Exam 7: Variable Costing: A Tool for Decision Making

Variable net income differs from absorption net income because under absorption costing some fixed costs are retained in inventory rather than being expensed.

What are some of the drawbacks of absorption costing?

CoolBreeze Manufacturing produces a single product, a tabletop fan. They reported the following information from their operations last period: Under absorption costing what was the per-unit cost of the units produced?

Which of the following costs would be applied to manufactured inventory under variable costing?

Which of the following is a disadvantage of using variable costing?

Absorption costing is required for reporting to which of the following groups?

Under variable costing, a change in the level of sales will affect the contribution margin reported on the variable income statement for the period.

What costs are not assigned to products under variable costing?

Which of the following costs would not be subtracted from Revenue to calculate Gross Profit on an Absorption Income Statement?

Agrabah Inc. produces luxury carpets for homes and businesses. They reported the following financial information for the previous period: What is the per-unit cost of inventory produced under absorption costing?

AgRanch Co. is a farming corporation that grows and sells crops in the Midwest. The company is publically traded on the stock market: however, management prefers to use variable costing for decision purposes. The company's books are adjusted to arrive at Absorption Income for financial reporting purposes. The company reported the following financial information for the past month: The company tracks harvested crops that have not yet been shipped out as "in-process." This inventory of food decreased from 50 truckloads at the beginning of the month to 45 truckloads at the end of the month. What was Variable Net Income?

LaSoho Inc. produces training videos for other companies. They hire actors, and record all films in rented facilities, which are rented on a temporary basis for each filming engagement. LaSoho reported the following financial information for last year: What would Operating Income be under absorption costing assuming no videos were in process at the beginning of the year? (round per-unit costs to the nearest cent)

Which of the following costs would be subtracted from Revenue to calculate Contribution Margin on a Variable Income Statement?

When production is less than sales, is net income higher or lower under absorption costing than under variable costing? Why?

Happy Meals Mfg. manufactures dining sets, which are sold in sets of 4 chairs to a table to furniture stores and businesses. They reported the following financial information for last year: What would Operating Income be under variable costing? (Round per-unit costs to the nearest cent.)

How does Net Income respond to changes in production (assuming a constant level of sales) under variable costing?

PackALot Manufacturing produces a single product, small metal containers. They reported the following information from their operations last period: Under variable costing what was the per-unit cost of the units produced?

Dumpling Makers Co., (DMC), uses variable costing for managerial purposes and absorption costing for external reporting. These past two months, DMC has had an even number of sales at $70,000, at a price of $35/unit. However, in an effort to reduce the risk of stock-outs, management increased production from the regular 2,000 units to 3,000 units for last month only. DMC has fixed costs of $15,000 per month. If absorption net income was $25,000 last month, what will it be this month (assuming that sales continue to hold constant and production returns to normal levels)? (Round per-unit costs to the nearest cent.)

When production is greater than sales, is net income higher or lower under variable costing than under absorption costing? Why?

Under absorption costing, managers may have an incentive to manipulate earnings through production levels.