Denominator-level choices, changes in inventory levels, effect on operating income. Koshu Corporation is a manufacturer of computer

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Denominator-level choices, changes in inventory levels, effect on operating income. Koshu Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs and reports the following data for 2009:

Theoretical capacity 144,000 units Practic al capacity 120,000 units Normal capacity utilization 96,000 units Selling pr

There are no price spending, or efficiency variances. Actual operating costs equal budgeted operating costs. The production-volume variance is written off to cost of goods sold. For each choice of denominator level, the budgeted production cost per unit is also the cost per unit of beginning inventory..

1. What is the production-volume variance in 2009 when the denominator level is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization?

2. Prepare absorption costing—based income statements for Koshu Corporation using theoretical capacity, practical capacity, and normal capacity utilization as the denominator levels.

3. Why is the operating income under normal capacity utilization lower than the other two scenarios?

4. Reconcile the difference in operating income based on theoretical capacity and practical capacity with the difference in fixed manufacturing overhead included in inventory.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Cost Accounting A Managerial Emphasis

ISBN: 978-0136126638

13th Edition

Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav

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