Exam 6: Absorption and Variable Costing

Absorption costing is more in-line with JIT inventory concepts than variable costing.

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case. Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case. -Calculate the September production cost per case using absorption costing.

Assuming no beginning inventory and monthly production is greater than sales. Management who are paid a bonus based on operating income would receive a larger bonus under variable costing, because only the variable costs will be deducted in deriving operating income.

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows: Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow. - What is the variable cost per cell phone for March and April production?

Harold's produces windmills that store power for residential use. Production data for the first month follow: - If Harold's had beginning inventory of 10 units that had a $3,000 absorption cost per unit, what would be the cost of the ending inventory under absorption costing?

When a company's beginning inventory is zero and everything is sold in the month it is produced, variable and absorption costing will always yield the same result.

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows: -The company's June 30 ending inventory consists of 20,000 burritos. Assuming they use FIFO costing, what is the absorption cost per burrito for a burrito that is manufactured in June?

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows: Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow. - Calculate operating income for April, 2012 using absorption costing?

A company's beginning and ending inventory count is the same. Therefore, the ending inventory amount on the balance sheet must be the same amount as the beginning inventory amount.

Straight-line depreciation on the manufacturing equipment would be considered a product cost under both variable and absorption costing.

In a period where production exceeds sales, variable costing results in lower per unit product costs and lower operating income.

Pat's Hats produces sun visors. Production data for the first month follow: - What is the absorption cost per hat for October?

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows: Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow. - What is the value of the ending inventory on March 31, 2012 using variable costing?

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September. Roberta's Hot Stuff sold 406,000 of the soup packages in September. -Calculate the September net income using variable costing.

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows: Hi-Tech started March with 1,000 cell phones that had variable costs of $28 per phone and fixed manufacturing costs of $2 per phone. Hi-Tech uses a FIFO cost flow. - If the company pays bonuses to the production manager for keeping production cost per unit under $34.00 per cell phone, under which costing method will the manager earn a bonus for March?

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September. Roberta's Hot Stuff sold 406,000 of the soup packages in September. - Calculate the total absorption cost per hot and sour soup package.

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows: Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow. - What is the value of the ending inventory on April 30, 2012 using absorption costing?

Pat's Hats produces sun visors. Production data for the first month follow: -What is the value of the October ending inventory using absorption costing?

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case. - Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case. If the company predicts it can reduce manufacturing wages in October, and all other costs would remain the same, how will this affect per unit costs?

Hats produces sun visors. Production data for the first month follow: -The production manager will receive a 3% salary bonus if production costs per unit under $3.00. After reviewing October results, he decides to increase production in November to 21,000 units. If demand for the product is stable, which accounting method is the company most likely using to determine the manager's bonus?