Chapter 7 Variable Costing: a tool for Management True/False Questions
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16. How would the following costs be classified (product or period) under variable costing at a retail clothing store?
Ans: B
A) whether variable manufacturing costs should be included as product costs. B) whether fixed manufacturing costs should be included as product costs. C) whether fixed manufacturing costs and fixed selling and administrative costs should be included as product costs. D) none of these. Ans: B
A) direct material cost B) property taxes on the factory building C) sales manager's salary D) all of the above Ans: A
A) variable costing treats only direct materials and direct labor as product cost while absorption costing treats direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. B) variable costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs while absorption costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. C) variable costing treats only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs. D) variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs. Ans: D
A) absorption costing. B) job-order costing. C) variable costing. D) process costing. Ans: C
Ans: D LO: 2 22. When sales are constant, but the production level fluctuates, net operating income determined by the variable costing method will: A) fluctuate in direct proportion to changes in production. B) remain constant. C) fluctuate inversely with changes in production. D) be greater than net operating income under absorption costing. Ans: B LO: 2 23. Under the variable costing method, which of the following is always expensed in its entirety in the period in which it is incurred? A) fixed manufacturing overhead cost B) fixed selling and administrative expense C) variable selling and administrative expense D) all of the above Ans: D LO: 2 Level: Hard 24. Which of the following will usually be found on an income statement prepared using the absorption costing method?
Ans: C LO: 2 25. Net operating income under variable and absorption costing will generally: A) always be equal. B) never be equal. C) be equal only when production and sales are equal. D) be equal only when production exceeds sales. Ans: C
A) greater than net operating income reported under absorption costing. B) less than net operating income reported under absorption costing C) equal to net operating income reported under absorption costing. D) higher or lower because no generalization can be made. Ans: B
A) change in the quantity of units in inventory times the fixed manufacturing overhead rate per unit. B) number of units produced during the period times the fixed manufacturing overhead rate per unit. C) change in the quantity of units in inventory times the variable manufacturing cost per unit. D) number of units produced during the period times the variable manufacturing cost per unit. Ans: A
A) tend to fluctuate in the same direction as fluctuations in the level of production. B) tend to remain constant. C) tend to fluctuate inversely with fluctuations in the level of production. D) none of these Ans: A
A) they omit variable expenses entirely in computing net operating income. B) they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories. C) they include all fixed manufacturing overhead on the income statement each year as a period cost. D) they ignore inventory levels in computing income charges. Ans: B
Ans: B
A) $800 decrease B) $200 decrease C) $0 D) $200 increase Ans: B Solution: Change in inventory × Fixed manufacturing costs per unit = 100 × $2 = $200 decrease 32. Shun Corporation manufactures and sells a hand held calculator. The following information relates to Shun's operations for last year:
What is Shun's unit product cost under absorption costing for last year? A) $4.10 B) $4.55
C) $5.85 D) $6.30
Ans: C Solution: Unit fixed manufacturing overhead = Fixed manufacturing overhead ÷ Units produced = $260,000 ÷ 400,000 units = $0.65 per unit Unit product cost = $5.20 + $0.65 = $5.85 33. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the unit product cost for the month under variable costing? A) $118 B) $94
C) $111 D) $87
Ans: D Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $33 + $53 + $1 = $87 34. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the unit product cost for the month under absorption costing? A) $67 B) $105
C) $111 D) $73
Ans: B Solution: Unit fixed manufacturing overhead = $72,200 ÷ 1,900 = $38 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $33 + $32 + $2 + $38 = $105 35. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the total period cost for the month under the variable costing approach? A) $138,600 B) $134,400 C) $46,200 D) $184,800 Ans: D
Period cost = Total variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $50,400 + $46,200 + $88,200 = $184,800 36. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the total period cost for the month under the absorption costing approach? A) $56,700 B) $65,500 C) $8,800 D) $37,800 Ans: A
Total variable selling and administrative cost = $9 × 2,100 = $18,900 Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $18,900 + $37,800 = $56,700 37. Mullee Corporation produces a single product and has the following cost structure:
