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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Last year, Walsh Company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:
Direct materials \ 100,000 Direct labour 75,000 Variable manufacturing overhead 50,000 Fixed manufacturing overhead 75,000 Total sales were $440,000, total variable selling and administrative expenses were $110,000, and total fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labour is a variable cost.
-Under variable costing,what was the total amount of fixed manufacturing cost in the ending inventory?
(Multiple Choice)
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Fahey Company manufactures a single product that it sells for 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.
-What was the company's operating income for the year under variable costing?
(Multiple Choice)
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During the last year,Hansen Company had operating income under absorption costing that was $5,500 lower than its operating income under variable costing.The company sold 9,000 units during the year,and its variable costs were $10 per unit,of which $6 was variable selling expense.If fixed production cost is $5 per unit under absorption costing every year,how many units did the company produce during the year?
(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 operating income (loss)for the month under variable costing?
(Multiple Choice)
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Lee Company,which has only one product,has provided the following data concerning its most recent month of operations:
Selling price \ 95 Units in beginning inventory 100 Units produced 6,200 Units sold 5,900 Units in ending inventory Variable costs per unit: Direct materials \ 42 Direct labour \ 28 Variable manufacturing overhead \ 1 Variable selling and administrative \ 5 Fixed costs: \ 62,000 Fixed manufacturing overhead \ 35,400
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)What is the unit product cost for the month under absorption costing?
c)Prepare an income statement for the month using the contribution format and the variable costing method.
d)Prepare an income statement for the month using the absorption costing method.
e)Reconcile the variable costing and absorption costing operating incomes for the month.
(Essay)
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Indiana Corporation produces a single product that it sells for $9 per unit.During the first year of operations,100,000 units were produced and 90,000 units were sold.Manufacturing costs and selling and administrative expenses for the year were as follows:
What was Indiana Corporation's operating income for the year using variable costing?

(Multiple Choice)
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Absorption costing treats all manufacturing costs as product costs.
(True/False)
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At the end of last year,Lee Company had 30,000 units in its ending inventory.Every year,Lee Company's variable production costs are $10 per unit,and its fixed manufacturing overhead costs are $5 per unit.The company's operating income for the year was $12,000 higher under variable costing than under absorption costing.Given these facts,what must have been the number of units of product in inventory at the beginning of the year?
(Multiple Choice)
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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 absorption costing,what operating income (loss)did the company report for the month ending August 31?
(Multiple Choice)
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Operating income determined using absorption costing can be reconciled to operating income determined using variable costing by computing the difference between which of the following?
(Multiple Choice)
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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 unit product cost for the month under variable costing?
(Multiple Choice)
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The following information pertains to Malcolm Corporation for a period:
Selling price per unit \ 41 Standard fixed manufacturing costs per unit \ 20 Variable selling and administrative cost per unit \ 4 Fixed selling and administrative costs \ 16,000 Beginning inventories: Units ? Standard fixed manufacturing cost \ 40,000 Standard variable manufacturing cost \ 20,000 Units produced 10,000 units Units sold 9,600 units
a)Assume the unit standard costs data for the beginning and ending inventories remained constant during the period.What was the total standard cost of the ending inventory under absorption costing?
b)Ignoring the effects of income taxes,what is your best estimate of the difference in retained earnings at the end of the period under absorption costing and variable costing?
(Essay)
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Gabbert Company, which has only one product, has provided the following data concerning its most recent month of operations:
Selling price \ 90 Units in beginning inventory 0 Units produced 3,600 Units sold 3,400 Units in ending inventory 200 Variable costs per unit: Direct materials \ 23 Direct labour \ 11 Variable manufacturing overhead \ 2 Variable selling and administrative \ 8 Fixed costs: Fixed manufacturing overhead \ 93,600 Fixed selling and administrative \ 61,200
-What was the total gross margin for the month under the absorption costing approach?
(Multiple Choice)
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Gordon Company produces a single product that sells for $10 per unit. Last year, there were no beginning inventories, 100,000 units were produced, and 80,000 units were sold. The company has the following cost structure:
Fixed Costs Variable Costs Raw materials -- \ 2.00 per unit produced Direct labour -- 1.25 per unit produced Factory overhead \ 120,000 0.75 per unit produced Selling and administrative 70,000 1.00 per unit sold
-What was the operating income under variable costing?
(Multiple Choice)
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New Look Company, which has only one product, has provided the following data concerning its most recent month of operations:
Selling price \ 95 Units in beginning inventory 0 Units produced 3,800 Units sold 3,600 Units in ending inventory 200 Variable costs per unit: Direct materials \ 22 Direct labour \ 11 Variable manufacturing overhead \ 2 Variable selling and administrative \ 9 Fixed costs: Fixed manufacturing overhead \ 102,600 Fixed selling and administrative \ 63,200
-What was the total gross margin for the month under the absorption costing approach?
(Multiple Choice)
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Khanam Company, which has only one product, has provided the following data concerning its most recent month of operations:
Selling price \ 97 Units in beginning inventory 500 Units produced 8,400 Units in ending inventory 400 Variable costs per unit: Direct materials \ 20 Direct labour \ 37 Variable manufacturing overhead \ 1 Variable selling and administrative \ 11 Fixed costs: Fixed manufacturing overhead \ 67,200 Fixed selling and administrative \ 161,500 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 is the amount of fixed overhead released under absorption costing?
(Multiple Choice)
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Last year,Ben Company's operating income under absorption costing was $4,400 lower than its operating income under variable costing.The company sold 8,000 units during the year,and its variable costs were $8 per unit,of which $3 was variable selling expense.Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing.Ending inventory was zero.How many units did the company produce during the year?
(Multiple Choice)
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Which of the following is normally included in product cost under the variable costing method?
(Multiple Choice)
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Gabbert Company, which has only one product, has provided the following data concerning its most recent month of operations:
Selling price \ 90 Units in beginning inventory 0 Units produced 3,600 Units sold 3,400 Units in ending inventory 200 Variable costs per unit: Direct materials \ 23 Direct labour \ 11 Variable manufacturing overhead \ 2 Variable selling and administrative \ 8 Fixed costs: Fixed manufacturing overhead \ 93,600 Fixed selling and administrative \ 61,200
-What was the total period cost for the month under the absorption costing approach?
(Multiple Choice)
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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 operating income (loss)for the month under variable costing?
(Multiple Choice)
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