Assignment
Graham, Inc.
QUESTIONS
1. Approximately how busy (relative to a normal month) was the factory in August?
2. Can you construct an income statement for a "normal" month under both absorption costing and direct costing? Analyze the profit variance for August versus a normal month.
3. Be prepared to explain the profit differences shown in Exhibits 1 and 2 (5-22,928 vs. 5+34,272) and in Exheditibit 3 (5+141,036 vs. 5-59,432).
4. Could the problem in the case ever arise with respect to annual income statements?
5. From a managerial perspective, how does Graham, Inc. earn a profit? Which costing system best reflects the basic economics of the business?
6. What do you recommend?