Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Habitat Help Company provides cleaning services to commercial and residential customers. The commercial business segment provided services to 310 customers and the residential business segment provided services to 575 customers. $$\begin{array} { | l | r | r | r | } 
\hline & \text { Commercial } & \text { Residential } & { \text { Total } } \
\hline \text { Service Revenue } & \$ 91,000 & \$ 121,000 & \$ 212,000 \
\hline \text { Variable Costs } & 23,000 & 47,000 & 70,000 \
\hline \text { Fixed Costs } & \underline { 46,000 } & \underline { 48,000 } & \underline { 94,000 } \
\hline \text { Operating Income } & \$ 22,000 & \$ 26,000 & \$ 48,000 \
\hline
\end{array}$$ What is the contribution margin ratio for Habitat Help Company? (Round answer to two decimal places.)

Accepted Answer

A)  77.36% 
B)  22.64% 
C)  66.98% 
D)  55.66% 
A)  77.36% 
B)  22.64% 
C)  66.98% 
D)  55.66%

Question 3

Unit product cost calculations using absorption costing do NOT include ________.

Accepted Answer

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

Question 4

Gross profit is calculated by deducting ________ from sales revenue.

Accepted Answer

A)  total fixed costs 
B)  cost of goods sold 
C)  total variable costs 
D)  selling and administrative costs 
A)  total fixed costs 
B)  cost of goods sold 
C)  total variable costs 
D)  selling and administrative costs

Question 5

Which of the following costing methods charges all the manufacturing costs to the products?

Accepted Answer

A)  variable costing 
B)  direct costing 
C)  absorption costing 
D)  contribution costing 
A)  variable costing 
B)  direct costing 
C)  absorption costing 
D)  contribution costing

Question 6

Cinnabar, Inc. has provided the following data for the year:
 $$\begin{array} { | l | r | l | } 
\hline \text { Direct materials } & \$ 10 & \text { per unit } \
\hline \text { Direct labor } & \$ 15 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 20 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 25,000 & \text { per year } \
\hline \text { Fixed selling and administrative costs } & \$ 15,000 & \text { per year } \
\hline \text { Sales price } & \$ 75 & \text { per unit } \
\hline \text { Beginning Finished Goods Inventory } & 500 & \text { units } \
\hline \text { Units produced } & 5,000 & \text { units } \
\hline \text { Units sold } & 4,500 & \text { units } \
\hline
\end{array}$$ 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.

Accepted Answer

None

Question 7

Emerald Pools, Inc. has provided the following information for the year. $\begin{array}{|l|c|}
\hline \text { Units produced } & 14,000 \text { units } \
\hline \text { Sales price } & \$ 700 \text { per unit } \
\hline \text { Direct materials } & \$ 25 \text { per unit } \
\hline \text { Direct labor } & \$ 45 \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 50 \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 470,000 \text { per year } \
\hline \text { Variable selling and administration costs } & \$ 90 \text { per unit } \
\hline \text { ced selling and administration costs } & \$ 260,000 \text { per year } \
\hline
\end{array}$
 What is the unit product cost using absorption costing? (Round any intermediate calculations and your final answer to the nearest dollar.)

Accepted Answer

A)  $70 
B)  $154 
C)  $160 
D)  $120 
A)  $70 
B)  $154 
C)  $160 
D)  $120

Question 8

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

Accepted Answer

A)  Contribution Margin 
B)  Total Cost of Goods Sold 
C)  Work-in-Process Inventory 
D)  Gross Profit 
A)  Contribution Margin 
B)  Total Cost of Goods Sold 
C)  Work-in-Process Inventory 
D)  Gross Profit

Question 9

McMillan, Inc. has the following cost data:
 $$\begin{array} { | l | r | l | } 
\hline \text { Direct materials } & \$ 38 & \text { per unit } \
\hline \text { Direct labor } & 52 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & 15 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & 10,000 & \text { per year } \
\hline
\end{array}$$ Calculate the unit product cost using absorption costing when production is 200 units, 400 units, and 800 units.

