Exam 12: Absorption Versus Variable Costing

Howard is considering two different denominators levels: theoretical capacity of 2,300 units and practical capacity of 1,900 units. With budgeted fixed MOH costs of $53,000, he thinks the actual production and sales for the two levels will be 2,100 units and 1,650 units, respectively. Calculate the budgeted fixed MOH rate, fixed MOH volume variance (amount and sign), and inventory cost per unit, assuming variable manufacturing costs of $65 per unit for both capacity levels. (Round Fixed MOH rate to the nearest cent. Fixed MOH volume variable round to the nearest dollar.)

When computing product costs, direct materials, direct labor, and only variable manufacturing overhead are used with

All the following are true regarding practical capacity except:

The capacity that could cause a downward spiral (or death spiral) is

The formula for applied fixed MOH is

When using absorption costing, managers tend to overproduce inventory to show a larger operating income. What are 2 advantages and 2 disadvantages of building inventory?

Conform AI planned to produce 6,000 units but only produced 5,300 for the current year. They had a beginning inventory of 300 units with variable manufacturing cost of $11 per unit. Budgeted fixed MOH for the year was $72,000 with actual costs incurred of $66,000. What will Conform AI report as the fixed MOH price variance for the current year?

The following information applies to Hawks Corporation: Using variable costing, how much will the per unit product cost be?

BioClinic sells its product for $80 per unit. During 2025, it produced 120,000 units and sold 105,000 units. Costs per unit are: direct materials $25, direct labor $10, variable overhead $5, and variable operating expenses $3. Fixed costs are $840,000 manufacturing overhead, and $75,000 operating expenses. Assuming no variances were reported, no beginning inventory and the company uses absorption costing, what will be reported as gross margin?

BioClinic sells its product for $80 per unit. During 2025, it produced 120,000 units and sold 105,000 units. Costs per unit are: direct materials $25, direct labor $10, variable overhead $5, and variable operating expenses $3. Fixed costs are $840,000 manufacturing overhead, and $75,000 operating expenses. Assuming no variances were reported, no beginning inventory and the company uses variable costing, what will be reported as contribution margin?

When using variable costing and absorption costing, variable manufacturing costs are treated as

All the following are true regarding theoretical capacity except:

David Industries expects to sell 260,000 units in 2025. The manager is under pressure to increase operating income for the same period of time. He is trying to decide whether to produce the units required for demand, 260,000 or produce 300,000 units. David Industries would have a higher operating income if the manager decided to produce

The following information applies to Hawks Corporation: Using absorption costing, what will Hawks record as operating income if the units were sold for $95 each and assuming no variances were reported?

The following information applies to Hawks Corporation: Using absorption costing, what will Hawks record as total cost of goods sold, assuming no variances were reported?

Crystal, the owner of Crystal Clean, is planning for the next year. She uses the absorption method to determine the evaluation of employees and how much to increase their hourly wage. She has budgeted the following information: There were no price or efficiency variances for either year. Crystal writes off any fixed MOH volume variance directly to COGS. Calculate the operating income for year 1.

If bonuses are awarded to a manager based on operating income, the manager may choose to increase production to meet the desired operating income when using

Amanha just learned her company will start a new workday policy. There is a 60% chance the company will start to enforce the policy this year and she has been tasked in determining how the new policy will affect the company. The new policy will have a significant effect on the company's production output because specific lines will close for periods of time during mandatory layoffs. The current demand of the company is 400,000 units per year. The budgeted fixed MOH costs are $920,000. She has put together the following information to plan for the coming policy: Using theoretical capacity, what is the budgeted fixed MOH rate?

Which fixed MOH variances help explain the under or overapplied fixed MOH that results in a difference in the fixed MOH Control account?

The formula for fixed MOH volume variance is