Exam 8: Variable Costing: A Tool for Management
Exam 1: Managerial Accounting and the Business Environment49 Questions
Exam 2: Cost Terms,concepts,and Classifications105 Questions
Exam 3: Cost Behaviour: Analysis and Use112 Questions
Exam 4: Cost-Volume-Profit Relationships140 Questions
Exam 5: Systems Design: Job-Order Costing113 Questions
Exam 6: Systems Design: Process Costing131 Questions
Exam 7: Activity-Based Costing: A Tool to Aid Decision Making126 Questions
Exam 8: Variable Costing: A Tool for Management143 Questions
Exam 9: Budgeting137 Questions
Exam 10: Standard Costs and Overhead Analysis234 Questions
Exam 11: Reporting for Control202 Questions
Exam 12: Relevant Costs for Decision Making145 Questions
Exam 13: Capital Budgeting Decisions185 Questions
Exam 14: Financial Statement Analysis203 Questions
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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 period cost for the month under the variable costing approach?
(Multiple Choice)
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Under variable costing,which of the following costs are treated as period costs?
(Multiple Choice)
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The unit product cost under absorption costing contains no element of fixed manufacturing overhead cost.
(True/False)
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O'Leary Company manufactures a single product that it sells for per unit. The company has the following cost structure:
Variable costs per unit: Manufacturing \ 11 Selling and administrative \ 4 Fixed costs in total Manufacturing \ 80,000 Selling and administrative \ 58,000
There were no units in beginning inventory. During the year, 16,000 units were produced and 14,000 units were sold.
-Under absorption costing,what was the unit product cost?
(Multiple Choice)
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The following data were provided by Green Enterprises for the most recent period:
Units in beginning inventory 0 Units produced 8,000 Units sold 6,000 Variable costs per unit: Manufacturing \ 15 Selling and administrative \ 5 Fixed costs in total Manufacturing \ 24,000 Selling and administrative \ 16,000
-For the period noted,which of the following statements best describes the relationship between the operating income under absorption costing and under variable costing?
(Multiple Choice)
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During the most recent year,Evans Company had operating income of $90,000 using absorption costing and $84,000 using variable costing.The fixed manufacturing overhead application rate was $6 per unit.There were no beginning inventories.If 22,000 units were produced last year,what were the sales in units for last year?
(Multiple Choice)
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Last year, Harris Company manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:
Direct materials \ 153,000 Direct labour 110,500 Variable manufacturing overhead 204,000 Fixed manufacturing overhead 255,000 Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labour is a variable cost.
-Under variable costing,what was the company's operating income for the year,as compared with under absorption costing?
(Multiple Choice)
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Farron Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price \ 92 Units in beginning inventory 0 Units produced 8,700 Units sold 8,300 Units in ending inventory 400 Variable costs per unit: Direct materials \ 13 Direct labour \ 55 Variable manufacturing overhead \ 1 Variable selling and administrative \ 5 Fixed costs: Fixed manufacturing overhead \ 130,500 Fixed selling and administrative \ 8,300
-What was the unit product cost for the month under absorption costing?
(Multiple Choice)
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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 variable costing?
(Multiple Choice)
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Sales volume is the only driver of operating income under absorption costing.
(True/False)
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Y Company reported operating income for Year 2 of $1,600,000 under variable costing and $1,200,000 under absorption costing.The total variable manufacturing cost of the company's beginning finished goods inventory was $120,000.The cost of the company's end-of-year finished goods inventory under standard 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 operating incomes under absorption costing and variable costing.What do the numbers suggest in terms of relationship,if any,between units sold and units produced in Year 2? Explain.
(Essay)
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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 operating income (loss)for the month under absorption costing?
(Multiple Choice)
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The Dean Company produces and sells a single product: a laser printer.The following data refer to the year just completed:
Beginning inventory \ 0 Units produced 20,000 Units sold 19,000 Sales price per unit \ 350 Selling and administrative expenses: Variable per unit \ 10 Fixed (total) \ 225,000 Manufacturing costs: Direct materials cost per unit \ 190 Direct labour cost per unit \ 40 Variable overhead cost per unit \ 25 Fixed overhead (total) \ 250,000
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.
(Essay)
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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.
-Which of the following would best describe the relationship between the carrying value of the finished goods inventory at the end of the year under variable costing as opposed to under absorption costing?
(Multiple Choice)
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-What was the dollar value of the company's inventory on May 31 under the absorption costing method?

(Multiple Choice)
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Jarvix Company, which has only one product, has provided the following data concerning its most recent month of operations:
Selling price \ 111 Units in beginning inventory 0 Units produced 8,800 Units sold 8,900 Variable costs per unit: Direct materials \ 34 Direct labour \ 37 Variable manufacturing overhead \ 3 Variable selling and administrative \ 9 Fixed costs: Fixed manufacturing overhead \ 61,600 Fixed selling and administrative \ 169,100 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.
-What was the amount of fixed manufacturing overhead deferred under absorption costing?
(Multiple Choice)
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When the number of units in work-in-process and finished goods inventories increase,absorption costing operating income will typically be greater than variable costing operating income.
(True/False)
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DeAnne Company's variable costing income statement for August appears below:
DeAnne Company
Income Statement
For the month ended August 31
Sales (\ 15 per unit) \ 600,000 Less: Variable costs Variable cost of goods sold: Beginning inventory \ 72,000 Add: Variable cost of goods manufactured Goods available for sale \ 387,000 Less: Ending inventory Variable cost of goods sold \ 360,000 Variable selling expense Total variable costs Contribution margin 160,000 Fixed costs: Fixed manufacturing \ 105,000 overhead Fixed selling and administrative Total fixed costs \ 140,000 Operating income \ 20,000 The company produces 35,000 units each month. Variable production costs per unit and total fixed costs have remained constant over the past several months.
-Under the absorption costing method,what was the dollar value of the company's inventory on August 31?
(Multiple Choice)
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West Co.'s manufacturing costs are as follows:
Direct materials and direct labour \ 700,000 Other variable manufacturing costs 100,000 Depreciation of factory building and manufacturing equipment 80,000 Other fixed manufacturing overhead 18,000
What amount should be considered product costs for external reporting purposes if the company uses absorption costing?
(Multiple Choice)
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Operating data for Fowler Company and its absorption costing income statements for the last two years are presented below:
Year 1 Year 2 Units in beginning inventory 0 3,000 Units produced 18,00 18,000 Units sold 15,000 20,000 Sales Cost of goods sold: Beginning inventory \ 0 \ 30,000 Add cost of goods manufactured Goods available for sale 180,00 210,000 Less ending inventory Cost of goods sold 150,000 200,000 Gross margin 90,000 120,000 Selling and administrative expense Operating income \ 10,000 \ 30,000
Variable manufacturing costs are $6 per unit.Fixed manufacturing overhead totals $72,000 in each year.This overhead is applied at the rate of $4 per unit.Variable selling and administrative expenses were $2 per unit sold.
Required:
a)What was the unit product cost in each year under variable costing?
b)Prepare new income statements for each year using variable costing.
c)Reconcile the absorption costing and variable costing operating income for each year.
(Essay)
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