Question
In: Accounting
Problem 5.4 (LO1, 2) Variable and Full Costing: Earnings Management with Full Costing; Changes in Production...
Problem 5.4 (LO1, 2) Variable and Full Costing: Earnings Management with Full Costing; Changes in Production and Sales Sampson Steel produces high-quality worktables. The company has been in operation for three years, and sales have declined each year due to increased competition. The following information is available:
|
2020 |
2021 |
2022 |
Total |
|
|
Units sold |
10,000 |
9,000 |
8,000 |
27,000 |
|
Units produced |
10,000 |
10,000 |
7,000 |
27,000 |
|
Fixed production costs |
$350,000 |
$350,000 |
$350,000 |
|
|
Variable production costs per unit |
$100 |
$100 |
$100 |
|
|
Selling price per unit |
$350 |
$350 |
$350 |
|
|
Fixed selling and administrative expenses |
$300,000 |
$300,000 |
$300,000 |
Required
- Calculate profit and the value of ending inventory for each year under full costing.
- Calculate profit and the value of ending inventory for each year under variable costing.
- Explain how management of Sampson could manipulate earnings in 2021 by producing more units than are actually needed to meet demand. Could this approach to earnings management be repeated year after year?
Solutions
ekkarill92 answered 7 months agoRelated Solutions
1.Explain the difference between variable and full costing. 2.Explain why income calculated under full absorption costing...
1.Explain the difference between variable and full costing.
2.Explain why income calculated under full absorption costing
will be greater than income calculated under variable costing when
production exceeds sales. Explain how a manufacturing company can
"bury" fixed manufacturing costs in ending inventory under full
absorption costing.
3.If the fixed manufacturing overhead cost per unit under full
costing is multiplied by the change in inventory between the
beginning and ending of the period, what does the resulting number
represent?
Under full costing, how does increasing production increase income? Does this work under variable costing? Why...
Under full costing, how does increasing production increase income?
Does this work under variable costing? Why or why not?
Mastery Problem: Variable Costing for Management Analysis Absorption vs. Variable Operating income is one of the...
Mastery Problem: Variable Costing for Management
Analysis
Absorption vs. Variable
Operating income is one of the most important items reported by
a company. Depending on the decision-making needs of management,
operating income can be determined using absorption costing or
variable costing.
Select whether the following characteristics are most often
associated with absorption costing or variable costing.
Required under generally accepted accounting principles
(GAAP)
Often used for internal use in decision making
Cost of goods manufactured includes only variable manufacturing
costs...
Mastery Problem: Variable Costing for Management Analysis Absorption vs. Variable Operating income is one of the...
Mastery Problem: Variable Costing for Management
Analysis
Absorption vs. Variable
Operating income is one of the most important items reported by
a company. Depending on the decision-making needs of management,
operating income can be determined using absorption costing or
variable costing.
Select whether the following characteristics are most often
associated with absorption costing or variable costing.
Required under generally accepted accounting principles
(GAAP)
Absorption Costing
Often used for internal use in decision making
Variable Costing
Cost of goods manufactured includes...
Mastery Problem: Variable Costing for Management Analysis Absorption vs. Variable Operating income is one of the...
Mastery Problem: Variable Costing for Management
Analysis
Absorption vs. Variable
Operating income is one of the most important items reported by
a company. Depending on the decision-making needs of management,
operating income can be determined using absorption costing or
variable costing.
Select whether the following characteristics are most often
associated with absorption costing or variable costing.
Required under generally accepted accounting principles
(GAAP)
Often used for internal use in decision making
Cost of goods manufactured includes only variable manufacturing
costs...
Problem 1-24A Cost Classification and Cost Behavior [LO1-1, LO1-2, LO1-3, LO1-4] The Dorilane Company specializes in...
Problem 1-24A Cost Classification and Cost Behavior [LO1-1,
LO1-2, LO1-3, LO1-4] The Dorilane Company specializes in producing
a set of wood patio furniture consisting of a table and four
chairs. The set enjoys great popularity, and the company has ample
orders to keep production going at its full capacity of 4,200 sets
per year. Annual cost data at full capacity follow: Direct labor $
92,000 Advertising $ 99,000 Factory supervision $ 67,000 Property
taxes, factory building $ 18,000 Sales commissions...
Problem 1-24 Different Cost Classifications for Different Purposes [LO1-1, LO1-2, LO1-3, LO1-4, LO1-5] Dozier Company produced...
Problem 1-24 Different Cost Classifications for Different
Purposes [LO1-1, LO1-2, LO1-3, LO1-4, LO1-5]
Dozier Company produced and sold 1,000 units during its first
month of operations. It reported the following costs and expenses
for the month:
Direct
materials
$
87,000
Direct labor
$
44,000
Variable manufacturing
overhead
$
22,200
Fixed manufacturing
overhead
33,400
Total manufacturing
overhead
$
55,600
Variable selling expense
$
15,600
Fixed selling expense
25,200
Total selling expense
$
40,800
Variable administrative
expense
$
5,800
Fixed administrative
expense...
Problem 1-24 Different Cost Classifications for Different Purposes [LO1-1, LO1-2, LO1-3, LO1-4, LO1-5] Dozier Company produced...
Problem 1-24 Different Cost Classifications for Different
Purposes [LO1-1, LO1-2, LO1-3, LO1-4, LO1-5] Dozier Company
produced and sold 1,000 units during its first month of operations.
It reported the following costs and expenses for the month: Direct
materials $ 83,000 Direct labor $ 42,000 Variable manufacturing
overhead $ 20,600 Fixed manufacturing overhead 32,200 Total
manufacturing overhead $ 52,800 Variable selling expense $ 14,800
Fixed selling expense 23,600 Total selling expense $ 38,400
Variable administrative expense $ 5,400 Fixed administrative
expense...
What is the difference between full absorption of costing and variable costing? Why is using GAAP...
What is the difference between full absorption of costing and
variable costing? Why is using GAAP is required for one of the
costings while the other makes sense for making internal making
choices? Discuss benefits and disadvantages of each one for the
external and internal use.
Variable Costing and Absorption Costing – Questions 1 – 8. Production Costs
Variable Costing and Absorption Costing – Questions 1 –
8.
Production
Costs
Nonproduction Costs
Direct materials cost $4 per
unit
Variable S&A
expenses $2
per unit
Direct labor
cost
$8 per
unit
Fixed S&A expenses $200,000 per year
Variable overhead cost $3 per unit
Fixed overhead cost
$600,000 per year
Sales price/unit $40
Units
Produced
Units Sold
Units in Ending Inventory
2015
60,000
60,000
0
2016
60,000
45,000
15,000
2017
60,000 ...
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