The proof that the debits and credits in the ledger are equal is ...

[Alygatorr01285]

The proof that the debits and credits in the ledger are equal is called the
 a. trial balance.
   b. journal.
   c. statement of owner's equity.
   d. income statement.
   e. balance sheet.

Question 2

Absorption costing and production volume variancealternative capacity bases.
 
  Planet Light First (PLF), a producer of energy-efficient light bulbs, expects that demand will increase markedly over the next decade. Due to the high fixed costs involved in the business, PLF has decided to evaluate its financial performance using absorption costing income. The production-volume variance is written off to cost of goods sold. The variable cost of production is 2.40 per bulb. Fixed manufacturing costs are 1,170,000 per year. Variable and fixed selling and administrative expenses are 0.20 per bulb sold and 220,000, respectively. Because its light bulbs are currently popular with environmentally conscious customers, PLF can sell the bulbs for 9.80 each.
   PLF is deciding among various concepts of capacity for calculating the cost of each unit produced. Its choices are as follows:
 
  Required:
  1. Calculate the inventoriable cost per unit using each level of capacity to compute fixed manufacturing cost per unit.
  2. Suppose PLF actually produces 300,000 bulbs. Calculate the production-volume variance using each level of capacity to compute the fixed manufacturing overhead allocation rate.
  3. Assume PLF has no beginning inventory. If this year's actual sales are 225,000 bulbs, calculate operating income for PLF using each type of capacity to compute fixed manufacturing cost per unit.

[robbielu01]

Answer to Question 1

a

Answer to Question 2

1. Inventoriable cost per unit = Variable production cost + Fixed manufacturing overhead/Capacity

Capacity Type Capacity Level Fixed Mfg. Overhead Fixed Mfg. Overhead Rate Variable Production Cost Inventoriable Cost Per Unit
Theoretical 900,000 1,170,000 1.30 2.40 3.70
Practical 520,000 1,170,000 2.25 2.40 4.65
Normal 260,000 1,170,000 4.50 2.40 6.90
Master Budget 225,000 1,170,000 5.20 2.40 7.60

2. PLF's actual production level is 300,000 bulbs. We can compute the production-volume variance as:
Production Volume Variance = Budgeted Fixed Mfg. Overhead
 (Fixed Mfg. Overhead Rate  Actual Production Level)

Capacity Type Capacity Level Fixed Mfg. Overhead Fixed Mfg. Overhead Rate Fixed Mfg. Overhead Rate  Actual Production Production Volume Variance
Theoretical 900,000 1,170,000 1.30  390,000 780,000 U
Practical 520,000 1,170,000 2.25  675,000 495,000 U
Normal 260,000 1,170,000 4.50 1,350,000 180,000 F
Master Budget 225,000 1,170,000 5.20 1,560,000 390,000 F

3. Operating Income for PLF given production of 300,000 bulbs and sales of 225,000 bulbs  9.80 apiece:

Theoretical Practical Normal Master Budget
Revenue a 2,205,000 2,205,000 2,205,000 2,205,000
Less: Cost of goods sold b 832,500 1,046,250 1,552,500 1,710,000
Production-volume variance 780,000 U 495,000 U (180,000) F (390,000) F
Gross margin 592,500 663,750 832,500 885,000
Variable selling c 45,000 45,000 45,000 45,000
Fixed selling 220,000 220,000 220,000 220,000
Operating income  327,500  398,750  567,500  620,000

a225,000  9.80
b225,000  3.70,  4.65,  6.90,  7.60
c225,000  0.20

[Alygatorr01285]

Correct answers!

[robbielu01]

Great! Please up vote