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Chapter 21: Q-21-10RQ (page 1167)

In the long run, all costs are controllable. Is this statement true? Why or why not?

Short Answer

Expert verified

Answer

True, all costs are controllable in the long run.

Step by step solution

01

All costs are controllable

Cost that can be controlled by organization is known as controllable cost. It includes both variable and fixed cost.

02

Why all costs are controllable in the long run

All costs are controllable in the long run. The cost is controlled at the appropriate level of management from the production supervisor to upper management.

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Most popular questions from this chapter

Using variable costing, service company

Professional Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee’s territory as a business segment. The company incurs variable costs that include the employees’ wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of July:

Requirements

  1. Calculate the contribution margin ratio for each business segment.
  2. The business segments had the following numbers of customers: Birman, 60; Meech, 70; and Frond, 40. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.
  3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?

Comparing variable and absorption costing Refer to Exercises E21-16 and E21-17.

Requirements:

  1. Which costing method produces the highest operating income? Explain why.
  2. Which costing method produces the highest April 30 balance in Finished Goods Inventory? Explain why

Preparing variable and absorption costing income statements

This problem continues the Piedmont Computer Problem situation from Chapter 20. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is \(750 and the weighed-average variable cost per unit is \)450. The company does not expect the sales mix to vary for the next year. Assume the beginning balance in Finished Goods Inventory is \(0. Additional data for the first month of 2020:

January 2020

Unitsproduced and sold: Sales 945 units Production 1,000 units Variable manufacturing cost per unit \) 450 Sales commission cost per unit 25 Total fixed manufacturing overhead 93,600 Total fixed selling and administrative costs 62,400

Requirements

1. Compute the product cost per unit produced under absorption costing and under variable costing.

2. Prepare income statements for January 2020 using: a. absorption costing. b. variable costing.

3. Is operating income higher under absorption costing or variable costing in January? What causes the difference?

Analyzing profitability Refer to Short Exercise S21-10. Which business segment provided the greatest total contribution margin? Which

business segment had the highest contribution margin ratio?

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:

East Coast

Midland

West Coast

Units sold

71

69

53

Sales price per unit

\(10,300

\)13,600

$12,000

Variable cost per unit

6,283

7,072

7,080

Computing absorption costing gross profit

Refer to your answers to Short Exercise S21-6. Product X sells for \(175 per unit. Assume no beginning inventories. Calculate the gross profit using absorption costing when Adamson:

  1. Produces and sells 2,000 units.
  2. Produces 2,500 units and sells 2,000 units.
  3. Produces 5,000 units and sells 2,000 units.

S21-6 Direct materials \) 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per ye
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