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allocated at $$7$ per machine$-$hour based on fixed manufacturing costs of $$560,\frac{000}{80},000$ machine$-$hours, which is the level Osborne uses as its denominator level.

inventory in $2022$ is $35,000$ units; ending inventory is $55,000$ units. Sales in $2022$ are $715,000$ units.

The same standard unit costs persisted throughout $2021$ and $2022.$ For simplicity, assume that there are no price, spending, or efficiency variances.

Required

Required

Requirement

Complete the

operating loss

Prepare an income statement for $2022$ assuming that the production$-$volume variance is written off

at year$-$end as an adjustment to cost of goods sold.

The president has heard about variable costing. She asks you to recast the $2022$ statement as it

would appear under variable costing.

Explain the difference in operating income as calculated in requirements $1$ and $2.$

Graph how fixed manufacturing overhead is accounted for under absorption costing. That is$,$ there will

be two lines: one for the budgeted fixed manufacturing overhead $($which is equal to the actual fixed

manufacturing overhead in this case$)$ and one for the fixed manufacturing overhead allocated. Show

the production$-$volume variance in the graph.

Critics have claimed that a widely used accounting system has led to undesirable buildups of

inventory levels. $($a$)$ Is variable costing or absorption costing more likely to lead to such buildups?

Why? $($b$)$ What can managers do to counteract undesirable inventory buildups?

ent to cost of goods sold.

e $($U$).$ Use parentheses or a minus sign for an

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