Illustration #1 - Variable and absorption costing, explaining

operating-income differences.
Crystal Clear Corporation manufactures and sells 50-inch television sets
and uses standard costing. Actual data relating to January, February, and
March 2017 are as follows:
January February March
Unit data
Beginning entry 0 100 100
Production 1,400 1375 1430
Sales 1,300 1375 1455
Variable costs
Manufacturing cost per unit $ 950
produced
Operating (marketing) cost per $725
unit sold
Fixed costs
Manufacturing costs $490,000 $490,000 $490,000
Operating (marketing) costs $120,000 $120,000 $120,000

The selling price per unit is $3,500. The budgeted level of production used
to calculate the budgeted fixed manufacturing cost per unit is 1,400 units.
There are no price-, efficiency-, or spending variances. Any production-
volume variance is written off to cost of goods sold in the month in which
it occurs.

Required:

1. Prepare income statements for Crystal Clear in January, February, and

March 2017 under (a) variable costing and (b) absorption costing.
2. Explain the difference in operating income for January, February, and
March under variable costing and absorption costing.
Throughput costing (continuation).

The variable manufacturing costs per unit of Crystal Clear Corporation

are as follows:

January February March

Direct material cost per unit $550 $550 $550
Direct manufacturing labor cost per unit 175 175 175
Manufacturing overhead cost per unit 225 225 225
$950 $950 $950

Required:

1. Prepare income statements for Crystal Clear in January, February, and

March 2017 under throughput costing.

2. Contrast the results in requirement 1 with those in requirement 1 of

Exercise 9-23.

3. Give one motivation for Crystal Clear to adopt throughput costing.

Illustration #2 (9-29) - Capacity management, denominator-level
capacity concepts.

Match each of the following numbered descriptions with one or more of

the denominator-level capacity concepts by putting the appropriate
letter(s) by each item:

a. Theoretical capacity
b. Practical capacity
c. Normal capacity utilization
d. Master-budget capacity utilization

Required:
1. Is based on producing at full efficiency all the time
2. Measures the denominator level in terms of what a plant can supply
3. Measures the denominator level in terms of demand for the output of
the plant
4. Represents the expected level of capacity utilization for the next
budget period
5. Should be used for performance evaluation in the current year
6. Takes into account seasonal, cyclical, and trend factors
7. Highlights the cost of capacity acquired but not used
8. Represents an ideal benchmark
9. Hides the cost of capacity acquired but not used
10. If used as the denominator-level concept, would avoid the
restatement of unit costs when expected demand levels change
11. Should be used for long-term pricing purposes