Flexible Budget

watch the video in the link below:

http://highered.mcgraw-hill.com/olcweb/cgi/pluginpop.cgi?it=wmv::320::240::/sites/dl/free/0073526924/594021/Segment12.wmv::12

Activity in APA 6th Ed. . The only source is:

Hilton, R.W. and Platt, D.E. (2012). Managerial Accounting: Creating Value in a Global Business Environment. New York. McGraw-Hill Irwin.

Cases

I cage 3-31 Lucknow Lighting Ltd. manufactures blackboard chalk for educational uses. The company’s priiilttcl

gr Comparison of Absorption is sold by the box at $50 per unit. Lucknow Lighting uses an actual costing system, which means that

and Variable Costing; Actual the actual costs of direct material, direct labor, and manufacturing overhead are entered into Wot’l’lfl-

Costing process inventory. The actual application rate for manufacturing overhead is computed each year; at-ttml

I (Lit) 72, 3,. 7:) manufacturing overhead is divided by actual production (in units) to compute the application rate. lllftlfr

i , t I motion for Lucknow Lighting‘s first two years of operation is as follows:

Production costs:
Variable manufacturing costs $21900 5149″”
Fixed manutacturing overhead 42,000 42.000
Setting and administrative costs:

Variable 25.000 25,t‘tiirt
Required: Lucknow Lighting Ltd. had no beginning or ending worlc-in-process inventories for either
year.

f

Chapter 8 Absorption and Variable Costing 379

i ‘ I Prepare operating income statements for both years based on absorption costing.

I. _ 2.. Prepare operating income statements for both years based on variable costing.
i. Prepare a numerical reconciliation of the ditTcrcnce in income reported under the two costing
methods used in requirements (I) and (2).
I-.’«-ler to the information given in the preceding case for Lucknow Lighting Ltd. 035° 8-32

Analysis of Differences in

tit.-quired: Absorption-Costing and

I I. Reconcile Lucknow Lighting’s income reported under absorption and variable costing, during each .Variame’C°Sfing Income
3 §-‘= year, by comparing the following two amounts on each income statement: Statemenisi Co”llFlUHlion of
Cost of goods sold Preceding C359

0 Fixed cost (expensed as a period expense)

3. What was Lucknow Lighting’s total income across both years under absorption costing and under

variable costing? – – i
3. What was the total sales revenue across both years under absorption costing and under variable costing? L

e r 4. What was the total of all costs expensed on the income statements across both years under absorp- . i. L L _i
tion costing and under variable costing? ; ‘ ‘ ‘ ‘ ‘i
5. Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue is: I. I r I.
gr across both years [requirement (3)]: (a) under absorption costing and (b) under variable costing. ;i _ ; – _ _i L y
ti. Comment on the results obtained in requirements (I ). (2). (3), and (4) in light of the following a t t t
V ». . assertion: Timing is the key in distinguishing between absorption and variable costing. -; – F
i‘____V___q___,_A_____y______ .__.- ,,, , ,_ _ _ _‘___ ‘______ _____ _W V_ H _____ (fig I ___h_‘ 1-”

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