The unit product cost under absorption costing is: A) $149 B) $65
C) $63 D) $128
Ans: D Solution: Unit fixed manufacturing overhead = $441,000 ÷ 7,000 = $63 Unit product cost = $63 + $51 + $12 + $2 = $128 38. Stoneberger Corporation produces a single product and has the following cost structure:
The unit product cost under variable costing is: A) $128 B) $125
C) $202 D) $131
Ans: A Solution: Unit product cost = $50 + $72 + $6 = $128 39. Beamish Inc., which produces a single product, has provided the following data for its most recent month of operations:
There were no beginning or ending inventories. The unit product cost under absorption costing was: A) $93 B) $97
C) $136 D) $194
Ans: C Solution: Unit fixed manufacturing overhead = $312,000 ÷ 8,000 = $39 Unit product cost = $37 + $56 + $4 + $39 = $136 40. Kray Inc., which produces a single product, has provided the following data for its most recent month of operations:
There were no beginning or ending inventories. The unit product cost under variable costing was: A) $111 B) $190
C) $117 D) $110
Ans: A Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $91 + $13 + $7 = $111 41. The following data pertain to last year's operations at Clarkson, Incorporated, a company that produces a single product:
What was the absorption costing net operating income last year? A) $44,000 B) $48,000 C) $50,000 D) $49,000 Ans: B LO: 2
Unit fixed manufacturing overhead = $200,000 ÷ 100,000 = $2 Unit product cost = $1.50 + $2.50 + $1 + $2 = $7
42. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
The total contribution margin for the month under the variable costing approach is: A) $155,000 B) $260,400 C) $192,200 D) $83,400 Ans: C LO: 2
43. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the net operating income for the month under variable costing? A) $12,700 B) $5,600 C) $1,700 D) $14,400 Ans: A LO: 2
44. Swifton Company produces a single product. Last year, the company had net operating income of $40,000 using variable costing. Beginning and ending inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost was $3.00 per unit, what was the income using absorption costing? A) $15,000 B) $25,000 C) $40,000 D) $55,000 Ans: D
Difference between absorption costing net income and variable costing net income = Change in inventory in units × Unit fixed manufacturing overhead = (27,000 − 22,000) × $3 = 5,000 × $3 = $15,000 Net income under absorption costing = $40,000 + $15,000 = $55,000 45. Blake Company produces a single product. Last year, Blake's net operating income under absorption costing was $3,600 lower than under variable costing. The company sold 10,000 units during the year, and its variable costs were $9 per unit, of which $1 was variable selling expense. If production cost was $11 per unit under absorption costing, then how many units did the company produce during the year? A) 8,200 units B) 8,800 units C) 11,200 units D) 11,800 units Ans: B Level: Hard Solution: Direct material + Direct labor + Variable manufacturing overhead = Variable unit product cost = $9 – $1 = $8 Unit fixed manufacturing overhead = $11 – $8 = $3 Difference in net income between methods ÷ Unit fixed manufacturing overhead = ($3,600) ÷ $3 per unit = (1,200) units Units produced = Units sold + Change in inventory = 10,000 + (1,200) = 8,800
Pungent's cost structure and selling price were the same for both years. What is Pungent's variable costing net operating income for Year 2? A) $48,000 B) $50,000 C) $54,000 D) $56,000 Ans: C Level: Hard
Unit fixed manufacturing overhead = Difference in net income ÷ Change in inventory = ($44,000 – $38,000) ÷ (40,000 – 37,000) = $6,000 ÷ 3,000 = $2 Variable costing net operating income = Absorption costing net income − Difference in net operating income = $52,000 − [(40,000 − 41,000) × $2)] = $52,000 − ($2,000) = $54,000 47. Sipho Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $90,900. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $21,900. What was the absorption costing net operating income last year? A) $69,000 B) $90,900 C) $21,900 D) $112,800 Ans: A
= $90,900 – $21,900 = $69,000 48. Last year, Kirsten Corporation's variable costing net operating income was $63,400. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $10,700. What was the absorption costing net operating income last year? A) $10,700 B) $74,100 C) $63,400 D) $52,700 Ans: D
Absorption costing net income = Variable costing net income – fixed manufacturing overhead costs released from inventory = $63,400 – $10,700 = $52,700 49. Bellue Inc. manufactures a variety of products. Variable costing net operating income was $96,300 last year and ending inventory decreased by 2,600 units. Fixed manufacturing overhead cost was $1 per unit. What was the absorption costing net operating income last year? A) $2,600 B) $93,700 C) $96,300 D) $98,900 Ans: B
Absorption costing net income = Variable costing net income − fixed manufacturing overhead costs released from inventory = $96,300 − [2,600 × $1] = $96,300 − $2,600 = $93,700 50. Last year, Tinklenberg Corporation's variable costing net operating income was $52,400 and its ending inventory decreased by 1,400 units. Fixed manufacturing overhead cost was $8 per unit. What was the absorption costing net operating income last year? A) $41,200 B) $11,200 C) $63,600 D) $52,400 Ans: A
