Exam 5: Variable Costing for Management Analysis

If sales totaled $200,000 for the current year (10,000 units at $20 each) and planned sales totaled $212,500 (12,500 units at $17 each), the effect of the unit price factor on the change in sales is a:

Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable factory overhead.

Under absorption costing, the amount of income reported from operations can be increased by producing more units than are sold.

Contribution margin reporting and analysis is appropriate only for manufacturing firms, not for service firms.

In contribution margin analysis, the unit price or unit cost factor is computed as the difference between the actual unit price or unit cost and the planned unit price or unit cost, multiplied by the actual quantity sold.

The absorption costing income statement does distinguish between variable and fixed costs.

For a period during which the quantity of product manufactured equals the quantity sold, income from operations reported under absorption costing will be smaller than the income from operations reported under variable costing.

In a service firm, it may be necessary to have several activity bases to properly match the change in costs with the changes in various activities.

Gyro Company manufactures Products T and W and is operating at full capacity. To manufacture Product W requires three times the number of machine hours required for Product T. Market research indicates that 1,000 additional units of Product W could be sold. The contribution margin by unit of product is as follows:

In determining cost of goods sold, two alternate costing concepts can be used: direct costing and variable costing.

The amount of income under absorption costing will equal the amount of income under variable costing when units manufactured:

Which of the following would not be an appropriate activity base for cost analysis in a service firm?

Edna's Chocolates had planned to sell chocolate-covered strawberries for $3.00 each. Due to various factors, the actual price was $2.75. Edna's was able to sell 1,000 more strawberries than the anticipated 4,000. What is (1) the quantity factor and (2) the price factor for sales?

If sales totaled $800,000 for the year (80,000 units at $10.00 each) and the planned sales totaled $799,500 (78,000 units at $10.25 each), the effect of the quantity factor on the change in sales is:

S&P Enterprises sold 10,000 units of inventory during a given period. The level of inventory of a manufactured product remained unchanged. The manufacturing costs were as follows: Which of the following statements is true?

Managers in service firms do not find contribution margin analysis reports useful because their firms do not sell inventory.

For short-run production planning, information in the absorption costing format is more useful to management than is information in the variable costing format.

Under variable costing, which of the following costs would be included in finished goods inventory?

On the variable costing income statement, deduction of the variable cost of goods sold from sales yields manufacturing margin.

Under absorption costing, the cost of finished goods includes direct materials, direct labor, and all factory overhead.