Exam 21: Variable Costing

The use of variable costing to determine managers' bonuses does not give the incentive to produce more products than needed.

Marshall,Inc.has collected the following data for the current year: Beginning Finished Goods Inventory 50 units Units produced 510 units Units sold 560 units Sales price \ 160 per unit Direct materials \ 25 per unit Direct labor \ 14 per unit Variable manufacturing overhead \ 17 per unit Fixed manufacturing overhead \ 12,000 per year Variable selling and administrative costs \ 4 per unit Fixed selling and administrative costs \ 13,000 per year The beginning Finished Goods Inventory costs were $3400 under absorption costing and $3000 under variable costing.What is the operating income using absorption costing? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)

In the variable costing income statement,variable costs are reported separately from fixed costs.

For short-term pricing decisions,fixed costs are usually not relevant because they do not change.

Contribution margin is calculated by deducting ________ from sales revenue.

Feldspar,Inc.started the year with 200 units in the Finished Goods Inventory account.It produced 600 units during the year and sold 800 units.If Feldspar uses variable costing,________.

Variable costing is more appropriate than absorption costing when the decision ________.

Which of the following will appear as a line item in the income statement prepared under variable costing?

Delos,Inc.reports the following information for April: Sigma Gamma Units sold 2000 units 750 units Sales price per unit \ 350 \ 700 Variable manufacturing cost per unit 175 500 Sales commission per unit: Sigma: 8\% of sales price 28 Gamma: 8\% of sales price 56 What is the contribution margin of Sigma?

Cinnabar,Inc.has provided the following data for the year: Direct materials \ 10 per unit Direct labor \ 15 per unit Variable manufacturing overhead \ 20 per unit Fixed manufacturing overhead \ 25,000 per year Fixed selling and administrative costs \ 15,000 per year Sales price \ 75 per unit Beginning Finished Goods Inventory 500 units Units produced 5,000 units Units sold 4,500 units Requirements: a)Compute Cinnabar's unit product cost under absorption costing and variable costing. b)Prepare income statements for Cinnabar using absorption costing and variable costing. c)Calculate the balance in Finished Goods Inventory using absorption costing and variable costing. Assume that the production level,costs,and sales prices were the same in the previous year.

Answer the following variable costing questions: Question Variable Costing Which costs are included as product costs? Which costs are included as period costs?

McMillan,Inc.has the following cost data: Direct materials \ 38 per unit Direct labor 52 per unit Variable manufacturing overhead 15 per unit Fixed manufacturing overhead 10,000 per year Calculate the unit product cost using absorption costing when production is 200 units,400 units,and 800 units.

Adventures Company provides event management services.The company has three employees,each assigned to specific customers.The company considers each employee's territory as a business segment.The following data relate to its three segments for the month of June: Francisco Liu Jordan Sale Revenue \ 8000 \ 12,800 \ 13,350 Variable costs \ 5700 \ 5200 \ 10,500 The business segments had the following number of customers: Francisco,24 ; Liu,28; and Jordan,33.The total fixed costs for the month of June amount to $3400.Which business segment was the most profitable?

For decisions that affect analyzing profitability,consider the following decision focus.State the appropriate costing method and the reason for your answer. Decision Focus Appropriate Costing Method Reason Sales mix

Louie's Music produces harmonicas that it sells for $12 each.The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of harmonicas to be produced that month.Assume all costs and production levels are exactly as planned.The following data are from Louie's Music's first month in business: January 2019 Sales in uroduced and sold: 1,200 Production in units 1,400 Variable manufacturing cost per harmonica \ 4 Sales commission cost per harmonica \ 1 Total fixed manufacturing overhead \ 2,800 Total fixed selling and administrative costs \ 2,100 Requirements 1.Compute the product cost per harmonica produced under absorption costing. 2.Prepare an income statement for January,2019

Yazzie,Inc.reports the following information for the year ended December 31: Units sold 620 units Sales price \1 60 per unit Direct materials \2 6 per unit Direct labor \1 0 per unit Variable manufacturing overhead \ 13 per unit Fixed manufacturing overhead \3 0 per unit Variable selling and administrative costs \ 5 per unit Fixed selling and administrative costs \ 14,200 per year The operating income calculated using variable costing and absorption costing amounted to $9300 and $11,400,respectively.There were no beginning inventories.Determine the total fixed manufacturing overhead that will be expensed under variable costing for the year 2016.

Sutherland,Inc.reports the following information: Units produced 580 units Units sold 470 units Sales price \ 200 per unit Direct materials \2 9 per unit Direct labor \ 8 per unit Variable manufacturing overhead \1 3 per unit Fixed manufacturing overhead \ 16,600 per year Variable selling and administrative costs \ 6 per unit Fixed selling and administrative costs \ 14,000 per year There are no beginning inventories.What is the ending balance in Finished Goods Inventory using absorption costing? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)

Which of the following is considered a period cost under variable costing but not under absorption costing?

McFarlane,Inc.reports the following information: Units produced 600 units Units sold 410 units Sales price \ 130 per unit Direct materials \2 5 per unit Direct labor \ 9 per unit Variable manufacturing overhead \1 6 per unit Fixed manufacturing overhead \ 18,300 per year Variable selling and administrative costs \ 5 per unit Fixed selling and administra \ 12,900 per year There are no beginning inventories.What is the ending balance in Finished Goods Inventory using variable costing?

The level of inventory on hand at the end of the year does not affect the amount of operating income calculated under variable costing and absorption costing.