Exam 7: Cost-Volume-Profit Analysis, Absorption and Variable Costing

During 2012, Stevatar Enterprises produced 60,000 units and sold 50,000 for $10 per unit. Variable manufacturing costs were $4 per unit. Annual fixed manufacturing overhead was $120,000 ($2 per unit). Variable selling and administrative costs were $1 per unit sold, and fixed selling and administrative costs were $30,000. Required: Prepare a variable costing income statement for Stevatar Enterprises.

Gomez's inventory increased during the year. On the basis of this information, income reported under absorption costing:

The difference in net income between absorption and variable costing can be explained by the change in finished-goods inventory (in units) multiplied by the standard fixed manufacturing overhead rate. Required: Explain why this calculation accounts for the difference noted.

You are analyzing Becker Corporation and Newton Corporation and have concluded that Becker has a higher operating leverage factor than Newton. Which one of the following choices correctly depicts (1) the relative use of fixed costs (as opposed to variable costs) for the two companies and (2) the percentage change in income caused by a change in sales? Relative Use of Fixed Costs as Opposed to Variable Costs Percentage Change in Income Caused by a Change in Sales 1 Greater for Becker Gruater for Becker 2 Greater for Becker Lower for Becker 3 Greater for Becker Equal for both 4 Lower for Becker Greater for Becker 5 Lower for Becker Lower for Becker

O'Dell sells three products: R, S, and T. Budgeted information for the upcoming accounting period follows: Product Sales Volume (Units) Selling Price Variable Cost 16,000 \ 14 \ 9 12,000 10 6 52,000 11 8 The company's weighted-average unit contribution margin is:

Shrover began business at the start of the current year. The company planned to produce 40,000 units, and actual production conformed to expectations. Sales totalled 37,000 units at $42 each. Costs incurred were: Fixed manufacturing overhead \ 240,000 Fixed selling and administrative cost 140,000 Variable manufacturing cost per unit 19 Variable selling and administrative cost per unit 7 If there were no variances, Shrover's variable-costing net income would be:

Highline Company reported the following costs for the year just ended: Throughput manufacturing costs \ 180,000 Non-throughput manufacturing costs 600,000 Selling and administrative costs 125,000 If Highline uses throughput costing and had sales revenues for the period of $950,000, which of the following choices correctly depicts the company's cost of goods sold and net income? Cost of Goods Sold Net Income 1 \ 180,000 \ 45,000 2 \ 180,000 \ 645,000 3 \ 305,000 \ 45,000 4 \ 305,000 \ 645,000 5 \ 305,000 \ 305,000

Which of the following would take place if a company was able to reduce its variable cost per unit, all of things remaining constant? Contribution Margin Break-even Point 1 Increase Increase 2 Increase Decrease 3 Decrease Increase 4 Decrease Decrease 5 Increase No effect

Exterior Incorporated manufactures and sells three products: Good, Better, and Best. Annual fixed costs are $3,315,000, and data about the three products follow. Better Best Sales mix in units \% Selling price \ 250 \ 350 \ 500 Variable cost 100 150 250 Required: A. Determine the weighted-average unit contribution margin. B. Determine the break-even volume in units for each product. C. Determine the total number of units that Exterior Incorporated must sell in order to obtain a profit of $234,000. D. Assume that the sales mix for Good, Better, and Best is changed to 50%, 30%, and 20%, respectively. Will the number of units required to break-even increase or decrease? Explain. Hint: Detailed calculations are not needed to obtain the proper solution.

Red River Company sells its product for $12,000 per unit. Variable costs per unit are: Manufacturing overhead -$8,000 Selling and administrative -$150 Fixed costs are: Manufacturing overhead -$30,000 Selling and administrative -$40,000 Red River had no beginning inventory at January 1, 2010. Production was 20 units each year in 2010, 2011, and 2012. Sales were 20 units in 2010, 16 units in 2011, and 24 units in 2012. Income/(Loss) under variable costing for 2012 is:

North Carolina Corporation sells three types of pocket mirrors Round, Square, and Oval. The following information was taken from a recent budget: Round Square Oval Unit sales \ 60,000 \ 120,000 \ 20,000 Selling price \ 70 \ 90 \ 85 Variable cost 50 75 60 Total fixed costs are anticipated to be $2,450,000. Required: A. Determine North Carolina's sales mix. B. Determine the weighted-average contribution margin. C. Calculate the number of units of Round, Square, and Oval mirrors that must be sold to break even in total and respectively. D. If North Carolina desires to increase company profitability, should it attempt to increase or decrease the sales of the Square mirror relative to those of the Round and Oval mirrors? Briefly explain.

Pattimore Inc. sells a single product at $30 per unit. The firm's most recent income statement revealed unit sales of 200,000, variable costs of $900,000, and fixed costs of $3,500,000. If a $6 drop in selling price will boost unit sales volume by 30%, Pattimore will experience:

The extent to which an organization uses fixed costs in its cost structure is measured by:

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. Contemporary:

If a company desires to increase its safety margin, it should:

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

A company that desires to lower its break-even point should strive to:

Under variable costing, fixed manufacturing overhead is:

When production exceeds sales for a given year, the income reported under absorption costing and variable costing will be:

The following data relate to Venture Company, a new corporation, during a period when the firm produced and sold 100,000 units and 90,000 units, respectively: Direct materials used \ 400,000 Direct labour 200,000 Fixed manufacturing overhead 250,000 Variable manufacturing overhead 120,000 Fixed selling and administrative expenses 300,000 Variable selling and administrative expenses 45,000 Venture 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 Venture's end-of-period finished-goods inventory under the variable-costing method? B. Calculate the company's variable-costing net income. C. Calculate the company's absorption-costing net income.