Absorption costing net income = Variable costing net income − fixed manufacturing overhead costs released from inventory = $52,400 − [1,400 × $8] = $52,400 − $11,200 = $41,200 Use the following to answer questions 51-53:
Sales totaled $840,000 for the year, variable selling expenses totaled $60,000, and fixed selling and administrative expenses totaled $180,000. There were no units in the beginning inventory. Assume that direct labor is a variable cost. 51. The contribution margin per unit would be: A) $25
B) $39 C) $34
D) $35 Ans: C LO: 2 Level: Hard Solution:
52. Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year would be: A) $135,000 B) $93,000 C) $105,000 D) $0
Ans: A Solution: Unit fixed manufacturing overhead = $210,000 ÷ 15,000 = $14 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $10 + $12 + $9 + $14 = $45 Carrying value = Unit product cost × Ending inventory in units = $45 × (15,000 − 12,000) = $45 × 3,000 = $135,000
A) $42,000 higher than under absorption costing B) $30,000 higher than under absorption costing C) $30,000 lower than under absorption costing D) $42,000 lower than under absorption costing Ans: D LO: 2 Solution: Unit fixed manufacturing overhead × Change in inventory in units = $14 × (15,000 − 12,000) = $14 × 3,000 = $42,000 Since the units produced are greater than the units sold (inventory increased), net income under absorption costing will be higher than net income under variable costing. Use the following to answer questions 54-61: Abdi Company, which has only one product, has provided the following data concerning its most recent month of operations:
54. What is the unit product cost for the month under variable costing? A) $77 B) $66
C) $68 D) $57
Ans: D Solution: Direct materials + Direct labor + Variable manufacturing overhead = $20 + $30 + $7 = $57 55. What is the unit product cost for the month under absorption costing? A) $66
B) $77 C) $57
D) $68 Ans: A
Unit fixed manufacturing overhead = $65,700 ÷ 7,300 = $9 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $20 + $30 + $7 + $9 = $66 56. The total contribution margin for the month under the variable costing approach is: A) $91,000 B) $168,000 C) $105,000 D) $25,300 Ans: A LO: 2 Solution:
Total contribution margin = $13 × 7,000 = $91,000 57. The total gross margin for the month under the absorption costing approach is: A) $105,000 B) $124,800 C) $7,000 D) $91,000 Ans: A LO: 2
Unit fixed manufacturing overhead = $9 Unit product cost under absorption costing = $20 + $30 + $7 + $9 = $66
58. What is the total period cost for the month under the variable costing approach? A) $65,700 B) $163,700 C) $98,000 D) $86,700 Ans: B LO: 2 Level: Hard
Variable selling and administrative cost + Fixed costs = ($11 × 7,000) + ($65,700 + $21,000) = $77,000 + $86,700 = $163,700 59. What is the total period cost for the month under the absorption costing approach? A) $98,000 B) $65,700 C) $21,000 D) $163,700 Ans: A LO: 2 Level: Hard Solution: Variable selling and administrative cost + Fixed selling and administrative cost = $11 × 7,000 + $21,000 = $77,000 + $21,000 = $98,000 60. What is the net operating income for the month under variable costing? A) $2,700 B) $4,300 C) $7,000 D) $(12,800) Ans: B LO: 2 Solution:
61. What is the net operating income for the month under absorption costing? A) $7,000 B) $4,300 C) $(12,800) D) $2,700 Ans: A LO: 2
Use the following to answer questions 62-65: Hopkins Company manufactures a single product. The following data pertain to the company's operations last year:
At the beginning of the year there were no units in inventory. A total of 12,000 units were produced during the year, and 10,000 units were sold. 62. Under variable costing, the unit product cost is: A) $8.00
B) $10.00 C) $12.00 D) $14.00 Ans: A
Production cost = $8 63. Under absorption costing, the unit product cost is: A) $8.00
B) $10.00 C) $12.00 D) $15.00 Ans: C
Unit fixed manufacturing overhead = $48,000 ÷ 12,000 = $4 Unit product cost = $8 + $4 = $12 64. The net operating income under variable costing would be: A) $64,000 B) $60,000 C) $56,000 D) $52,000 Ans: C LO: 2 Solution:
65. The net operating income under absorption costing would be: A) the same as the income under variable costing. B) $8,000 greater than the income under variable costing. C) $12,000 greater than the income under variable costing. D) $8,000 less than the income under variable costing. Ans: B LO: 2
Unit fixed manufacturing overhead × Change in number of units in ending inventory = $4 × (12,000 − 10,000) = $4 × 2,000 = $8,000 greater than the income under variable costing since inventory increased Use the following to answer questions 66-68: Phearsum Corporation manufactures a parachute. Shown below is Phearsum's cost structure:
In its first year of operations, Phearsum produced and sold 4,000 parachutes. The parachutes sold for $310 each. 66. If Phearsum would have sold only 3,800 parachutes in its first year, what total amount of cost would have been assigned to the 200 parachutes in finished goods inventory under the variable costing method? A) $28,000 B) $32,000 C) $34,000 D) $49,100 Ans: B
