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146. The following information applies to the General Lawnmower Company for the year ended
December 31, 2010:
Required: Prepare a statement of cost of goods manufactured and an income statement for the
year ended December 31, 2010.
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147. Standford Corporation has provided the following data for the month of February:
Required:
a. Prepare a Schedule of Cost of Goods Manufactured in good form for February.
b. Prepare an Income Statement in good form for February.
148. A number of costs and measures of activity are listed below.
Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the
possible measure of activity listed next to it.
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149. You have the following information regarding Crosby Company:
Sales 25,000 units per year at $45 per unit
Production 30,000 units in 2007 and 20,000 units in 2008
At the beginning of 2007 there was no inventory.
Variable manufacturing costs are $30.00 per unit
Fixed manufacturing costs are $150,000 per year
Marketing costs are all fixed at $75,000 per year
Required:
(a) Prepare an income statement under absorption costing for 2007 and 2008. Include a column
for both years taken together.
(b) Prepare an income statement under variable costing for 2007 and 2008. Include a column for
both years taken together.
(c) Comment on the results and reconcile any differences in income.
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150. Dimmick Corporation produces and sells a single product at $40 per unit. During 2012, the
company produced 200,000 units, 160,000 of which were sold during the year. All ending inventory
was in finished goods inventory; there was no inventory on hand at the beginning of the year. The
following data relate to the company’s production process:
Required:
Calculate the following.
(a) The unit cost of ending inventory on the balance sheet prepared for stockholders.
(b) The unit cost of ending inventory on a variable cost balance sheet.
(c) The operating income using absorption costing
(d) The operating income using variable costing.
(e) The ending inventory using absorption costing.
(f) The ending inventory using variable costing.
(g) A reconciliation of the difference in operating income between absorption costing and variable
costing using the shortcut method.
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151. Consider the following cost and production information for Bedell Metal Company, Inc.
Additional information:
• Sales revenue: $20,000,000
• Beginning inventory: $1,150,000
• Sales of part D-1340: 80 units
• Sales of all other parts are the same as the number of units produced.
• Sales price of part D-1340: $35,500 per unit
• The only spending increase was for material cost due to increased production. All other spending
as shown above was unchanged.
Bedell Metal Company uses the variable costing method.
Required
(a) Compute the contribution margin, operating income, and ending inventory for Bedell Metal
Company
(b) Assume that sales of part D-1340 increases by 30 units to 110 units during the given period
(production remains constant). Re-compute the above figures.
(c) Mary Keenan, the controller of Bedell Metal Company., is considering the use of absorption
costing instead of variable costing to be in line with financial reporting requirements. She knows
that the use of a different costing method will give rise to different incentives. Explain to her how
alternative methods of calculating product costs create different incentives.
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152. Consider the following cost and production information for Dover Automotive
Components, Inc.
Additional information:
• Sales revenue: $5,200,000
• Beginning inventory: $275,000
• The only spending increase was for material cost due to increased production. All other spending
as shown above was unchanged.
• Sales of all parts are the same as the number of units produced.
Dover Automotive Components, Inc. uses the absorption costing method.
Required:
(a) Compute the gross margin, operating income, and ending inventory for Dover Automotive
Components, Inc.
(b) Assume that production of part D-1251 increases by 25 units during the given period (sales
remain constant). Re-compute the above figures.
(c) Ernest Murphy, the cost manager of Dover Automotive Components, argues with the controller
that variable costing is a better method for product costing. Using the information in part b above,
re-compute the operating income for Dover Automotive Components using variable costing.
Explain any differences in the operating incomes obtained under the two different methods.
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153. Hurwitz Corporation had the following activities during 2007:
Required:
(a) Prepare a schedule of cost of goods manufactured for 2007.
(b) Prepare a schedule of cost of goods sold for 2007.
(c) Prepare an income statement for 2007.
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154. Lyon Toys, Inc. (LTI) manufactures a variety of electronic toys for children aged 3 to 14
years. The company started as a Ma & Pa basement operation, and grew steadily over the last
nine years. It now employs over 100 people and has sales revenue of over $250 million. Katie
Burger, the CEO of LTI also recognizes that competition has increased during this period;
therefore future growth will not be easy.
Burger recognizes that one of the areas of weakness is the accounting and costing system.
Burger’s maternal uncle, Martin, had maintained the accounts for the company. He meticulously
kept track of all the invoices that were received, payments made, and painstakingly prepared
crude annual reports. With Martin passing away at the age of 85, Burger decided to hire a
professional cost management expert to keep track of the company’s costs. She hired Molly
Wright, who had just completed her CMA.
After acquainting Wright with the company and its people, Burger decided to get down to
business. She called Wright to her office to have a serious conversation about accounting and
costing, in particular.
Burger: Molly, I would like you to pay particular attention to developing an official costing system.
Currently, we don’t have one. I believe this should be your first priority because competition is
rising and if we do not understand our costs, we might start losing to our rivals.
Wright: I understand your point very well, Ms. Burger.
Burger: Call me Katie.
Wright: Very well, Katie. I have a few ideas that I picked up from my CMA courses that I think are
worth implementing. However, it looks like we need to start with the basics.
Required:
Assume the role of Molly Wright. Write a brief report outlining the basics of a cost management
information system. Include in your report the following:
• Resources and costs
• Supply of resources vs. the use of resources
• Classification of costs (three dimensions of resources)
• Alternative costing systems
