Holly Company produces Product 002 and adopts absorption costing method to determine its net operating income....
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Holly Company produces Product 002 and adopts absorption costing method to determine its net operating income. The company also uses weighted average method for the valuation of inventory. The total variable manufacturing costs per unit for 2019 was $76.5. During the year ended 31 December 2020, the company had the following data related to Product 002: Units in the beginning inventory ($102.5 per unit) Units produced Units sold ($200 per unit) 2,000 15,000 14,500 Variable costs per unit: Direct materials Direct labor 20 50 Manufacturing overheads Sales commission 15 4 Eixed costs for the year. Manufacturing overheads Selling and administrative expenses 645,000 550,000 Required: (a) Calculate the ending inventory units. (1 mark) (b) Determine the value of ending inventory using variable costing method. (3 marks) (c) Determine the the value of ending inventory using absorption costing method. (4 marks) (d) Prepare an income statement for the year ended 31 December 2020 using variable costing method. (6 marks) (e) Calculate the net operating income using absorption costing method and explain the reason for the difference in the ending inventory balances and the impact of this difference in the net operating incomes under the two costing methods. (4 marks) At the end of 2020, Holly Company wanted to use absorption cost-plus pricing to set the selling price on a new version of Product 002 and named it Product 002(A). The company planned to invest S1,580,000 in operating assets to produce and sell 15,000 units. Its required return on investment (ROI) in its operating assets was 10%. The management used the cost data of Product 002 in 2020 to project the cost of Product 002(A). () What is the markup percentage on absorption cost for Product 002(A)? (2 marks) (g) What selling price would the company establish for Product 002(A) using a markup percentage on absorption cost? (1 mark) (h) Assume that the company wants to raise the price of Product 002(A) with the intention of achieving the product's desired ROI by producing and selling at 10,000 units. Using absorption cost-plus pricing, what would be the revised selling price at this sales volume? How might customers react to this new price? (4 marks) Holly Company produces Product 002 and adopts absorption costing method to determine its net operating income. The company also uses weighted average method for the valuation of inventory. The total variable manufacturing costs per unit for 2019 was $76.5. During the year ended 31 December 2020, the company had the following data related to Product 002: Units in the beginning inventory ($102.5 per unit) Units produced Units sold ($200 per unit) 2,000 15,000 14,500 Variable costs per unit: Direct materials Direct labor 20 50 Manufacturing overheads Sales commission 15 4 Eixed costs for the year. Manufacturing overheads Selling and administrative expenses 645,000 550,000 Required: (a) Calculate the ending inventory units. (1 mark) (b) Determine the value of ending inventory using variable costing method. (3 marks) (c) Determine the the value of ending inventory using absorption costing method. (4 marks) (d) Prepare an income statement for the year ended 31 December 2020 using variable costing method. (6 marks) (e) Calculate the net operating income using absorption costing method and explain the reason for the difference in the ending inventory balances and the impact of this difference in the net operating incomes under the two costing methods. (4 marks) At the end of 2020, Holly Company wanted to use absorption cost-plus pricing to set the selling price on a new version of Product 002 and named it Product 002(A). The company planned to invest S1,580,000 in operating assets to produce and sell 15,000 units. Its required return on investment (ROI) in its operating assets was 10%. The management used the cost data of Product 002 in 2020 to project the cost of Product 002(A). () What is the markup percentage on absorption cost for Product 002(A)? (2 marks) (g) What selling price would the company establish for Product 002(A) using a markup percentage on absorption cost? (1 mark) (h) Assume that the company wants to raise the price of Product 002(A) with the intention of achieving the product's desired ROI by producing and selling at 10,000 units. Using absorption cost-plus pricing, what would be the revised selling price at this sales volume? How might customers react to this new price? (4 marks)
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Fundamental Managerial Accounting Concepts
ISBN: 978-0078025655
7th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor-Yi Tsay, Philip Old
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