Unit product cost = $160 Total cost of ending finished goods inventory = $160 × 200 = $32,000 67. Refer back to the original data. How would Phearsum's absorption costing net operating income been affected in its first year if only 3,800 parachutes were sold instead of 4,000? A) net operating income would have been $2,350 lower B) net operating income would have been $10,900 lower C) net operating income would have been $12,900 lower D) net operating income would have been $28,000 lower Ans: B LO: 1,2 Level: Hard Solution: Unit fixed manufacturing overhead = $342,000 ÷ 4,000 = $85.50 Unit product cost under absorption costing = $160 + $85.50 = $245.50 Unit gross margin = $310 − $245.50 = $64.50
68. Refer back to the original data. How would Phearsum's variable costing net operating income been affected in its first year if 4,500 parachutes were produced instead of 4,000 and Phearsum still sold 4,000 parachutes? A) net operating income would not have been affected B) net operating income would have been $38,000 higher C) net operating income would have been $57,000 higher D) net operating income would have been $75,000 lower Ans: A LO: 1,2 Use the following to answer questions 69-72: Feery Company, which has only one product, has provided the following data concerning its most recent month of operations:
69. What is the unit product cost for the month under variable costing? A) $72 B) $90
C) $83 D) $101
Ans: A Solution: Direct materials + Direct labor + Variable manufacturing overhead = $32 + $34 + $6 = $72 70. What is the unit product cost for the month under absorption costing? A) $83
B) $90 C) $72
D) $101 Ans: B
Unit fixed manufacturing overhead = $68,400 ÷ 3,800 = $18 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $32 + $34 + $6 + $18 = $90 71. What is the net operating income for the month under variable costing? A) $1,800 B) $16,700 C) $9,500 D) $18,500 Ans: B LO: 2 Solution:
72. What is the net operating income for the month under absorption costing? A) $18,500 B) $1,800 C) $9,500 D) $16,700 Ans: A LO: 2
Use the following to answer questions 73-76: Jarbo Company, which has only one product, has provided the following data concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. 73. What is the unit product cost for the month under variable costing? A) $76
B) $103 C) $84
D) $111 Ans: A
Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $13 + $59 + $4 = $76 74. What is the unit product cost for the month under absorption costing? A) $84
B) $76 C) $103
D) $111 Ans: C
Unit fixed manufacturing overhead = $97,200 ÷ 3,600 = $27 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $13 + $59 + $4 + $27 = $103 75. What is the net operating income for the month under variable costing? A) $3,800 B) $24,400 C) $9,200 D) $8,100 Ans: C LO: 2 Solution:
76. What is the net operating income for the month under absorption costing? A) $8,100 B) $9,200 C) $3,800 D) $24,400 Ans: C LO: 2
Use the following to answer questions 77-79: Beach Corporation, which produces a single product, budgeted the following costs for its first year of operations. These costs are based on a budgeted volume of 30,000 towels produced and sold:
During the first year of operations, Beach Towel actually produced 30,000 towels but only sold 24,000 towels. Actual costs did not fluctuate from the cost behavior patterns described above. The 24,000 towels were sold for $16 per towel. Assume that direct labor is a variable cost. 77. What is the total cost that would be assigned to Beach Towel's finished goods inventory at the end of the first year of operations under the variable costing method? A) $43,200 B) $45,600 C) $55,200 D) $64,800 Ans: A
Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead) ÷ 30,000 units = ($96,000 + $48,000 + $72,000) ÷ 30,000 = $7.20 Total cost of ending finished goods inventory = Unit product cost × Ending inventory = $7.20 × (30,000 − 24,000) = $7.20 × 6,000 = $43,200 78. Under the absorption costing method, what is Beach Towel's actual net operating income for its first year? A) $60,000 B) $115,200 C) $117,600 D) $124,800 Ans: C LO: 2 Solution: Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead) ÷ 30,000 units = ($96,000 + $48,000 + $72,000 + $60,000) ÷ 30,000 = $9.20 Unit variable selling and administrative cost = $12,000 ÷ 30,000 = $0.40
79. Assuming no change in cost structure, which of the following would have increased Beach Towel's net operating income under the variable costing method in its first year of operations? A) an increase in sales volume with no increase in production volume B) an increase in production volume with no increase in sales volume C) both A and B above D) none of the above Ans: A LO: 2
During June, the company's variable production costs were $10 per unit and its fixed manufacturing overhead totaled $60,000. A total of 10,000 units were produced during June and the company had 1,000 units in the beginning inventory. The company uses the LIFO method to value inventories. 80. The contribution margin per unit during June was: A) $20
B) $18 C) $16
D) $14 Ans: B LO: 2 Solution:
81. The carrying value on the balance sheet of the company's inventory on June 30 under the variable costing method would be: A) $10,000 B) $12,000 C) $15,000 D) $24,000 Ans: C
