Exam 6: Variable Costing for Management Analysis

For a period during which the quantity of inventory at the end equals the inventory at the beginning, income from operations reported under variable costing will equal income from operations reported under absorption costing.

The beginning inventory is 5,000 units. All of the units manufactured during the period and 3,000 units of the beginning inventory were sold. The beginning inventory fixed costs are $25 per unit, and variable costs are $55 per unit. Determine (a) whether variable costing income from operations is less than or greater than absorption costing income from operations, and (b) the difference in variable costing and absorption income from operations.

In evaluating the performance of salespersons, the salesperson with the highest level of sales should be evaluated as the best performer.

In contribution margin analysis, the quantity factor is computed as:

Property taxes on a factory building would be included as part of the cost of products manufactured under the absorption costing concept.

Contribution margin reporting and analysis is appropriate only for manufacturing firms, not for service firms.

On the variable costing income statement, the figure representing the difference between manufacturing margin and contribution margin is the:

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

Presented below are the major categories or captions that would appear on an income statement prepared in the variable costing format: Contribution margin Fixed costs Income from operations Manufacturing margin Sales Variable cost of goods sold Variable selling and administrative expenses (a) Arrange the above captions in the proper order in accordance with the variable costing concept. (b) Which of the captions represents: (1) the difference between sales and the total of all the variable costs and expenses (2) the remaining amount of revenue available for fixed manufacturing costs, fixed expenses, and net income?

In contribution margin analysis, the unit price or unit cost factor is computed as the difference between the actual quantity sold and the planned quantity sold, multiplied by the planned unit sales price or unit cost.

Gyro Company manufactures Products T and W and is operating at full capacity. To manufacture Product W requires three times the number of machine hours required for Product T. Market research indicates that 1,000 additional units of Product W could be sold. The contribution margin by unit of product is as follows: Calculate the increase or decrease in total contribution margin if 1,000 additional units of Product W are produced and sold.

On what effects does contribution margin analysis focus?

Under absorption costing, which of the following costs would not be included in finished goods inventory?

Ford's Expedition sport utility vehicle is its most profitable model. Therefore, Ford need not promote its Expedition model anymore.

The level of inventory of a manufactured product has increased by 4,000 units during a period. The following data are also available: What would be the effect on income from operations if absorption costing is used rather than variable costing?

For an accounting period during which the quantity of inventory at the end was smaller than the quantity at the beginning, income from operations reported under variable costing will be larger than income from operations reported under absorption costing.

A business operated at 100% of capacity during its first month, with the following results: What is the amount of the manufacturing margin that would be reported on the variable costing income statement?

Variable costing is also known as direct costing.

If the variable selling and administrative expenses totaled $124,000 for the year (80,000 units at $1.55 each) and the planned variable selling and administrative expenses totaled $136,500 (78,000 units at $1.75 each), the effect of the quantity factor on the change in contribution margin is:

For a period during which the quantity of product manufactured exceeded the quantity sold, income from operations reported under absorption costing will be larger than income from operations reported under variable costing.