Consider the following cost and production information for Darrell Building Components, Inc.
Additional information:
∙ Sales revenue: $5,200,000.
∙ Beginning inventory: $275,000.
∙ The only spending increase was for materials 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.
Darrell Building Components, Inc. uses the absorption costing method.
Required:
(a) Compute the (1) gross margin, (2) operating income, and (3) ending inventory for Darrell Building 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 amounts.
(c) Thane Smith, the cost manager of Darrell Building 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 Darrell Building Components using variable costing. Explain any differences in the operating incomes obtained under the two different methods.

Question

Consider the following cost and production information for Darrell Building Components, Inc.  
Additional information:
∙ Sales revenue: $5,200,000.
∙ Beginning inventory: $275,000.
∙ The only spending increase was for materials 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.
Darrell Building Components, Inc. uses the absorption costing method.
Required:
(a) Compute the (1) gross margin, (2) operating income, and (3) ending inventory for Darrell Building 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 amounts.
(c) Thane Smith, the cost manager of Darrell Building 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 Darrell Building Components using variable costing. Explain any differences in the operating incomes obtained under the two different methods.

Quizplus · Accepted Answer

The Answer of Consider the following cost and production information for Darrell Building Components, Inc.  
Additional information:
∙ Sales revenue: $5,200,000.
∙ Beginning inventory: $275,000.
∙ The only spending increase was for materials 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.
Darrell Building Components, Inc. uses the absorption costing method.
Required:
(a) Compute the (1) gross margin, (2) operating income, and (3) ending inventory for Darrell Building 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 amounts.
(c) Thane Smith, the cost manager of Darrell Building 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 Darrell Building Components using variable costing. Explain any differences in the operating incomes obtained under the two different methods.

Consider the Following Cost and Production Information for Darrell Building