= 1,000 + 10,000 − 9,500 = 1,500 Carrying value = Ending inventory in units × Variable production cost = 1,500 × $10 = $15,000 82. Net operating income under the variable costing method for June would be: A) $36,000 B) $40,000 C) $53,000 D) $60,000 Ans: A LO: 2 Solution:
83. The break-even point in units for the month under variable costing would be: A) 6,000 units B) 6,750 units C) 7,500 units D) 9,000 units Ans: C
Fixed costs ÷ Unit contribution margin = (Fixed manufacturing overhead + Fixed selling and administrative) ÷ Unit contribution margin = ($60,000 + $75,000) ÷ ($171,000 ÷ 9,500) = $135,000 ÷ $18 per unit = 7,500 units Use the following to answer questions 84-87: Haaikon Company, which has only one product, has provided the following data concerning its most recent month of operations:
84. What is the unit product cost for the month under variable costing? A) $77 B) $57
C) $69 D) $65
Ans: B Solution: Unit product cost = Direct materials + Direct Labor + Variable manufacturing overhead = $17 + $39 + $1 = $57 85. The total contribution margin for the month under the variable costing approach is: A) $56,100 B) $28,500 C) $95,700 D) $69,300 Ans: D LO: 2 Solution:
86. What is the total period cost for the month under the variable costing approach? A) $40,800 B) $90,300 C) $49,500 D) $63,900 Ans: B LO: 2 Level: Hard
Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = ($8 × 3,300) + $40,800 + $23,100 = $26,400 + $40,800 + $23,100 = $90,300 87. What is the net operating income for the month under variable costing? A) $6,600 B) $(300) C) $5,400 D) $1,200 Ans: C LO: 2 Solution:
Use the following to answer questions 88-89: Ibarra Company, which has only one product, has provided the following data concerning its most recent month of operations:
88. What is the unit product cost for the month under variable costing? A) $71 B) $66
C) $56 D) $61
Ans: C Solution: Product cost = Direct materials + Direct labor + Variable manufacturing overhead = $22 + $28 + $6 = $56 89. What is the net operating income for the month under variable costing? A) $0
B) $(19,800) C) $(3,000) D) $3,000 Ans: C LO: 2 Solution:
Use the following to answer questions 90-92: Yankee Company manufactures a single product. The company has the following cost structure:
Last year, 4,000 units were produced and 3,500 units were sold. There were no beginning inventories. 90. Under variable costing, the unit product cost would be: A) $4
B) $5 C) $7
D) $8 Ans: A
Production cost = $4 91. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be: A) the same as under absorption costing B) $1,500 less than under absorption costing C) $2,000 higher than under absorption costing D) $2,000 less than under absorption costing Ans: B
Unit fixed manufacturing overhead = $12,000 ÷ 4,000 = $3 Difference in carrying value of ending finished goods inventory = Unit fixed manufacturing overhead × Change in inventory in units = $3 × (4,000 − 3,500) = $1,500 less than under absorption costing 92. Under absorption costing, the cost of goods sold for the year would be: A) $28,000 B) $24,500 C) $17,500 D) $14,000 Ans: B LO: 2 Solution: Unit fixed manufacturing overhead = $12,000 ÷ 4,000 = $3 Product cost = $4 + $3 = $7 Cost of goods sold = $7 × 3,500 = $24,500 Use the following to answer questions 93-94: Peterson Company produces a single product. Data from the company's records for last year follow:
93. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be: A) $90,000 B) $104,000 C) $105,000 D) $135,000 Ans: A Source: CPA, adapted
Unit variable product cost = $630,000 ÷ 70,000 = $9 Change in inventory in units = 70,000 − 60,000 = 10,000 Carrying value of ending inventory = $9 × 10,000 = $90,000 94. Under the absorption costing method, Peterson's net operating income would be: A) $217,000 B) $307,000 C) $352,000 D) $374,500 Ans: C LO: 2 Source: CPA, adapted Solution: Product cost = $9 + $4.50 = $13.50
Use the following to answer questions 95-97: McCoy Corporation manufactures a computer monitor. Shown below is McCoy's cost structure:
In its first year of operations, McCoy produced 100,000 monitors but only sold 95,000. McCoy's gross margin in this first year was $2,629,600. McCoy's contribution margin in this first year was $2,109,000. 95. Under the variable costing method, what is McCoy's net operating income for its first year? A) $266,000 B) $741,000 C) $1,261,600 D) $2,173,600 Ans: B LO: 2 Solution:
96. Under the absorption costing method, what is McCoy's net operating income for its first year? A) $266,000 B) $786,600 C) $1,261,600 D) $2,173,600 Ans: B LO: 2
97. If McCoy produces 100,000 monitors and sells 100,000 monitors in the second year of operations, which of the following statements will be true? (Assume no change in cost structure or selling price.) A) McCoy's variable costing net operating income in its second year will be greater than its absorption costing net operating income B) McCoy's absorption costing unit product cost will decrease in the second year C) McCoy's gross margin will be equal to its contribution margin in its second year D) Both A and B above E) none of the above Ans: E Level: Hard Use the following to answer questions 98-100: Mediocre Manufacturing Company produces a single product. Management budgeted the following costs for its first year of operations. These costs are based on a budgeted volume of 4,000 units produced and sold:
