Exam 21: Variable Costing for Management Analysis

At XLT Inc., variable costs are $80 per unit, and fixed costs are $40,000. Sales are estimated to be 4,000 units. a. How much would absorption costing operating income differ between a plan to produce 8,000 units and a plan to produce 10,000 units? b. How much would variable costing operating income differ between the two production plans?

A business operated at 100% of capacity during its first month and incurred the following costs: If 600 units remain unsold at the end of the month, the amount of inventory that would be reported on the absorption costing balance sheet is

On the variable costing income statement, the amounts representing the difference between the contribution margin and operating income are the fixed manufacturing costs and fixed selling and administrative expenses.

Managers in service firms do not find contribution margin reports useful because their firms do not sell inventory.

On the variable costing income statement, variable costs are deducted from contribution margin to yield manufacturing margin.

At EOM Inc., the beginning inventory is 20,000 units. All of the units manufactured during the period and 16,000 units of the beginning inventory were sold. The beginning inventory fixed costs are $50 per unit, and variable costs are $300 per unit. Determine (a) whether variable costing operating income is less than or greater than absorption costing operating income and (b) the difference in variable costing and absorption operating income.

Excelsior Company has three salespersons. Average sales price per unit sold, average variable manufacturing costs per unit, and number of units sold for each salesperson are shown below.Commissions are earned according to the following schedule: Prepare a contribution by salesperson report.

Management may use both absorption and variable costing methods for analyzing a particular product.

A business operated at 100% of capacity during its first month and incurred the following costs: If 2,000 units remain unsold at the end of the month and sales total $300,000 for the month, the amount of manufacturing margin that would be reported on the variable costing income statement is

EBITDA removes a significant fixed and noncash cost from the operating income number and may approximate the contribution margin.

Service firms can only have one activity base for analyzing changes in costs.

In the long run, for a business to remain in operation, the revenues from products sold should normally cover all costs and expenses and provide a reasonable income.

Accountants prefer the variable costing method over the absorption costing method for evaluating the performance of a company because

Costs that can be influenced by management at a specific level of management are called

On the absorption costing income statement, deduction of the cost of goods sold from sales yields gross profit.

On October 31, the end of the first month of operations, Morristown & Co. prepared the following income statement based on absorption costing: If the fixed manufacturing costs were $42,900 and the variable selling and administrative expenses were $14,600, prepare an income statement using variable costing.​