Exam 8: Alternative Inventory Costing Methods: a Decision-Making Perspective

Use the following information for items Green Company sells its product for $11,000 per unit.Variable costs per unit are: manufacturing, $6,000; and selling and administrative, $125.Fixed costs are: $30,000 manufacturing overhead, and $40,000 selling and administrative.There was no beginning inventory at 1/1/14.Production was 20 units per year in 2014-2016.Sales were 20 units in 2014, 16 units in 2015, and 24 units in 2016. -Income under variable costing for 2016 is

The computation of absorption costing gross profit always involves subtracting

Fixed manufacturing overhead is a period cost under absorption costing.

Use the following information for items The Colin Division of Mochrie Company sells its product for $30 per unit.Variable costs per unit are: manufacturing, $12; and selling and administrative, $2.Fixed costs are: $200,000 manufacturing overhead, and $50,000 selling and administrative.There was no beginning inventory.Expected sales for next year are 40,000 units.Ryan Stiles, the manager of the Colin Division, is under pressure to improve the performance of the Division.As he plans for next year, he has to decide whether to produce 40,000 units or 50,000 units. -What would the manufacturing cost per unit be under absorption costing for each alternative? $\quad$$\quad$$\quad$$\underline{40,000 \text { units }} \quad \underline{50,000 \text { units }}$ a) $\quad$$\quad$$\quad$$\quad$ $12.00 $\quad$$\quad$$\quad$ $12.00 b) $\quad$$\quad$$\quad$$\quad$ $14.00 $\quad$$\quad$$\quad$ $14.00 c) $\quad$$\quad$$\quad$$\quad$ $16.00 $\quad$$\quad$$\quad$ $17.00 d) $\quad$$\quad$$\quad$$\quad$ $17.00 $\quad$$\quad$$\quad$ $16.00

Which of the following terms would be found on an Income Statement using absorption costing?

A major conceptual difference between throughput costing and variable costing is

Under variable costing

Companies that use just-in-time processing techniques will have significant differences between absorption and variable costing net income.

Use the following information for items Obama Company sells its product for $25 per unit.During 2016, it produced 20,000 units and sold 15,000 units (there was no beginning inventory).Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3.Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses. -Ending inventory under variable costing is

Some fixed manufacturing costs of the current period are deferred to future periods through ending inventory under variable costing.

Fixed manufacturing costs are NOT charged to the product under variable costing.

Management may be tempted to overproduce

When production exceeds sales

Expected sales for next year for the Brady Division are 120,000 units.Drew Carey, the manager of the Brady Division, is under pressure to improve the performance of the Division.As he plans for next year, he has to decide whether to produce 120,000 units or 140,000 units.The Brady Division will have higher net income, if Drew Carey decides to

Net income under GAAP highlights differences between variable and fixed costs.

Use the following information for items Obama Company sells its product for $25 per unit.During 2016, it produced 20,000 units and sold 15,000 units (there was no beginning inventory).Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3.Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses. -The per unit manufacturing cost under variable costing is

Use the following information for items Green Company sells its product for $11,000 per unit.Variable costs per unit are: manufacturing, $6,000; and selling and administrative, $125.Fixed costs are: $30,000 manufacturing overhead, and $40,000 selling and administrative.There was no beginning inventory at 1/1/14.Production was 20 units per year in 2014-2016.Sales were 20 units in 2014, 16 units in 2015, and 24 units in 2016. -Income under absorption costing for 2016 is

Under absorption costing when production exceeds sales in a year,

M&H's unit production cost under variable costing is $25, and $32 under absorption costing.Net income under variable costing was $250,000 and $187,000 under absorption costing last year.Production equalled 63,000 units.How many units did M&H sell?

Which of the following is NOT a potential advantage of variable costing relative to absorption costing?