Accepted Answer

Absorption costing for 200 units:
 \[\be

Question 10

Bright Castle Company provides cleaning services to commercial and residential customers. The commercial business segment provided services to 310 customers and the residential business segment provided services to 635 customers. $$\begin{array} { l r r r } 
& \text { Commercial } & \text { Residential } & \text { Total } \
\text { Service Revenue } & \$ 85,000 & \$ 119,000 & \$ 204,000 \
\text { Variable Costs } & \underline { 25,000 } & \underline { 56,000 } & \underline { 81,000 } \
\text { Contribution Margin } & 60,000 & 63,000 & 123,000 \
\text { Fixed Costs } & \underline { 42,000 } & \underline { 47,000 } & \underline { 89,000 } \
\text { Operating Income } & \underline { \$ 18,000 } & \underline { \$ 16,000 } & \underline { \$ 34,000 }
\end{array}$$ State which segment has the higher average variable cost per customer and provide the amount of the average variable cost per customer for that segment. (Round the answer to the nearest dollar.)

Accepted Answer

A)  Residential, $128 
B)  Commercial, $88 
C)  Residential, $88 
D)  Commercial, $128 
A)  Residential, $128 
B)  Commercial, $88 
C)  Residential, $88 
D)  Commercial, $128

Question 11

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:
 $\begin{array}{|l|r|}
\hline\text { January } 2019\
\hline \text { Units produced and sold: } & \
\hline \text { Sales in units } & 1200 \
\hline \text { Production in units } & 1400 \
\hline \text { Variable manufacturing cost per harmonica } & \$4 \
\hline \text { Sales commission cost per harmonica } &\$ 1  \
\hline \text { Total fixed manufacturing overhead } &\$ 2,800\
\hline\text { Total fixed selling and administrative costs }& \$ 2,100\
\hline
\end{array}$
 Requirements
1. Compute the product cost per harmonica produced under variable costing.
2. Prepare an income statement for January, 2019

Accepted Answer

Requirement 1
 \[\begin{array} { | l | c

Question 12

In absorption costing, the manufacturing costs expensed are greater than the amount expensed in variable costing when units produced are less than sold because the units in beginning inventory under absorption costing were assigned a greater cost in the previous accounting period.

Accepted Answer

A) True 
 B)False

Question 13

Betsy's Pies, Inc. has provided the following financial information for the year: $$\begin{array} { | l | r | } 
\hline \text { Finished Goods Inventory: } & \
\hline \text { Beginning balance, in units } & 620 \
\hline \text { Units produced } & 2100 \
\hline \text { Units sold } & 2200 \
\hline \text { Ending balance, in units } & 520 \
\hline \text { Production Costs: } & \
\hline \begin{array} { l } 
\text { Variable manufacturing costs per } \
\text { unit }
\end{array} &  \$ 50\ 
\hline \text { Total fixed manufacturing costs } &\$ 42,000  \
\hline
\end{array}$$ What is the unit product cost for the year using variable costing?

Accepted Answer

A)  $70 
B)  $19 
C)  $50 
D)  $81 
A)  $70 
B)  $19 
C)  $50 
D)  $81

Question 14

When units produced are less than units sold, how does operating income differ between variable costing and absorption costing? Explain your answer.

Accepted Answer

When units produced are less than units

Question 15

When determining the product costs for long-term production planning, ________.

Accepted Answer

A)  the research and development cost of the product should be ignored 
B)  variable costing is more appropriate 
C)  absorption costing is more appropriate 
D)  the selling and administrative expenses should be ignored 
A)  the research and development cost of the product should be ignored 
B)  variable costing is more appropriate 
C)  absorption costing is more appropriate 
D)  the selling and administrative expenses should be ignored

Question 16

Variable costing cannot be used in service companies.

