Chapter 30 – Cost-Revenue Analysis for Decision Making
61. Using direct costing, the value of ending inventory of finished goods is:
62. Using direct costing, the manufacturing margin is:
63. Using direct costing, the marginal income on sales is:
30–25
71. Data for a firm’s first year of operation is given below. The firm uses absorption costing.
1. What is the cost of goods manufactured for the year?
2. What is the ending inventory of finished goods?
3. What is the cost of goods sold?
4. What is the net income (loss) for the year?
Feedback:
30–28
30–31
77. The data given below is taken from the budgeted income statement of the Arrow
Corporation for 2013. It shows the projected net income or loss for each of the firm’s three
products. Management is concerned about the budgeted loss for Product C and wants to
discontinue it. Prepare an analysis indicating the effects of discontinuing Product C. Based on
the analysis, indicate the decision that should be made.
Additional information:
(a.) Materials and labor are variable costs.
(b.) Total manufacturing overhead is applied at 50 percent of the direct labor costs.
(c.) Variable overhead is 10 percent of the direct labor costs.
(d.) Fixed overhead totals $11,600 a year.
(e.) Operating expenses include variable costs at 20 percent of sales dollars.
(f.) Fixed operating expenses total $18,000.
(g.) Fixed overhead costs and fixed operating expenses are expected to continue if Product C
is eliminated.
Chapter 30 – Cost-Revenue Analysis for Decision Making
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Decision: The analysis indicates that discontinuing Product C will reduce net income by
$5,400 ($34,500 – $29,100). Therefore, Product C should not be discontinued.
