Chem Corp is a textile manufacturer that makes cloth for clothing manufacturers. Chem has been a privately held company however the steady growth is enabling Chem Corp expand. Chem Corp plans to go p

Chem Corp is a textile manufacturer that makes cloth for clothing manufacturers. Chem has been a privately held company however

the steady growth is enabling Chem Corp expand. Chem Corp plans to go public by publically selling shares of company stock in to

generate cash to fund growth. After the stock sale, Chem Corp will be a publicly held company and will need to meet SEC financial

statement reporting requirements.

Chem Corp’s management accountant must now prepare Absorption Costing Income Statements to support the new external

reporting requirements. Additionally, the decision must be made as to how internal performance evaluations will be made on

department performance. Chem’s management has asked the management accountant to prepare the following income statements

for comparison: Variable Costing and Absorption (Full) Costing for each of the last two years. Partial Performance Reports for the

two most recent of periods are included.

Additional information includes: production for year 1 = 53,200 units. Production for year 2 = 49,500 units. There was no beginning

inventory in year 1.

Required: Complete each of the following questions. For problems: show your work, provide labels and descriptions of amounts, be

organized in your work and clearly show your solution to the question.

When asked to “Explain” your answer should be a minimum of 50 words supported by course content information and details for full

credit.

1. Prepare “actual” income statements for each year (years 1 and 2) using Variable Costing.

2. Prepare “actual” income statements for each year (years 1 and 2) using Absorption Costing.

3. If you are the production manager, which method do you prefer for evaluation of your performance, Variable or Absorption?

Explain your answer from the perspective of the production manager.

4. What do variable and absorption income statements have to do with the chapter title: “Incentive to Overproduce”? Explain your

answer from the perspective of top management.

5. What do you recommend as Chem Corp’s performance evaluation method to achieve goal congruence? Explain your answer.

Chem Corp

Performance Report of Revenue & Costs

For the fiscal year ended Year 1

Flex Bud Flexible Sales Volume Static

Actual Variance Budget Variance Budget

Units sold 5 0,000 – 5 0,000 ( 3,300) 5 3,300

Revenues 12,250,000 (250,000) 12,500,000 (825,000) 13,325,000

Variable Costs:

Direct Materials 4,256,000 (506,000) 3,750,000 2 47,500 3,997,500

Direct Labor 2,394,000 1 06,000 2,500,000 1 65,000 2,665,000

Var Manufacturing 1,596,000 (96,000) 1,500,000 9 9,000 1,599,000

Var Sell & Admin 7 50,000 – 7 50,000 4 9,500 7 99,500

Fixed Costs

Manufacturing 2 60,000 (10,000) 2 50,000 – 2 50,000

Sell & Admin 5 0,000 – 5 0,000 – 5 0,000

Total Costs 9,306,000 (506,000) 8,800,000 5 61,000 9,361,000

For the fiscal year ended Year 2

Flex Bud Flexible Sales Volume Static

Actual Variance Budget Variance Budget

Units sold 5 1,500 – 5 1,500 ( 2,000) 5 3,500

Revenues 12,617,500 7 0,596 12,546,904 (828,096) 13,375,000

Variable Costs:

Direct Materials 3,960,000 (195,929) 3,764,071 2 48,429 4,012,500

Direct Labor 2,227,500 2 81,881 2,509,381 1 65,619 2,675,000

Var Manufacturing 1,485,000 2 0,629 1,505,629 9 9,371 1,605,000

Var Sell & Admin 7 72,500 (19,686) 7 52,814 4 9,686 8 02,500

Fixed Costs

Manufacturing 2 60,000 (10,000) 2 50,000 – 2 50,000

Sell & Admin 5 0,000 – 5 0,000 – 5 0,000

Total Costs 8,755,000 7 6,895 8,831,895 5 63,105 9,395,000

ATTACHMENT PREVIEW

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ACCT520 – Fall 2013
Chapter 10 – Homework Assignment
Name:
_______________________
Chem Corp is a textile manufacturer that makes cloth for clothing manufacturers.
Chem has been a privately held company however
the steady growth is enabling Chem Corp expand.
Chem Corp plans to go public by publically selling shares of company stock in to
generate cash to fund growth.
After the stock sale, Chem Corp will be a publicly held company and will need to meet SEC financial
statement reporting requirements.
Chem Corp’s management accountant must now prepare Absorption Costing Income Statements to support the new external
reporting requirements.
Additionally, the decision must be made as to how internal performance evaluations will be made on
department performance.
Chem’s management has asked the management accountant to prepare the following income statements
for comparison:
Variable Costing and Absorption (Full) Costing for each of the last two years.
Partial Performance Reports for the
two most recent of periods are included.
Additional information includes:
production for year 1 = 53,200 units. Production for year 2 = 49,500 units.
There was no beginning
inventory in year 1.
Required:
Complete each of the following questions.
For problems: show your work, provide labels and descriptions of amounts, be
organized in your work and clearly show your solution to the question.
When asked to “Explain” your answer should be a minimum of 50 words supported by course content information and details for full
credit.
1. Prepare “actual” income statements for each year (years 1 and 2) using Variable Costing.
2. Prepare “actual” income statements for each year (years 1 and 2) using Absorption Costing.
3. If you are the production manager, which method do you prefer for evaluation of your performance, Variable or Absorption?
Explain your answer from the perspective of the production manager.
4. What do variable and absorption income statements have to do with the chapter title:
“Incentive to Overproduce”?
Explain your
answer from the perspective of top management.
5. What do you recommend as Chem Corp’s performance evaluation method to achieve goal congruence?
Explain your answer.

Unlock Solution Unlocking…

ACCT520 – Fall 2013
Chapter 10 – Homework Assignment
Name:
_______________________
Chem Corp
Performance Report of Revenue & Costs
For the fiscal year ended Year 1
Flex Bud
Flexible
Sales Volume
Static
Actual
Variance
Budget
Variance
Budget
Units sold
50,000

50,000
(3,300)
53,300
Revenues
12,250,000
(250,000)
12,500,000
(825,000)
13,325,000
Variable Costs:
Direct Materials
4,256,000
(506,000)
3,750,000
247,500
3,997,500
Direct Labor
2,394,000
106,000
2,500,000
165,000
2,665,000
Var Manufacturing
1,596,000
(96,000)
1,500,000
99,000
1,599,000
Var Sell & Admin
750,000

750,000
49,500
799,500
Fixed Costs
Manufacturing
260,000
(10,000)
250,000

250,000
Sell & Admin
50,000

50,000

50,000
Total Costs
9,306,000
(506,000)
8,800,000
561,000
9,361,000
For the fiscal year ended Year 2
Flex Bud
Flexible
Sales Volume
Static
Actual
Variance
Budget
Variance
Budget
Units sold
51,500

51,500
(2,000)
53,500
Revenues
12,617,500
70,596
12,546,904
(828,096)
13,375,000
Variable Costs:
Direct Materials
3,960,000
(195,929)
3,764,071
248,429
4,012,500
Direct Labor
2,227,500
281,881
2,509,381
165,619
2,675,000
Var Manufacturing
1,485,000
20,629
1,505,629
99,371
1,605,000
Var Sell & Admin
772,500
(19,686)
752,814
49,686
802,500
Fixed Costs
Manufacturing
260,000
(10,000)
250,000

250,000
Sell & Admin
50,000

50,000

50,000
Total Costs
8,755,000
76,895
8,831,895
563,105
9,395,000

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