Reference no: EM133131409
Question - Inman Inc. is a manufacturer of a single product and is starting to develop a budget for the coming year. Because cost of goods manufactured is the biggest item, Inman's senior management is reviewing how costs are calculated. In addition, senior management wants to develop a budgeting system that motivates managers and other workers to work toward the corporate goals. Inman has incurred the following costs to make 100,000 units during the month of September.
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Materials
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$400,000
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Direct labor
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100,000
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Variable manufacturing overhead
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20,000
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Variable selling and administrative costs
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80,000
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Fixed manufacturing overhead
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200,000
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Fixed selling and administrative costs
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300,000
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Inman Inc.'s September 1 inventory consisted of 10,000 units valued at $72,000 using absorption costing. Total fixed costs and variable costs per unit have not changed during the past few months. In September, Inman sold 106,000 units at $12 per unit.
1. Using absorption costing, calculate the following.
a. Inman's September manufacturing cost per unit.
b. Inman's September 30 inventory value.
c. Inman's September net income.
2. Using variable costing, calculate the following.
a. Inman's September manufacturing cost per unit.
b. Inman's September 30 inventory value
c. Inman's September net income
3. Identify and explain one reason why the income calculated in the previous two questions might differ.
4. Identify and discuss one advantage of using each of the following:
4-a. absorption costing
4-b. variable costing8
5-a. Identify one strength and one weakness each of authoritative budgeting and participative budgeting.
5-b. Which of these budgeting methods will work best for Inman Inc.? Explain your answer.
5-c. Identify and explain one method the top managers can take to restrict the Production Manager from taking advantage of budgetary slack.
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