Expert Answer:
Answer rating: 100% (QA)
Particulars 2021 Opening Stock Unit 1000 Production Unit 36000 Sales Unit 32000 Closing Stock Unit 5... View the full answer
Related Book For
Accounting Texts and Cases
ISBN: 978-1259097126
13th edition
Authors: Robert Anthony, David Hawkins, Kenneth Merchant
Posted Date:
Students also viewed these accounting questions
-
An examination of the accounting records for the Hutton Corporation indicates that all receivables are being recorded in a single account entitled Receivables. An analysis of the account reveals the...
-
A major movie studio has just completed its latest epic, a musical comedy about the life of Attila the Hun. Because the movie is different (no sex or violence), the studio is uncertain about how to...
-
Prepare an income statement for March using absorption costing. (9 marks) b) Reconcile the difference in income under absorption and variable costing and explain why the difference arises. (3 marks)...
-
Two moles of an ideal monatomic gas go through the cycle abc. For the complete cycle, 800 J of heat flows out of the gas. Process ab is at constant pressure, and process bc is at constant volume....
-
Mulroney previously calculated a valuation for Southampton for both the constant- growth and the two- stage DDM as shown below: Constant- Growth Approach Two- Stage Approach $ 29............ $ 35.50...
-
SugarTown's manufacturing costs for August when production was 1,000 unit appear below. Direct material................................ $12 per unit Direct Labor...
-
What formula should Hardy Company use to calculate the total amount of interest on a note payable that uses add-on interest?
-
Asset Impairment On January 1, 2012, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight-line...
-
1. Esperanza purchased an auto insurance policy with bodily injury liability limits of 250/500 ($250,000/$500,000). She also purchased a personal umbrella policy with a $1 million limit and a $500...
-
Morgan Companys balance sheet at December 31, 2019, is presented below. During January 2020, the following transactions occurred. (Morgan Company uses the perpetual inventory system.) 1. Morgan paid...
-
The algorithm Seq(n) is shown below. What is value returned by Seq(2)? Seq(n) { if (n = 1) else return 1 if (n = 2) return 2 else if (n = 3) return 3 else return (Seq(n-3) + Seq(n-2)) }
-
Yuanne Sipp and Letitia Grimes share partnership income on a 3:2 basis. They have capital balances of $569,000 and $283,000, respectively, when Tammy Tuck is admitted to the partnership. Prepare the...
-
Sunlight at 0.64 m reflected by the Earth is absorbed by a nadir viewing satellite sensor at an altitude of 800 km. The sensor has a circular detector with a radius of 1 mm and a bandwidth of 0.1 m...
-
Determine the correct amount of net income for August and the total assets, liabilities, and owner's equity at August 31. In addition to indicating the corrected amounts, indicate the effect of each...
-
1. State the 4 major challenges or themes for IT leaders when it comes to managing IT innovation. 2. State some of the guiding principles for facilitating IT innovation. 3. What are some of the...
-
A straight 25 cm pipeline 5 km long is laid between two reservoirs having a difference of levels of 40 mtrs. To increase the capacity of the system, an additional 2.5 km long 2.5 cm pipe is laid...
-
Its as big as i can get the graph. IF need you might have to enlarge pic.
-
Activator rod AB exerts on crank BCD a force P directed along line AB. Knowing that P must have a 100-N component perpendicular to arm BC of the crank, determine (a) The magnitude of the force P, (b)...
-
You are given the following unit cost data for Sun-Power Company: Required Determine the carrying cost of each item, and record the adjusting entry to the inventory account. B. $183 Historical cost...
-
GRW Company has the following account balances at the end of the year, before adjusting and closing entries. (All numbers are in thousands of dollars.) Required: Calculate and interpret the year-end...
-
As controller of the city of Oakly Heights, you have been asked to provide information to the mayor and city council that would be helpful in answering a variety of questions. Required: a. For each...
-
If the price of zucchini increases, causing the demand for yellow squash to rise, what do we call the relationship between zucchini and yellow squash?
-
The price elasticity of demand is defined as the percentage change in _________ divided by the percentage change in _________.
-
The price elasticity of demand measures the responsiveness of quantity _________ to a change in price.
Study smarter with the SolutionInn App