Question

In: Accounting

1. ABC Company uses absorption costing in its GAAP financial statements and variable costing for its...

1. ABC Company uses absorption costing in its GAAP financial statements and variable costing for its internal management reporting. .ABC Company has produced 20,000 cell phone covers in 2016, but only sold 18,000 cell phone covers. ABC Company had no beginning inventory and now has ending inventory of 2,000 cell phone covers. Which of the following are true?

A.    ABC Company will report higher income in its absorption income statement than in its variable income statement.

B.    ABC Company will report lower income in its absorption income statement than in its variable income statement.

C.    ABC Company will report the same income in its absorption and variable income statements.

D.    There is not enough information to know how absorption and variable costing income will compare.

2. Budgeted sales in Allen Company are given below:

April

May

Budgeted Cash Sales

$50,000

$40,000

Budgeted Credit Sales

$130,000

$90,000

Total Budgeted Sales

$180,000

$120,000

Collections for sales on account follow a stable pattern as follows:

·   70% of a month's credit sales are collected in the month of sale and

·   30% are collected in the month following sale.

Given these data, the total of all collections for May should be:

A. $99,000

B. $107,000

C. $142,000

D. $178,000

3. XYZ Company sells goods to its customers on account and collects from customers evenly over 90 days. About 2% of the payments are written off as uncollectible each month. To forecast cash collections for its Cash Collections Budget for May, what information is needed?

A. The amount of sales expected in June

B. The amount of sales expected in March

C. The amount of production expected in June

D. The amount of production expected in March

4. ABC Company pays its suppliers for 60% of its purchases in the period of purchase and 40% in the following quarter.   Accounts payable at the beginning of the year was $30,000.

Quarter 1, 2014

Quarter 2, 2014

Quarter 3, 2014

Quarter 4, 2014

Annual, 2014

Purchases on Account

$10,000

$20,000

$40,000

$100,000

$170,000

Based on the information above, what is the balance of accounts payable at the end of the year?

A. $40,000

B. $68,000

C. $58,000

D. $42,000

Solutions

Expert Solution

(1) Option A is correct

ABC Company will report higher income in its absorption income statement than in its variable income statement.

In absorption Income, Fixed cost in changing of Inventory also considered But in Variable costin FC in changes of Inventory should notbe considred.

In this case there is closing stock = 2000 & opening stock = NIL

Hence if FC is considered in 2000 closing stock

(2) Cash collection in May :-

Cash Sale

40000

Credit Sale of May , collected in May (90000 * 70%)

63000

Credit Sale of April, Collect in May (130000 * 30%)

39000

142000

Option C is correct

(3) Option B is correct

The amount of sales expected in March

XYZ Company sells goods to its customers on account and collects from customers evenly over 90 days

i.e if XYZ sold goods in March & collect cash for March sale over 90 Days then there is need to collect cash in May also

