05 Jun Question ACT 5733 Advanced Managerial Accounting
Question
ACT 5733 Advanced Managerial Accounting
Spring 2 2015
HW #3
Directions: Answer all five questions. Please submit your work in Word or PDF formats
only. You can submit an Excel file to support calculations, but please cut and paste your
solutions into the Word or PDF file. Be sure to show how you did your calculations. Please
be sure to document any source you use. Please run spell check and proofread your
answers.
Question #1
Consider the following information:
Beginning inventory (units)
Budgeted units to be produced
Actual units produced
Units sold
Variable manufacturing costs per unit produced
Variable selling costs per unit sold
Fixed manufacturing costs
Fixed selling costs
Selling price per unit
Q1
0
40,000
39,600
39,300
$70
$20
$4,000,000
$1,000,000
$240
Q2
300
40,000
40,300
40,400
$70
$20
$4,000,000
$1,000,000
$240
Q3
200
40,000
40,500
40,500
$70
$20
$4,000,000
$1,000,000
$240
There are no price, efficiency, or spending variances, and any production-volume variance is
directly written off to cost of goods in the quarter in which it occurs.
a) Prepare income statements for Q1, Q2, and Q3 using variable costing and absorption costing.
b) Explain the differences in operating income between the two costing systems for each
quarter. Be specific!
Question #2
a) Under which inventory costing method would managers have an incentive to build excess
inventory? What is it about that method that provides the incentive? Be sure to justify your
answer.
b) What steps can a manager take to reduce the incentive to build excess inventory? Be specific!
Question #3
a) How does the choice of the denominator level capacity impact income reported under variable
costing? Be sure to justify your answer.
b) How does the choice of the denominator level capacity impact income reported under full
absorption costing? Be sure to justify your answer.
Question #4
A firm expects to sell 365,000 units of its product annually. It estimates that it costs $7,300 to
place an order and that each unit costs $4.00 annually to carry in inventory. It takes 9 days to
receive an order once it is placed. Assume that the store is open every day of the year.
a) How many units should the firm order at a time if it wants to minimize the sum of ordering
and carrying costs?
b) How many orders will it place in a year?
c) What will its average inventory level be during the year?
d) What is its reorder point?
Question #5
If a firm is considering implementing a JIT inventory system, list and describe the accounting
issues that the firm should consider when making this decision.
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