Exam 21: Variable Costing

The ________ method allows managers to increase operating income through production by producing more products than needed.

Under absorption costing, all product costs are first recorded as assets in inventory accounts, and later transferred to the Cost of Goods Sold account when sold.

To explain why two business segments have different contribution margin ratios, take the total amounts and expand them into their two components-units and amount per unit-by dividing the totals by the number of units.

Absorption costing considers direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead as product costs.

Fixed manufacturing overhead is considered a product cost under variable costing.

In absorption costing, fixed manufacturing overhead is expensed ________.

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.

Locklear, Inc. reports the following information for the year ended December 31: Units sold 620 units Sales price \ 130 per unit Direct materials \ 28 per unit Direct labor \ 8 per unit Variable manufacturing overhead \ 13 per unit Fixed manufacturing overhead \ 12 per unit Variable selling and administrative costs \ 6 per unit Fixed selling and administrative costs \ 12,600 per year The operating income calculated using variable costing and absorption costing amounted to $10,000 and $12,700, respectively. There were no beginning inventories. Determine the total fixed manufacturing overhead that will be expensed under absorption costing for the year.

Sutherland, Inc. reports the following information: Units produced 580 units Units sold 470 units Sales price \ 200 per unit Direct materials \ 29 per unit Direct labor \ 8 per unit Variable manufacturing overhead \ 13 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.)

McFarlane, Inc. reports the following information: Units produced 600 units Units sold 410 units Sales price \ 130 per unit Direct materials \ 25 per unit Direct labor \ 9 per unit Variable manufacturing overhead \ 16 per unit Fixed manufacturing overhead \ 18,300 per year Variable selling and administrative costs \ 5 per unit Fixed selling and administrative costs \ 12,900 per year There are no beginning inventories. What is the ending balance in Finished Goods Inventory using variable costing?

Absorption costing considers ________ as product costs.

In absorption costing, all product costs are recorded first as assets in the inventory accounts.

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

Anatase, Inc. reports the following information: Units produced 2,500 units Units sold 2,000 units Sales price \ 200 per unit Direct materials \ 40 per unit Direct labor \ 25 per unit Variable manufacturing overhead \ 20 per unit Fixed manufacturing overhead \ 90,000 per year Variable selling and administrative costs \ 15 per unit Fixed selling and administrative costs \ 75,000 per year Assume that the production costs and sales prices were the same in the previous year. Assume no beginning inventories. Requirements: a) Calculate unit product cost using absorption costing and variable costing. b) Calculate the operating income using absorption costing and variable costing.

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.)

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

Docherty, Inc. reports the following information for the year ended December 31: Units sold 600 units Sales price \ 120 per unit Direct materials \ 29 per unit Direct labor \ 8 per unit Variable manufacturing overhead \ 13 per unit Fixed manufacturing overhead \ 25 per unit Variable selling and administrative costs \ 5 per unit Fixed selling and administrative costs \ 14,500 per year The operating income calculated using variable costing and absorption costing amounted to $9800 and $11,000, respectively. There were no beginning inventories. Determine the total number of units produced during the year.

Under absorption costing, the more fixed manufacturing overhead in ending Finished Goods Inventory, the larger the Cost of Goods Sold.

McIntosh, Inc. reports the following information: Beginning Finished Goods Inventory 50 units Units produced 570 units Units sold 620 units Sales price \ 120 per unit Direct materials \ 24 per unit Direct labor \ 15 per unit Variable manufacturing overhead \ 19 per unit Fixed manufacturing overhead \ 15,500 per year Variable selling and administrative costs \ 5 per unit Fixed selling and administrative costs \ 13,500 per year What is the unit product cost using variable costing? (Round your answer to the nearest cent.)

Alltech Inc. has collected the following data. (There are no beginning inventories.) Units produced 510 units Sales price \ 120 per unit Direct materials \ 19 per unit Direct labor \ 15 per unit Variable manufacturing overhead \ 9 per unit Fixed manufacturing overhead \ 16,000 per year Variable selling and administrative costs \ 10 per unit Fixed selling and administrative costs \ 12,100 per year What is the operating income using absorption costing if 500 units are sold? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)