Exam 8: Variable Costing: A Tool for Management

Hatfield Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price \ 123 Units in beginning inventory 0 Units produced 6,400 Units in ending inventory 300 Variable costs per unit: Direct materials \ 45 Direct labour \ 30 Variable manufacturing overhead \ 1 Variable selling and administrative \ 8 Fixed costs: Fixed manufacturing overhead \ 140,800 Fixed selling and administrative \ 91,500 -What was the total contribution margin for the month under the variable costing approach?

Which of the following are considered to be product costs under absorption costing? I.Variable manufacturing overhead. II.Fixed manufacturing overhead. III.Selling and administrative expenses.

Elliot Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price \ 112 Units in beginning inventory 0 Units produced 4,900 Units sold 4,500 Units in ending inventory 400 Variable costs per unit: Direct materials \ 19 Direct labour \ 45 Variable manufacturing overhead \ 6 Variable selling and administrative \ 9 Fixed costs: Fixed manufacturing overhead \ 117,600 Fixed selling and administrative \ 22,500 -What was the operating income (loss)for the month under variable costing?

X Company reported operating income for Year 2 of $1,200,000 under variable costing and $1,600,000 under absorption costing.The total variable manufacturing cost of the company's ending finished goods inventory was $120,000.The cost of the company's beginning-of-year finished goods inventory under absorption costing was $50,000 higher than the cost of the beginning-of-year finished goods inventory under variable costing. Required: a)Calculate the cost of ending finished goods inventory under absorption costing. b)Compare the cost of your ending finished inventory under absorption costing in part (a)with that given under variable costing.Does the difference make sense? Why or why not?

Aaker Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price \ 99 Units in beginning inventory 0 Units produced 6,300 Units sold 6,000 Units in ending inventory 300 Variable costs per unit: Direct materials \ 12 Direct labour \ 42 Variable manufacturing overhead \ 6 Variable selling and administrative \ 6 Fixed costs: Fixed manufacturing overhead \ 170,100 Fixed selling and administrative \ 24,000 -What is the total contribution margin for the month under the variable costing approach?

-Under absorption costing,what was the reported operating income (loss)for the month ending May 31?

Peaceman Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price \ 117 Units in beginning inventory 0 Units produced 4,700 Units sold 4,400 Units in ending inventory 300 Variable costs per unit: Direct materials \ 36 Direct labour \ 38 Variable manufacturing overhead \ 4 Variable selling and administrative \ 11 Fixed costs: Fixed manufacturing overhead \ 89,300 Fixed selling and administrative \ 26,400 -What was the total contribution margin for the month?

The Pacific Company manufactures a single product. The following data relate to the year just completed: Variable costs per unit: Production \ 43 Selling and administrative \ 15 Fixed costs in total: Production \ 145,000 Selling and administrative \ 95,000 During the year, 5,000 units were produced and 4,800 units were sold. There were no beginning inventories. -Under variable costing,what was the unit product cost?

The Miller Company had the following results for its first two years of operation: Year 1 Year 2 Sales \ 1,200,000 \ 1,200,000 Cost of goods sold Gross margin 400,000 400,000 Selling and administrative expense Operating income \ 100,000 \ 100,000 In Year 1,the company produced and sold 40,000 units of its only product; in Year 2,the company again sold 40,000 units,but increased production to 50,000 units.The company's variable production cost is $5 per unit,and its fixed manufacturing overhead cost is $600,000 a year.Fixed manufacturing overhead costs are applied to the product on the basis of each year's unit production (i.e.,a new fixed overhead rate is computed each year).Variable selling and administrative expenses are $2 per unit sold. Required: a)Compute the unit product cost for each year under absorption costing and under variable costing. b)Prepare an income statement for each year,using the contribution format with variable costing. c)Reconcile the variable costing and absorption costing income figures for each year. d)Explain why the operating income for Year 2 under absorption costing was higher than the operating income for Year 1,although the same number of units were sold in each year.

What factor is the cause of the difference between operating income computed using absorption costing and operating income computed using variable costing?

