Question 1

Answer the following absorption costing questions:
 $$\begin{array} { | l | l | } 
\hline \text { Question } & \text { Absorption Costing } \
\hline \text { Which costs are included as } & \
\text { product costs? } & \
\hline \text { Which costs are included as } & \
\text { period costs? } & \
\hline
\end{array}$$

Accepted Answer

$\begin{array}{|l|l|}
\hline \text { Question }&\text { Absorption Costing } \
\hline & \text { Direct materials } \
\text { Which costs are included as } & \text { Direct labor } \
\text { product costs? } & \text { Fariable manufacturing overhead } \
\hline \text { Which costs are included as } & \text { Variable selling and administrative costs } \
\text { period costs? } & \text { Fixed selling and administrative costs }\
\hline
\end{array}$

Question 2

Period costs under the variable costing method include ________.

Accepted Answer

A)  variable manufacturing overhead 
B)  variable selling and administrative costs 
C)  direct materials 
D)  direct labor 
A)  variable manufacturing overhead 
B)  variable selling and administrative costs 
C)  direct materials 
D)  direct labor B

Question 3

Aqua Primavera, Inc. has provided the following information for the year. $\begin{array}{|l|lc|}
\hline \text { Units produced } & 11,000 \text { units } \
\hline \text { Sales price } & \$ 500 \text { per unit } \
\hline \text { Direct materials } & \$ 45 \text { per unit } \
\hline \text { Direct labor } & \$ 30 \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 55 \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 480,000 \text { per year } \
\hline \text { Variable selling and administration costs } & \$ 75 \text { per unit } \
\hline \text { ced selling and administration costs } & \$ 300,000 \text { per year } \
\hline
\end{array}$
 What is the unit product cost using variable costing?

Accepted Answer

A)  $75 
B)  $85 
C)  $130 
D)  $174 
A)  $75 
B)  $85 
C)  $130 
D)  $174 C

Question 4

In its first year of business, Lakota, Inc. produced 600 units and sold 400 units. If Lakota uses variable costing, ________.

Accepted Answer

A)  its operating income for the period will be higher than under absorption costing 
B)  its operating income for the period will be lower than under absorption costing 
C)  its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing 
D)  its operating income will be the same as under absorption costing 
A)  its operating income for the period will be higher than under absorption costing 
B)  its operating income for the period will be lower than under absorption costing 
C)  its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing 
D)  its operating income will be the same as under absorption costing

Question 5

Variable costing considers only ________ costs when determining product costs.

Accepted Answer

A)  fixed manufacturing 
B)  variable manufacturing 
C)  variable selling and administrative 
D)  fixed selling and administrative 
A)  fixed manufacturing 
B)  variable manufacturing 
C)  variable selling and administrative 
D)  fixed selling and administrative

Question 6

When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold, the operating income will be higher under absorption costing than variable costing.

Accepted Answer

A) True 
 B)False

Question 7

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, ________.

Accepted Answer

A)  its operating income for the period will be higher than under absorption costing 
B)  its operating income for the period will be lower than under absorption costing 
C)  its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing 
D)  its operating income will be the same as under absorption costing 
A)  its operating income for the period will be higher than under absorption costing 
B)  its operating income for the period will be lower than under absorption costing 
C)  its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing 
D)  its operating income will be the same as under absorption costing

Question 8

The following data has been provided by Jestina, Inc. for the year.
 $$\begin{array} { | l | r | l | } 
\hline \text { Units produced and sold } & 5,500 & \text { units } \
\hline \text { Sales price } & \$ 300 & \text { per unit } \
\hline \text { Direct materials } & \$ 90 & \text { per unit } \
\hline \text { Direct labor } & \$ 50 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 40 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 110,000 & \text { per year } \
\hline \text { Fixed selling and administrative costs } & \$ 150,000 & \text { per year } \
\hline
\end{array}$$ There are no beginning inventories. Prepare an income statement using the contribution margin format.

Accepted Answer

Jestina, Inc.
Income Statement
Year Ende

Question 9

Exceptional Events 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: $$\begin{array} { | l | r | r | r | } 
\hline & \text { Maribel } & \text { Jessica } & \text { Timothy } \
\hline \text { Sale revenue } & \$ 8000 & \$ 10,600 & \$ 13,350 \
\hline \text { Variable costs } & \$ 5700 & \$ 7000 & \$ 12,000 \
\hline
\end{array}$$ The business segments had the following number of customers: Maribel, 25; Jessica, 29; and Timothy, 34. The total fixed costs for the month amount to $3500. What is the operating income of Exceptional Events for the month of June?

Accepted Answer

A)  $7250 
B)  $3750 
C)  $31,950 
D)  $2300 
A)  $7250 
B)  $3750 
C)  $31,950 
D)  $2300

Question 10

For decisions that affect production planning, consider the following decision focuses. State the appropriate costing method and the reason for your answer.
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Decision } \
\text { Focus }
\end{array} & \begin{array} { c } 
\text { Appropriate Costing } \
\text { Method }
\end{array} & \text { Reason } \
\hline \text { Short run } & & \
\hline \text { Long run } & & \
\hline
\end{array}$$

Accepted Answer

None

Question 11

Magic Maid Service provides maid service to residential clients. Following are data for a recent week:
 $$\begin{array} { l l } 
\text { Service Revenue } & \$ 3,200 \
\text { Veriable Costs } & 1,900
\end{array}$$ The contribution margin ratio is 59.38% (rounded to two decimal places).

