Exam 8: Variable Costing and the Costs of Quality and Sustainability

Absorption costing is required for tax purposes.

ProTech began business at the start of the current year. The company planned to produce 40,000 units, and actual production conformed to expectations. Sales totaled 37,000 units at $42 each. Costs incurred were: - If there were no variances, the company's variable-costing income would be:

Xenon Enterprises (XE) produces two extruding machines that are popular with food processors: No. 616 and No. 717. Machine No. 616 has an average selling price of $160,000, whereas No. 717 typically sells for approximately $155,000. The company is extremely focused on quality and has provided the following information: Required: a. Classify the preceding costs as prevention, appraisal, internal failure, or external failure. b. Using the classifications in requirement (1), compute XE’s quality costs for machine No. 616 in dollars and as a percentage of sales revenues. Also calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs. c. Repeat requirement (b) for machine No. 717. d. Comment on your findings, noting whether the company is “investing” its quality expenditures differently for the two machines. e. Quality costs can be classified as observable or hidden. What are hidden quality costs, and how do these costs differ from observable costs?

Absorption costing is inconsistent with CVP analysis.

Use the following information to answer the following Questions Favaz began business at the start of this year and had the following costs: variable manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling and administrative costs per unit, $2; and fixed selling and administrative costs, $220,000. The company sells its units for $45 each. Additional data follow. -The income (loss) under variable costing is:

Dalton Corporation has fixed manufacturing cost of $12 per unit. Consider the three independent cases that follow. Case A: Absorption- and variable costing income each totaled $240,000 in a period when the firm produced 18,000 units. Case B: Absorption-costing income totaled $320,000 in a period when finished-goods inventory levels rose by 7,000 units. Case C: Absorption-costing income and variable-costing income respectively totaled $220,000 and $250,000 in a period when the beginning finished-goods inventory was 14,000 units. Required: A. In Case A, how many units were sold during the period? B. In Case B, how much income would Dalton report under variable costing? C. In Case C, how many units were in the ending finished-goods inventory?

List and define four types of product quality costs.

Carolina Corporation, which uses throughput costing, began operations at the start of the current year. Planned and actual production equaled 20,000 units, and sales totaled 17,500 units at $95 per unit. Cost data for the year were as follows: Required: A. Compute the company's total cost for the year. B. How much of this cost would be held in year-end inventory under (1) absorption costing and (2) variable costing? C. How much of the company's total cost for the year would appear on the period's income statement under (1) absorption costing and (2) variable costing?

The table that follows denotes selected characteristics of absorption costing and/or variable costing. Required: Evaluate each product-cost, period-cost, and income-statement/disclosure characteristic and determine whether it relates to absorption costing, variable costing, or both methods. Place an "X" in the proper column.

Hid?den private environmental costs are those that are caused by environmental issues but have not been so identified by the accounting system.

Which of the following statements pertain to both variable costing and absorption costing?

Falisari Corporation has computed the following unit costs for the year just ended: Which of the following choices correctly depicts the per-unit cost of inventory under variable costing and absorption costing?

The following data relate to Jupiter Company, a new corporation, during a period when the firm produced and sold 100,000 units and 90,000 units, respectively: The company met its original planned production target of 100,000 units. There were no variances during the period, and the firm's selling price is $15 per unit. Required: A. What is the cost of Jupiter's end-of-period finished-goods inventory under the variable-costing method? B. Calculate the company's variable-costing income. C. Calculate the company's absorption-costing income.

Vero, Inc. began operations at the start of the current year, having a production target of 60,000 units. Actual production totaled 60,000 units, and the company sold 95% of its manufacturing output at $50 per unit. The following costs were incurred: Required: A. Assuming the use of variable costing, compute the cost of Vero's ending finished-goods inventory. B. Compute the company's contribution margin. Would Vero disclose the contribution margin on a variable-costing income statement or an absorption-costing income statement? C. Assuming the use of absorption costing, how much fixed selling and administrative cost would Vero include in the ending finished-goods inventory? D. Compute the company's gross margin.