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Cost Accounting methods

By applying a variety of cost accounting methods to the operating data of a given year, the controller of Barca, Inc. prepares the following alternative income statements:

A B C D
Sales $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000
(less)
Cost of Goods Sold $ 375,000 $ 250,000 $ 420,000 $ 395,000
(+) Variances:
Direct Materials 15,000 15,000 ----- -----
Direct Labor 5,000 5,000 ----- -----
Factory Overhead 25,000 ----- ----- 25,000
(+) Other Costs (All Fixed) 350,000 475,000 350,000 350,000
Total Costs $ 770,000 $ 745,000 $ 770,000 $ 770,000

Net Income $ 230,000 $ 255,000 $ 230,000 $ 230,000

Both fixed and variable overhead are applied using direct labor hours (where applicable).
There was no flexible budget variance for fixed overhead under standard absorption costing.
The direct labor variance represents a price variance. The firm has no WIP inventories.

1. Match each of the costing methods listed below with the appropriate income statement (A, B, C, or D) by indicating the appropriate letter below: PLEASE PROVIDE BRIED EXPLANATION WHY.

Actual Costing
Normal Absorption Costing
Standard Absorption Costing
Standard Variable Costing

2. During the year, how did the level of finished goods inventory change ? PLEASE PROVIDE BRIED EXPLANATION WHY.

A. increased
B. decreased
C. remained the same
D. cannot be determined from the information given

3. The actual volume of production during the year
A. was higher than the denominator volume level (i.e., the expected volume level)
B. was lower than the denominator volume level
C. was equal to the denominator volume level
D. cannot be compared to the denominator volume level from the information given

PLEASE PROVIDE BRIED EXPLANATION WHY.

4. The variable overhead price/spending variance
A. was greater than zero
B. was less than zero
C. was equal to zero
D. cannot be ascertained from the information given

PLEASE PROVIDE BRIED EXPLANATION WHY.

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Solution Summary

The solution explains some questions relating to cost accounting methods. Income statements for alternatives are determined.

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