111. Consider the following cost and production information for Keenan Electronic Components, Inc.
Additional information:
Ⴠ Sales revenue: $10,400,000
Ⴠ Beginning inventory: $575,000
Ⴠ The only spending increase was for material cost due to increased production. All other spending as shown
above was unchanged.
Ⴠ Sales of all parts are the same as the number of units produced.
Keenan Electronic Components, Inc. uses the variable costing method.
Required
(a) Compute the contribution margin, operating income, and ending inventory for Keenan Electronic
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) Charles Simek, the cost manager of Keenan Electronic Components, argues with the controller that
throughput costing is a better method for product costing. Using the information in part b above, re–compute the
operating income for Hi-tec using throughput costing. Explain any differences in the operating incomes
obtained under the two different methods.
112. Consider the following cost and production information for Bedell Metal Company, Inc.
Additional information:
Ⴠ Sales revenue: $20,000,000
Ⴠ Beginning inventory: $1,150,000
Ⴠ Sales of part D-1340: 80 units
Ⴠ Sales of all other parts are the same as the number of units produced.
Ⴠ Sales price of part D-1340: $35,500 per unit
Ⴠ 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.
113. Consider the following cost and production information for Dover Automotive Components, Inc.
Additional information:
Ⴠ Sales revenue: $5,200,000
Ⴠ Beginning inventory: $275,000
Ⴠ The only spending increase was for material cost due to increased production. All other spending as shown
above was unchanged.
Ⴠ 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.
114. 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.
