Exam 8: Variable Costing: a Tool for Management

For the period noted,which of the following statements best describes the relationship between the operating income under absorption costing and under variable costing?

What was the unit product cost for the month under variable costing?

What was the total contribution margin for the month under the variable costing approach?

Under absorption costing,what operating income (loss)did the company report for the month ending August 31?

What was the total period cost for the month under the variable costing approach?

Which of the following statements is true about the difference in operating income between variable costing and absorption costing if the number of units in work-in-process and finished goods inventories increase?

Under absorption costing,what was the unit product cost?

Nelson Company,which has only one product,has provided the following data concerning its most recent month of operations: 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)Prepare an income statement for the month using the contribution format and the variable costing method. b)Prepare an income statement for the month using the absorption costing method.

Although variable costing is NOT permitted for income tax purposes in Canada,it is widely accepted for external financial reports.

Absorption costing operating income is closer to the operating cash flow of a period than is variable costing operating income.

What was the carrying value on the balance sheet of the ending finished goods inventory under absorption costing?

What was the operating income under absorption costing?

What was the total contribution margin for the month?

The Hadfield Company manufactures and sells a unique electronic part.The company's plant is highly automated with low variable and high fixed manufacturing costs.Operating results on an absorption costing basis for the first three years of activity were as follows: Additional information about the company is as follows: -Variable manufacturing costs (direct labour,direct materials,and variable manufacturing overhead)total $3 per unit,and fixed manufacturing overhead costs total $400,000. -Fixed manufacturing costs are applied to units of product on the basis of the number of units produced each year (i.e. ,a new fixed overhead rate is computed each year). -The company uses a FIFO inventory flow assumption. -Variable selling and administrative expenses are $2 per unit sold.Fixed selling and administrative expenses total $100,000. -Production and sales information for the three years is as follows: Required: a)Compute operating income for each year under the variable costing approach. b)Prepare a reconciliation from your Operating Income (loss)under variable costing to Absorption Costing operating income for year 3. c)Referring to the absorption costing income statements above,explain why operating income was higher in Year 2 than in Year 1 under absorption costing,in light of the fact that fewer units were sold in Year 2 than in Year 1. d)Referring again to the absorption costing income statements,explain why the company suffered an operating loss in Year 3 but reported a positive operating income in Year 1,although the same number of units was sold in each year. e)If the company had used just-in-time (JIT)during Year 2 and Year 3 and produced only what could be sold,what would have been the company's operating income (loss)for each year under absorption costing.

What was the total contribution margin for the month under the variable costing approach?

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.

What was the operating income (loss)for the month under variable costing?

Qabar Company,which has only one product,has provided the following data concerning its most recent month of operations: 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. )

Since variable costing emphasizes costs by behaviour,it works well with cost-volume-profit analysis.

What is the unit product cost for the month under variable costing?