Accepted Answer

A) True 
 B)False

Question 17

Arianell, Inc. reports the following information for August: $$\begin{array} { | l | r | } 
\hline \text { Sales Revenue } & \$ 800,000 \
\hline \text { Variable Cost of Goods Sold } & 110,000 \
\hline \text { Fixed Cost of Goods Sold } & 45,000 \
\hline \text { Variable Selling and Administrative Costs } & 100,000 \
\hline \text { Fixed Selling and Administrative Costs } & 70,000 \
\hline
\end{array}$$ Calculate the gross profit for August using absorption costing.

Accepted Answer

A)  $730,000 
B)  $700,000 
C)  $690,000 
D)  $645,000 
A)  $730,000 
B)  $700,000 
C)  $690,000 
D)  $645,000

Question 18

In service companies, variable costing can be used for profitability analysis and contribution margin analysis.

Accepted Answer

A) True 
 B)False

Question 19

Kertas, Inc. produces paper and office supplies and uses the just-in-time inventory system. Currently, the company is using variable costing. Which of the following is true of the effect of costing systems on the financial results of Kertas?

Accepted Answer

A)  Its operating income will be significantly higher if the company uses absorption costing instead of variable costing. 
B)  Its operating income will be significantly lower if the company uses absorption costing instead of variable costing. 
C)  Its operating income will vary a little if the company uses absorption costing instead of variable costing. 
D)  Its operating income will be negative if the company uses absorption costing instead of variable costing. 
A)  Its operating income will be significantly higher if the company uses absorption costing instead of variable costing. 
B)  Its operating income will be significantly lower if the company uses absorption costing instead of variable costing. 
C)  Its operating income will vary a little if the company uses absorption costing instead of variable costing. 
D)  Its operating income will be negative if the company uses absorption costing instead of variable costing.

Question 20

For decisions that affect analyzing profitability, consider the following decision focus. State the appropriate costing method and the reason for your answer.
 $$\begin{array} { | l | c | c | } 
\hline \begin{array} { c } 
\text { Decision } \
\text { Focus }
\end{array} & \begin{array} { c } 
\text { Appropriate Costing } \
\text { Method }
\end{array} & \text { Reason } \
\hline \text { Sales mix } & & \
& & \
\hline
\end{array}$$

Accepted Answer

The answer of For decisions that affect analyzing profitability, consider...

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

Unit product cost calculations using absorption costing do NOT include ________.

Gross profit is calculated by deducting ________ from sales revenue.

Which of the following costing methods charges all the manufacturing costs to the products?

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

In absorption costing, the manufacturing costs expensed are greater than the amount expensed in variable costing when units produced are less than sold because the units in beginning inventory under absorption costing were assigned a greater cost in the previous accounting period.

When units produced are less than units sold, how does operating income differ between variable costing and absorption costing? Explain your answer.

When determining the product costs for long-term production planning, ________.

Variable costing cannot be used in service companies.

In service companies, variable costing can be used for profitability analysis and contribution margin analysis.

Kertas, Inc. produces paper and office supplies and uses the just-in-time inventory system. Currently, the company is using variable costing. Which of the following is true of the effect of costing systems on the financial results of Kertas?

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

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

Filters

Exam 21: Variable Costing

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

Unit product cost calculations using absorption costing do NOT include ________.

Gross profit is calculated by deducting ________ from sales revenue.

Which of the following costing methods charges all the manufacturing costs to the products?

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

In absorption costing, the manufacturing costs expensed are greater than the amount expensed in variable costing when units produced are less than sold because the units in beginning inventory under absorption costing were assigned a greater cost in the previous accounting period.

When units produced are less than units sold, how does operating income differ between variable costing and absorption costing? Explain your answer.

When determining the product costs for long-term production planning, ________.

Variable costing cannot be used in service companies.

In service companies, variable costing can be used for profitability analysis and contribution margin analysis.

Kertas, Inc. produces paper and office supplies and uses the just-in-time inventory system. Currently, the company is using variable costing. Which of the following is true of the effect of costing systems on the financial results of Kertas?

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

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

Filters