129. Lawson Company had the following manufacturing information for the current year.
Assume the same per unit costs occurred in the prior year.
Units
Beginning Inventory units 200
Sold 475
Actual Production 500
Budgeted Production 500
Ending Inventory units 225
Unit Variable Costs
Manufacturing $125.00
Selling and Administrative 75.00
Fixed Costs
Manufacturing 120,000
Selling and Administrative 25,000
Selling price 600.00
Required:
Determine operating income under both full costing and variable costing and explain the
difference.
130. Greg Peterson was recently appointed vice president of operations for Webster
Corporation. He has a manufacturing background and previously served as operations manager
of Webster’s tractor division. The business units of Webster Corporation include divisions that
manufacture heavy equipment, process food, and provide financial services.
In a recent conversation with Carol Andrews, Webster’s chief financial officer, Greg suggested
evaluating unit managers on the basis of the business unit data in Webster’s annual financial
report. This report presents revenues, earnings, identifiable assets, and depreciation for each
business unit for a five-year period. He believes that evaluating business unit managers by
criteria similar to that used to evaluate the company‘s top management is appropriate. Carol has
reservations about using information from the annual financial report for this purpose and
suggested that Greg consider other criteria to use in the evaluation.
Required:
1. Explain why the business unit information prepared for public reporting purposes might not be
appropriate for the evaluation of unit managers’ performance.
2. Describe the possible motivational impact on Webster Corporation’s unit managers if Greg’s
proposal for their evaluation is accepted.
3. Identify and describe several types of information that would be appropriate for Greg Peterson
to use when evaluating the performance of unit managers. (CMA Adapted)
131. Fitzpatrick Inc. planned and manufactured 500,000 units of its single product in 2016, its
first year of operations. Variable manufacturing costs were $40 per unit of production. Planned
fixed manufacturing costs were $1,200,000. Marketing and administrative costs (all fixed) were
$500,000 in 2016. Fitzpatrick sold 450,000 units of products in 2016 at $50 per unit.
Required:
1. Determine Fitzpatrick Inc.’s operating income using full costing.
2. Determine Fitzpatrick Inc.’s operating income using variable costing.
3. Explain the difference between the operating incomes in requirements 1 and 2.
132. Doctors Health Care System has integrated health networks in three different regions:
northern California, southern Florida, and Oklahoma. These three markets have vast regional
differences. Because of the increasing penetration of the U.S. health-care market by managed
care companies, Doctors Health Care System must create a system that offers continuity of care
across the continuum for a set price in order to remain competitive. Its board of directors set the
system’s goal as being a leader in developing and maintaining integrated health networks that
improve the health status of their communities.
Required:
To meet this goal in the three regions, should the health system’s management structure be
decentralized or centralized? What are the advantages and disadvantages of each option?
arising.
133. Stultz Manufacturing has the following information for the years ended December 31,
2015, and December 31, 2016:
2015 2016
Units
Beginning Inventory 400
Price $90
Sold 1,000 1,900
Actual Production 1,200 1,500
Budgeted Production 1,200 1,500
Unit Variable Costs
Manufacturing $30 $30
Selling and Administrative $5 $5
Fixed Costs
Manufacturing 24,000 30,000
Selling and Administrative 10,000 10,000
The 2015 cost per unit was the same in year 2014.
Required:
1. Prepare the variable-cost and full-cost income statements for 2015 and 2016.
2. Prepare a reconciliation and explanation for the differences between full-cost and variable-
cost operating income for both years.
1.
2.