(4) Account Payable at the end of the year:-

40% of Quarter 4 sale

100000 * 40% = 40000

Option A is correct

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

The Bailey’s Corporation uses absorption costing for its external financial statements. Managers believe the Income Statements...
The Bailey’s Corporation uses absorption costing for its external financial statements. Managers believe the Income Statements are confusing, because they conflict with their “instincts” about profitability. The controller suggests that the organization use variable costing because it may give managers better information, especially for decisions about operations. The following information was pulled from last year’s publicly available Income Statement as well as internal records. Data alternative 2 Cost per unit: $40 DM, $30 DL, $10 Variable OH Fixed OH:      $150,000 Number...
Variable costing versus absorption costing. The Garvis Company uses an absorption-costing system based on standard costs....
Variable costing versus absorption costing. The Garvis Company uses an absorption-costing system based on standard costs. Variable manufacturing cost consists of direct material cost of $4.50 per unit and other variable manufacturing costs of $1.50 per unit. The standard production rate is 20 units per machine-hour. Total budgeted and actual fixed manufacturing overhead costs are $840,000. Fixed manufacturing overhead is allocated at $14 per machine-hour based on fixed manufacturing costs of $840,000÷60,000$840,000÷60,000 machine-hours, which is the level Garvis uses as...
Your company uses absorption costing for preparing its GAAP-based income statement and balance sheet. Management is...
Your company uses absorption costing for preparing its GAAP-based income statement and balance sheet. Management is disappointed because its external auditors are requiring it to write off an inventory amount because because the inventory balance exceeds what the company could reasonably sell in the foreseeable future. 1. Discuss what might have motivated managers to produce more than they could sell. Support your contention with a numerical example of how they might benefit. 2. Assuming managers receive a bonus based on...
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.
Absorption and Variable Costing Income Statements: Production Exceeds Sales Glendale Company sells its product at a...
Absorption and Variable Costing Income Statements: Production Exceeds Sales Glendale Company sells its product at a unit price of $12.00. Unit manufacturing costs are direct materials, $2.00; direct labor, $3.00; and variable manufacturing overhead, $1.50. Total fixed manufacturing costs are $30,000 per year. Selling and administrative expenses are $1.00 per unit variable and $11,000 per year fixed. During 2009, 25,000 units were produced and sold. There was no beginning inventory. (a) Prepare a functional income statement using absorption costing. (Do...
Absorption and Variable Costing Income Statements: Production Exceeds Sales Glendale Company sells its product at a...
Absorption and Variable Costing Income Statements: Production Exceeds Sales Glendale Company sells its product at a unit price of $12.00. Unit manufacturing costs are direct materials, $2.00; direct labor, $3.00; and variable manufacturing overhead, $1.50. Total fixed manufacturing costs are $25,000 per year. Selling and administrative expenses are $1.00 per unit variable and $14,000 per year fixed. Though 25,000 units were produced during 2009, only 17,000 units were sold. There was no beginning inventory. (a) Prepare a functional income statement...
John’s Company uses variable costing for internal reporting and absorption costing for external reporting. Below is...
John’s Company uses variable costing for internal reporting and absorption costing for external reporting. Below is the costs incurred for the current year. Units sold – 1,000 Units produced – 1,100 Selling price per unit - $300 Direct labor - $15 per unit Direct materials - $25 per unit Variable manufacturing overhead - $10 per unit Variable selling costs - $10 per unit Fixed manufacturing overhead - $22,000 Fixed Selling & Administrative costs - $100,000 Required: a. What is the...
Q2: Variable and Absorption costing Fagan Manufacturing uses an absorption costing system. In 2009 it manufactured...
Q2: Variable and Absorption costing Fagan Manufacturing uses an absorption costing system. In 2009 it manufactured 25,000 units and sold 20,000 units at $45 each. The company’s income statement for year ended December 31 2009 is as follows: FAGAN MANUFACTURING COMPANY INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2009 Sales $900,000 Cost of goods sold: Finished goods inventory, January 1 $           0 Cost of goods manufactured 812,500 Goods available for sale $812,500 Finished goods inventory, December 31 162,500   ...
Absorption and variable costing:
The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:Beginning inventory 0Units produced 9,000Units sold 7,000Selling price per unit $ 47Selling and administrative expenses:Variable per unit $ 4Fixed per year $ 58,000Manufacturing costs:Direct materials cost per unit $ 10Direct labor cost per unit $ 6Variable manufacturing overhead cost per unit $ 5Fixed manufacturing overhead per year $ 90,000Assume that direct labor is a variable cost.Required:a. Prepare an income statement for the year...
QUESTION ONE: Absorption and Variable Costing: Prepare and Reconcile Variable costing Statements Audiophonics Limited manufactures and...
QUESTION ONE: Absorption and Variable Costing: Prepare and Reconcile Variable costing Statements Audiophonics Limited manufactures and sells high-quality and durable ear buds for use with personal electronics that are custom moulded to each customer’s ear. Cost data for the product follows: Variable costs per unit:             Direct materials                                            $12             Direct labour                                                   24             Variable factory overhead                              8             Variable selling and administrative              6 Total variable costs per unit                                   $50 Fixed costs per month:             Fixed manufacturing overhead                  $240,000             Fixed selling and administrative                  180,000 Total fixed costs per month                                    $420,000 The product sells...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT