Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 9, Problem 9.47P
Absorption, variable, and throughput costing. Tesla Motors assembles the fully electric Model S-85 automobile at its Fremont, California, plant. The standard variable
| Direct materials | $36,000 |
| Direct manufacturing labor | $10,800 |
| Variable manufacturing overhead | $12,000 |
Variable manufacturing overhead is allocated to vehicles on the basis of assembly time. The standard assembly time per vehicle is 20 hours.
The Fremont plant is highly automated and has a practical capacity of 4,000 vehicles per month. The budgeted monthly fixed manufacturing overhead is $45 million. Fixed manufacturing overhead is allocated on the basis of the standard assembly time for the budgeted normal capacity utilization of the plant. For 2017, the budgeted normal capacity utilization is 3,000 vehicles per month.
Tesla started production of the Model S-85 in 2017. The actual production and sales figures for the first three months of the year are:
Franz Holzhausen is SVP of Tesla and director of the Fremont plant. His compensation includes a bonus that is 0.25% of monthly operating income, calculated using absorption costing. Tesla prepares absorption-costing income statements monthly, which include an adjustment for the production-volume variance occurring in that month. There are no variable cost variances or fixed overhead spending variances in the first three months of 2017.
The Fremont plant is credited with revenue (net of marketing costs) of $96,000 for the sale of each Tesla S-85 vehicle.
- 1. Compute (a) the fixed manufacturing cost per unit and (b) the total manufacturing cost per unit.
- 2. Compute the monthly operating income for January, February, and March under absorption costing. What amount of bonus is paid each month to Franz Holzhausen?
- 3. How much would the use of variable costing change Holzhausen’s bonus each month if the same 0.25% figure were applied to variable-costing operating income?
- 4. Explain the differences in Holzhausen’s bonuses in requirements 2 and 3.
- 5. How much would the use of throughput costing change Holzhausen’s bonus each month if the same 0. 25% figure were applied to throughput-costing operating income?
- 6. What are the different approaches Tesla Motors could take to reduce possible undesirable behavior associated with the use of absorption costing at its Fremont plant?
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Chapter 9 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 9 - Differences in operating income between variable...Ch. 9 - Why is the term direct costing a misnomer?Ch. 9 - Do companies in either the service sector or the...Ch. 9 - Explain the main conceptual issue under variable...Ch. 9 - Companies that make no variable-cost/fixed-cost...Ch. 9 - The main trouble with variable costing is that it...Ch. 9 - Give an example of how, under absorption costing,...Ch. 9 - What are the factors that affect the breakeven...Ch. 9 - Critics of absorption costing have increasingly...Ch. 9 - What are two ways of reducing the negative aspects...
Ch. 9 - Prob. 9.11QCh. 9 - Describe the downward demand spiral and its...Ch. 9 - Will the financial statements of a company always...Ch. 9 - Prob. 9.14QCh. 9 - The difference between practical capacity and...Ch. 9 - In comparing the absorption and variable cost...Ch. 9 - Queen Sales, Inc. has just completed its first...Ch. 9 - King Tooling has produced and sold the following...Ch. 9 - The following information relates to Drexler Inc.s...Ch. 9 - Prob. 9.20MCQCh. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-21). The...Ch. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-23). The...Ch. 9 - Variable versus absorption costing. The Tomlinson...Ch. 9 - Absorption and variable costing. (CMA) Miami,...Ch. 9 - Absorption versus variable costing. Horace Company...Ch. 9 - Candyland uses standard costing to produce a...Ch. 9 - Capacity management, denominator-level capacity...Ch. 9 - Denominator-level problem. Thunder Bolt Inc., is a...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Variable costing versus absorption costing. The...Ch. 9 - Throughput Costing (continuation of 9-32) 1....Ch. 9 - Variable costing and absorption costing, the Z-Var...Ch. 9 - Comparison of variable costing and absorption...Ch. 9 - Effects of differing production levels on...Ch. 9 - Alternative denominator-level capacity concepts,...Ch. 9 - Motivational considerations in denominator-level...Ch. 9 - Denominator-level choices, changes in inventory...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Downward demand spiral. Market.com is about to...Ch. 9 - Absorption costing and production-volume...Ch. 9 - Operating income effects of denominator-level...Ch. 9 - Variable and absorption costing, actual costing....Ch. 9 - Prob. 9.45PCh. 9 - Cost allocation, responsibility accounting, ethics...Ch. 9 - Absorption, variable, and throughput costing....Ch. 9 - Costing methods and variances, comprehensive. Rob...
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