During the first year of operations, Mediocre actually produced 4,000 units but only sold 3,500 units. Actual costs did not fluctuate from the cost behavior patterns described above. The 3,500 units were sold for $72 per unit. Assume that direct labor is a variable cost. 98. What is the total cost that would be assigned to Mediocre's finished goods inventory at the end of the first year of operations under the absorption costing method? A) $12,250 B) $20,125 C) $23,000 D) $26,250 Ans: B Solution: Product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $28,000 + $14,000 + $56,000 + $63,000 = $161,000 Unit product cost = $161,000 ÷ 4,000 = $40.25 Total cost of ending finished goods inventory = Unit product cost × Ending inventory in units = $40.25 × (4,000 − 3,500) = $20,125 99. Under the variable costing method, what is Mediocre's actual net operating income for its first year? A) $42,000 B) $54,250 C) $55,125 D) $63,000 Ans: C LO: 2
Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead) ÷ 4,000 units = ($28,000 + $14,000 + $56,000) ÷ 4,000 = $24.50
100. Assuming no change in cost structure, which of the following would have increased Mediocre's net operating income under the absorption costing method in its first year of operations? A) an increase in sales volume with no increase in production volume B) an increase in production volume with no increase in sales volume C) both A and B above D) none of the above Ans: C LO: 2
101. The unit product cost under absorption costing is: A) $2.50 B) $3.00
C) $3.50 D) $4.50
Ans: D Source: CPA, adapted Solution: Unit fixed overhead = $150,000 ÷ 100,000 = $1.50 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $1.50 + $1.00 + $0.50 + $1.50 = $4.50
A) $50,000 B) $80,000 C) $90,000 D) $120,000 Ans: A LO: 2 Source: CPA, adapted Solution: Product cost = Direct materials + Direct labor + Variable manufacturing overhead = $1.50 + $1 + $0.50 = $3
Use the following to answer questions 103-106: Gadepelli Company, which has only one product, has provided the following data concerning its most recent month of operations:
103. The total contribution margin for the month under the variable costing approach is: A) $54,600 B) $99,400 C) $93,800 D) $42,600 Ans: C LO: 1,2
Unit product cost = $15 + $14 + $6 = $35
104. The total gross margin for the month under the absorption costing approach is: A) $25,200 B) $54,600 C) $68,000 D) $93,800 Ans: B LO: 2
Unit fixed manufacturing overhead = $51,200 ÷ 1,600 = $32 Unit product cost = $15 + $14 + $6 + $32 = $67
105. What is the total period cost for the month under the variable costing approach? A) $75,000 B) $80,600 C) $29,400 D) $51,200 Ans: B LO: 2 Level: Hard
Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $4 × 1,400 + $51,200 + $23,800 = $5,600 + $51,200 + $23,800 = $80,600 106. What is the total period cost for the month under the absorption costing approach? A) $29,400 B) $80,600 C) $23,800 D) $51,200 Ans: A LO: 2 Level: Hard Solution: Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $4 × 1,400 + $23,800 = $29,400 Use the following to answer questions 107-109: During its first year of operations, Carlos Manufacturing Company incurred the following costs to produce 8,000 units of its product:
The company also incurred the following costs in the sale of 7,500 units of product during its first year:
Assume that direct labor is a variable cost. 107. What is the total cost that would be assigned to Carlos' finished goods inventory at the end of the first year of operations under the absorption costing method? A) $15,000 B) $42,125 C) $44,000 D) $47,125 Ans: B Solution: Unit fixed manufacturing overhead = $450,000 ÷ 8,000 = $56.25 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $7 + $3 + $18 + $56.25 = $84.25 Total cost of ending finished goods inventory = Unit product cost × Ending inventory in units = $84.25 × (8,000 − 7,500) = $84.25 × 500 = $42,125 108. What is the total cost that would be assigned to Carlos' finished goods inventory at the end of the first year of operations under the variable costing method? A) $15,000 B) $42,125 C) $44,000 D) $14,000 Ans: D Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $7 + $3 + $18 = $28 Total cost of ending finished goods inventory = Unit product cost × Ending inventory in units = $28 × (8,000 − 7,500) = $28 × 500 = $14,000 109. If Carlos' absorption costing net operating income for this first year is $118,125, what would its variable costing net operating income be for this first year? A) $86,000 B) $90,000 C) $104,125 D) $146,250 Ans: B
Variable costing net income = Absorption costing net income – (Unit fixed manufacturing overhead × Change in inventory in units) = $118,125 − ($56.25 × 500) = $118,125 − $28,125 = $90,000
Assume that direct labor is a variable cost. 110. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be: A) $7,200 B) $7,650 C) $8,000 D) $9,700 Ans: A Source: CPA, adapted Solution: Unit product cost = ($40,000 + $20,000 + $12,000) ÷ 10,000 = $72,000 ÷ 10,000 = $7.20 Ending inventory = Units produced − Units sold = 10,000 − 9,000 = 1,000 Carrying value of ending finished goods inventory = Unit product cost × Units in ending inventory = $7.20 × 1,000 = $7,200