Accepted Answer

A) True 
 B)False

Question 12

For every unit that is produced but not sold, absorption costing "hides" some of the fixed manufacturing overhead in ending Finished Goods Inventory.

Accepted Answer

A) True 
 B)False

Question 13

Mirabella Company assigns direct materials, direct labor and both variable and fixed overhead to its product costs. Mirabella Company is using ________.

Accepted Answer

A)  absorption costing 
B)  variable costing 
C)  batch costing 
D)  composite costing 
A)  absorption costing 
B)  variable costing 
C)  batch costing 
D)  composite costing

Question 14

Bethel, Inc. has collected the following data. (There are no beginning inventories.) $$\begin{array} { | l | r | l | } 
\hline \text { Units produced } & 530 & \text { units } \
\hline \text { Sales price } & \$ 140 & \text { per unit } \
\hline \text { Direct materials } & \$ 17 & \text { per unit } \
\hline \text { Direct labor } & \$ 13 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 10 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 19,200 & \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 10 & \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 10,000 & \text { per year } \
\hline
\end{array}$$ What is the operating income using variable costing if 500 units are sold?

Accepted Answer

A)  $15,800 
B)  $45,000 
C)  $60,000 
D)  $4200 
A)  $15,800 
B)  $45,000 
C)  $60,000 
D)  $4200

Question 15

When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold, the operating income will be higher under variable costing than absorption costing.

Accepted Answer

A) True 
 B)False

Question 16

Elegant Affairs, Inc. provides catering services. The company has three segments: Standard, Deluxe, and Premium. The company provides the following data for its three segments for the month of July:
 $$\begin{array} { | l | r | r | r | } 
\hline & { \text { Standard } } & { \text { Deluxe } } &{ \text { Premium } } \
\hline \text { No. of customers } & 30 & 20 & 40 \
\hline \text { Service revenue } & \$ 9,000 & \$ 8,200 & \$ 8,600 \
\hline \text { Variable costs } & \$ 5,500 & \$ 3,800 & \$ 4,200 \
\hline
\end{array}$$ The total fixed costs for the month amount to $2,500.
Requirements:
a) Calculate the contribution margin ratio for each business segment.
b) Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.

Accepted Answer

Fixed cost

Question 17

Which of the following statements is true of variable costing?

Accepted Answer

A)  It considers variable manufacturing overhead as period costs. 
B)  It considers fixed manufacturing overhead as product costs. 
C)  It considers variable selling and administrative costs as product costs. 
D)  It considers fixed selling and administrative costs as period costs. 
A)  It considers variable manufacturing overhead as period costs. 
B)  It considers fixed manufacturing overhead as product costs. 
C)  It considers variable selling and administrative costs as product costs. 
D)  It considers fixed selling and administrative costs as period costs.

Question 18

Contribution margin is calculated by deducting the total cost of goods sold from sales revenue.

Accepted Answer

A) True 
 B)False

Question 19

Iagan, Inc. has collected the following data. (There are no beginning inventories.) $$\begin{array} { | l | r | l | } 
\hline \text { Units produced } & 600 & \text { units } \
\hline \text { Sales price } & \$ 120 & \text { per unit } \
\hline \text { Direct materials } & \$ 30 & \text { per unit } \
\hline \text { Direct labor } & \$ 10 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 7 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 17,900 \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 4 & \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 10,600 & \text { per year } \
\hline
\end{array}$$ What is the ending balance in Finished Goods Inventory using variable costing if 500 units are sold?

Accepted Answer

A)  $4000 
B)  $4700 
C)  $1700 
D)  $3000 
A)  $4000 
B)  $4700 
C)  $1700 
D)  $3000

Question 20

A variable costing income statement is used for ________.

Accepted Answer

A)  filing income tax returns 
B)  external reporting purposes 
C)  determining the amount of gross profit 
D)  internal decision-making purposes 
A)  filing income tax returns 
B)  external reporting purposes 
C)  determining the amount of gross profit 
D)  internal decision-making purposes

Exam 21: Variable Costing

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

Period costs under the variable costing method include ________.

In its first year of business, Lakota, Inc. produced 600 units and sold 400 units. If Lakota uses variable costing, ________.

Variable costing considers only ________ costs when determining product costs.

When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold, the operating income will be higher under absorption costing than variable costing.

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, ________.

For decisions that affect production planning, consider the following decision focuses. State the appropriate costing method and the reason for your answer. Decision Focus Appropriate Costing Method Reason Short run Long run

Magic Maid Service provides maid service to residential clients. Following are data for a recent week: Service Revenue \ 3,200 Veriable Costs 1,900 The contribution margin ratio is 59.38% (rounded to two decimal places).

For every unit that is produced but not sold, absorption costing "hides" some of the fixed manufacturing overhead in ending Finished Goods Inventory.

Mirabella Company assigns direct materials, direct labor and both variable and fixed overhead to its product costs. Mirabella Company is using ________.

When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold, the operating income will be higher under variable costing than absorption costing.

Which of the following statements is true of variable costing?

Contribution margin is calculated by deducting the total cost of goods sold from sales revenue.

A variable costing income statement is used for ________.

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Internal Control and Cash

Receivables

Plant Assets, Natural Resources, and Intangibles

Investments

Current Liabilities and Payroll

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost Management Systems: Activity-Based Just-In-Time

Cost Volume Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Responsibility Accounting and Performance Evaluation

Short-Term Business Decisions

Capital Investment Decisions

Understanding Accounting Information Systems and their Components

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