Reference no: EM132581241

Question 1) The Downey Screen Plant of Allington Windows manufactures new and replacement screens. The plant produces more than 500 different screen sizes and offers four different aluminum frame colors. Plant overhead is absorbed to each screen produced using the square inches of the screen as the allocation base. (For example, a screen with dimensions 20 __7 32 width × 38 __21 32 height has 781.581 square inches.) The single plantwide overhead rate, estimated before the year begins, is based on a flexible budget (budgeted fixed overhead plus budgeted variable overhead) divided by budgeted volume. Volume is measured in square inches of the screens produced.

The following table summarizes operations for the year:

Budgeted variable overhead (per sq in.) $0.01

Actual overhead incurred $4,287,482

Budgeted fixed overhead $3,594,240

Overabsorbed overhead $797,759

Actual volume (sq in.) 141,256,700

Required:

Calculate the budgeted volume amount (in screen square inches) Downey Screen Plant used in computing the plantwide overhead rate for the year.

Question 2) Federal Mixing (FM) is a division of Federal Chemicals, a large diversified chemical company. FM provides mixing services for both outside customers and other Federal divisions. FM buys or receives liquid chemicals and combines and packages them according to the customer's specifications. FM computes its divisional net income on both a fully absorbed and variable costing basis. For the year just ending, it reported Net Income Absorption costing $13,800,000 Variable costing 12,600,000 Difference $ 1,200,000 Overhead is assigned to products using machine hours. There is no finished goods inventory at FM, only work-in-process (WIP) inventory. As soon as a product is completed, it is shipped to the customer. The beginning inventory based on absorption costing was valued at $6.3 million and contained 70,000 machine hours. The ending WIP inventory based on absorption costing was valued at $9.9 million and contained 90,000 machine hours.

Required:

Write a short nontechnical note to senior management explaining why variable costing and absorption costing net income amounts differ.