A) Absorption costing net operating income would be higher than variable costing net operating income by $2,500. B) Variable costing net operating income would be higher than absorption costing net operating income by $2,500. C) Absorption costing net operating income would be higher than variable costing net operating income by $5,500. D) Variable costing net operating income would be higher than absorption costing net operating income by $5,500. Ans: A Source: CPA, adapted Solution: Unit fixed manufacturing overhead = $25,000 ÷ 10,000 = $2.50 Difference between absorption costing net income and variable costing net income = Unit fixed manufacturing overhead × Change in ending inventory in units = $2.50 × (10,000 − 9,000) = $2,500 Since inventory has increased (production exceeds sales), absorption costing net income would be higher than variable costing net income. Use the following to answer questions 112-113:
Assume that direct labor is a variable cost. 112. The unit product cost under absorption costing would be: A) $3.27
B) $2.70 C) $2.20 D) $1.80 Ans: B Source: CPA, adapted Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = ($100,000 + $80,000 + $40,000 + $50,000) ÷ 100,000 = $270,000 ÷ 100,000 = $2.70
A) $2.82
B) $2.70 C) $2.32 D) $2.20 Ans: D Source: CPA, adapted Solution: Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead) ÷ 100,000 units = ($100,000 + $80,000 + $40,000) ÷ 100,000 = $220,000 ÷ 100,000 = $2.20 Use the following to answer questions 114-115: Bauxar Company, which has only one product, has provided the following data concerning its most recent month of operations:
114. What is the unit product cost for the month under variable costing? A) $75 B) $66
C) $51 D) $60
Ans: C Solution: Direct materials + Direct labor + Variable manufacturing overhead = $29 + $17 + $5 = $51 115. What is the unit product cost for the month under absorption costing? A) $66
B) $51 C) $60
D) $75 Ans: A Solution: Unit fixed manufacturing overhead = $33,000 ÷ 2,200 = $15 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $29 + $17 + $5 + $15 = $66 Use the following to answer questions 116-118: Crossbow Corp. produces a single product. Data concerning June's operations follow:
116. Under variable costing, ending inventory on the balance sheet would be valued at: A) $10,000 B) $7,000 C) $9,000 D) $12,000 Ans: B
Unit product cost = $7 Ending inventory = Beginning inventory + Units produced − Units sold = 0 + 6,000 − 5,000 = 1,000 Value of ending inventory = Unit product cost × Units in ending inventory = $7 × 1,000 = $7,000 117. Under absorption costing, ending inventory on the balance sheet would be valued at: A) $10,000 B) $7,000 C) $9,000 D) $12,000 Ans: C LO: 2 Solution: Unit fixed manufacturing overhead = $12,000 ÷ 6,000 = $2 Unit product cost = $7 + $2 = $9 Value of ending inventory = Unit product cost × Units in ending inventory = $9 × 1,000 = $9,000
A) higher than net operating income under absorption costing. B) lower than net operating income under absorption costing. C) the same as net operating income under absorption costing. D) none of these Ans: B
Dearne Company, which has only one product, has provided the following data concerning its most recent month of operations:
119. What is the total period cost for the month under the variable costing approach? A) $41,600 B) $93,100 C) $115,100 D) $134,700 Ans: D Level: Hard
Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $4 × 4,900 + $41,600 + $73,500 = $19,600 + $41,600 + $73,500 = $134,700 120. What is the total period cost for the month under the absorption costing approach? A) $93,100 B) $73,500 C) $134,700 D) $41,600 Ans: A Level: Hard Solution: Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $4 × 4,900 + $73,500 = $93,100 Use the following to answer questions 121-122: Tat Corporation produces a single product and has the following cost structure:
121. The unit product cost under absorption costing is: A) $247 B) $166
C) $332 D) $171
Ans: A Solution: Unit fixed manufacturing overhead = $532,000 ÷ 7,000 = $76 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $77 + $89 + $5 + $76 = $247 122. The unit product cost under variable costing is: A) $169
B) $171 C) $247
D) $174 Ans: B Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $77 + $89 + $5 = $171 Use the following to answer questions 123-124: Caruso Inc., which produces a single product, has provided the following data for its most recent month of operations:
There were no beginning or ending inventories. 123. The unit product cost under absorption costing was: A) $170
B) $115 C) $255
D) $110 Ans: A Solution: Unit fixed manufacturing overhead = $220,000 ÷ 4,000 = $55 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $39 + $71 + $5 + $55 = $170 124. The unit product cost under variable costing was: A) $115
B) $123 C) $118
D) $170 Ans: A Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $39 + $71 + $5 = $115 Use the following to answer questions 125-126: Cloer Company, which has only one product, has provided the following data concerning its most recent month of operations:
125. The total contribution margin for the month under the variable costing approach is: A) $178,500 B) $71,700 C) $272,000 D) $170,000 Ans: A LO: 2