Aaker Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price \ 99 Units in beginning inventory 0 Units produced 6,300 Units sold 6,000 Units in ending inventory 300 Variable costs per unit: Direct materials \ 12 Direct labour \ 42 Variable manufacturing overhead \ 6 Variable selling and administrative \ 6 Fixed costs: Fixed manufacturing overhead \ 170,100 Fixed selling and administrative \ 24,000 -What is the unit product cost for the month under absorption costing?

Aaker Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price \ 99 Units in beginning inventory 0 Units produced 6,300 Units sold 6,000 Units in ending inventory 300 Variable costs per unit: Direct materials \ 12 Direct labour \ 42 Variable manufacturing overhead \ 6 Variable selling and administrative \ 6 Fixed costs: Fixed manufacturing overhead \ 170,100 Fixed selling and administrative \ 24,000 -What is the total period cost for the month under the variable costing approach?

Pabbatti Company,which has only one product,has provided the following data concerning its most recent month of operations: Selling price \ 112 Units in beginning inventory 500 Units produced 2,800 Units sold 2,900 Units in ending inventory 400 Variable costs per unit: Direct materials \ 37 Direct labour \ 19 Variable manufacturing overhead \ 7 Variable selling and administrative \ 5 Fixed costs: \ 109,200 Fixed manufacturing overhead \ 5,800 The company produces the same number of units every month,although the sales in units vary from month to month.The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a)What is the unit product cost for the month under variable costing? b)Prepare an income statement for the month using the contribution format and the variable costing method. c)Without preparing an income statement,determine the absorption costing operating income for the month.(Hint: Use the reconciliation method.)

For the most recent year,Atlantic Company's operating income computed using the absorption costing method was $7,400,and its operating income computed using the variable costing method was $10,100.The company's unit product cost was $17 under variable costing and $22 under absorption costing.Atlantic produces the same number of units each year.What must have been the beginning inventory if the ending inventory consisted of 1,460 units?

Absorption costing treats fixed manufacturing overhead as a period cost,rather than as a product cost.

The following data pertain to one month's operations of Whitney, Inc.: Units in beginning inventory 0 Units produced 9,000 Units sold 8,000 Variable costs per unit: Manufacturing \ 10 Selling and administrative \ 6 Fixed costs in total Manufacturing \ 18,000 Selling and administrative \ 27,000 -For the month noted,what was the relationship between the operating income under variable costing as opposed to under absorption costing?

The following data pertain to one month's operations of Whitney, Inc.: Units in beginning inventory 0 Units produced 9,000 Units sold 8,000 Variable costs per unit: Manufacturing \ 10 Selling and administrative \ 6 Fixed costs in total Manufacturing \ 18,000 Selling and administrative \ 27,000 -What was the carrying value on the balance sheet of the ending finished goods inventory under absorption costing?

The EG Company produces and sells one product: a microwave oven.The following data refer to the year just completed: Beginning inventory \ 0 Units produced 25,000 Units sold 20,000 Sales price per unit \ 400 Selling and administrative expenses: Variable per unit \ 15 Fixed (total) \ 275,000 Manufacturing costs: Direct materials cost per unit \ 200 Direct labour cost per unit \ 50 Variable overhead cost per unit \ 30 Fixed overhead (total) \ 300,000 Assume that direct labour is a variable cost. Required: a)Compute the cost of a single unit of product under both the absorption costing and variable costing approaches. b)Prepare an income statement for the year using absorption costing. c)Prepare an income statement for the year using variable costing. d)Reconcile the absorption costing and variable costing operating income figures in b)and c)above.

Fahey Company manufactures a single product that it sells for $\$ 25$ per unit. The company has the following cost structure: Variable costs per unit: Manufacturing \ 9 Selling and administrative \ 3 Fixed costs in total Manufacturing \ 72,000 Selling and administrative \ 54,000 There were no units in beginning inventory. During the year, 18,000 units were produced and 15,000 units were sold. -Under absorption costing,what was the unit product cost?

Delvin Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price \ 120 Units in beginning inventory 0 Units produced 1,800 Units sold 1,500 Units in ending inventory 300 Variable costs per unit: Direct materials \ 42 Direct labour \ 42 Variable manufacturing overhead \ 2 Variable selling and administrative \ 9 Fixed costs: Fixed manufacturing overhead \ 7,200 Fixed selling and administrative \ 28,500 -What was the total period cost for the month under the variable costing approach?