126. The total gross margin for the month under the absorption costing approach is: A) $200,000 B) $170,000 C) $8,500 D) $178,500 Ans: B LO: 2
Unit fixed manufacturing overhead = $106,800 ÷ 8,900 = $12 Unit product cost = $10 + $48 + $5 + $12 = $75
Use the following to answer questions 127-128: Hirsch Company produces a single product. Variable manufacturing costs are $6 per unit, and fixed manufacturing costs are $2 per unit based on 50,000 units produced each year. In the current year, 50,000 units were produced, and 40,000 units were sold. 127. Under absorption costing, the amount of manufacturing cost (variable and fixed) deducted from revenue in the current year would be: A) $320,000 B) $400,000 C) $240,000 D) $300,000 Ans: A LO: 2 Solution: Total manufacturing cost deducted from revenue = Total per unit product cost × Units sold = ($6 + $2) × 40,000 = $320,000 128. Under variable costing, the amount of manufacturing cost (variable and fixed) deducted from revenue in the current year would be: A) $320,000 B) $240,000 C) $340,000 D) $400,000 Ans: C LO: 2 Solution: Total fixed cost = Per unit fixed cost × Units produced Total fixed cost = $2 × 50,000 = $100,000 Total manufacturing cost deducted from revenue = (Variable per unit product cost × Units sold) + Total fixed cost = ($6 × 40,000) + $100,000 = $240,000 + $100,000 = $340,000 Use the following to answer questions 129-130:
A) $200,000 B) $440,000 C) $600,000 D) $840,000 Ans: B LO: 2 Solution: Unit fixed manufacturing cost = $600,000 ÷ 200,000 = $3 Unit product cost = $30 + $3 = $33
130. Osawa's net operating income using variable costing would be: A) $200,000 B) $440,000 C) $800,000 D) $600,000 Ans: A LO: 2
Use the following to answer questions 131-132: Eldrick Company, which has only one product, has provided the following data concerning its most recent month of operations:
131. What is the net operating income for the month under variable costing? A) $10,100 B) $2,600 C) $15,000 D) $17,600 Ans: C LO: 2
Unit product cost = $29 + $13 + $7 = $49
132. What is the net operating income for the month under absorption costing? A) $17,600 B) $10,100 C) $15,000 D) $2,600 Ans: A LO: 2
Unit fixed manufacturing overhead = $117,000 ÷ 4,500 = $26 Unit product cost = $29 + $13 + $7 + $26 = $75
Use the following to answer questions 133-134: Kiefer Company, which has only one product, has provided the following data concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. 133. What is the net operating income for the month under variable costing? A) $6,800 B) $9,600 C) $29,200 D) $11,600 Ans: D LO: 2 Solution:
134. What is the net operating income for the month under absorption costing? A) $11,600 B) $6,800 C) $29,200 D) $9,600 Ans: B LO: 2
Unit fixed manufacturing overhead= $24 Unit product cost = $34 + $52 + $2 + $24 = $112
Use the following to answer questions 135-136: Danahy Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:
135. What was the absorption costing net operating income last year? A) $50,000 B) $48,000 C) $52,000 D) $56,000 Ans: B
A) $62,000 B) $74,000 C) $70,000 D) $66,000 Ans: B Solution: Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $68,000 + $6,000 = $74,000 Use the following to answer questions 137-138: Helmers Corporation manufactures a variety of products. Variable costing net operating income last year was $86,000 and this year was $103,000. Last year, $32,000 in fixed manufacturing overhead costs were released from inventory under absorption costing. This year, $12,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing. 137. What was the absorption costing net operating income last year? A) $106,000 B) $86,000 C) $54,000 D) $118,000 Ans: C Solution: Absorption costing net income = Variable costing net operating income – Fixed manufacturing overhead released = $86,000 – $32,000 = $54,000 138. What was the absorption costing net operating income this year? A) $81,000 B) $83,000 C) $115,000 D) $123,000 Ans: C Solution: Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $103,000 + $12,000 = $115,000 Use the following to answer questions 139-140: Norenberg Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:
139. What was the absorption costing net operating income last year? A) $92,800 B) $88,600 C) $84,400 D) $76,700 Ans: A
Fixed manufacturing overhead deferred = 600 × $7 = $4,200 Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $88,600 + $4,200 = $92,800
A) $80,000 B) $100,500 C) $108,000 D) $112,200 Ans: A Solution: Fixed manufacturing overhead released = 2,300 × $7 = $16,100 Absorption costing net income = Variable costing net operating income − Fixed manufacturing overhead released = $96,100 − $16,100 = $80,000
A) $61,700 B) $74,700 C) $80,700 D) $87,700 Ans: D Solution: Fixed manufacturing overhead deferred = $5 × 2,600 = $13,000 Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $74,700 + $13,000 = $87,700 142. What was the absorption costing net operating income this year? A) $75,300 B) $89,300 C) $76,300 D) $68,700 Ans: A Solution: Fixed manufacturing overhead released = $5 × 1,400 = $7,000 Absorption costing net income = Variable costing net operating income − Fixed manufacturing overhead released = $82,300 − $7,000 = $75,300 Download 156.67 Kb. Share with your friends:
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