Exam 19: Variable Costing and Performance Reporting

Which of the following statements is true regarding variable costing?

Assume a company had the following production costs. Under absorption costing, the total production cost per unit when 4,000 units are produced would be $22.50. Direct labor \ 20,000 Direct material \ 30,000 Variable overhead \ 40,000 Fixed overhead \ 50,000

Under absorption costing, the product unit cost consists of direct labor, direct materials, variable overhead and _______________________.

Variable costing treats fixed overhead cost as a period cost.

A company normally sells a product for $25 per unit. Variable per unit costs for this product are: $3 direct materials, $5 direct labor, and $2 variable overhead. The company is currently operating at 100% of capacity producing 30,000 units per year. Total fixed costs are $75,000 per year. The company should accept a special order for 1,000 units which would be sold for $13 per unit because the special order price exceeds variable costs.

Under absorption costing, a company had the following unit costs when 8,000 units were produced. Direct labor \ 8.50 per unit Direct material \ 9.00 per unit Variable overhead \ 6.75 per unit Fixed overhead (\ 60,000/8,000 units ) \ 7.50 per unit Total production cost \ 31.75 per unit Compute the total production cost per unit under variable costing if 20,000 units had been produced.

Cool Pools, a manufacturer of above ground pools, began operations on January 1 of the current year. During this time, the company produced 45,000 units and sold 44,000 units at a sales price of $60 per unit. Cost information for this year is shown below. Production costs Direct materials \ 11.25 per unit Direct labor \ 3.20 per unit Variable overhead \ 315,000 in total Fixed overhead \ 39,600 in total Non-production costs Variable selling and administrative \ 2,000 in total Fixed selling and administrative \ 6,000 in total -Given the Cool Pools Company data, what is net income using variable costing?

Swola Company reports the following annual cost data for its single product. Normal production level 75,000 units Direct materials \ 1.25 per unit Direct labor \ 2.50 per unit Variable overhead \ 3.75 per unit Fixed overhead \ 300,000 in total This product is normally sold for $25 per unit. If Swola increases its production to 200,000 units, while sales remain at the current 75,000 unit level, by how much would the company's gross margin increase or decrease under absorption costing?

Red and White Company reported the following monthly data. Units produced 2,000 units Sales price \ 25 per unit Direct materials \ 1 per unit Direct labor \ 2 per unit Variable overhead \ 3 per unit Fixed overhead \ 8,000 in total -What is the Red and White's contribution margin for this month if 980 units were sold?

Producing too much can lead to lost sales and customer dissatisfaction.

Product costs consist of direct labor, direct materials and overhead.

Star Services, Inc., a manufacturer of telescopes, began operations on October 1 of the current year. During this time, the company produced 50,000 units and sold 35,000 units at a sales price of $500 per unit. Cost information for this year is shown below. Production costs Direct materials \ 85 per unit Direct labor \ 65 per unit Variable overhead \ 200,000 in total Fixed overhead \ 350,000 in total Non-production costs Variable selling and administrative \ 90,000 in total Fixed selling and administrative \ 500,000 in total -Given the Star Services, Inc. data, what is net income using absorption costing?

Scavenger Company, a manufacturer of recycling bins, began operations on January 1 of the current year. During this time, the company produced 60,000 units and sold 55,000 units at a sales price of $15 per unit. Cost information for this year is shown below. Production costs Direct materials \ 2.50 per unit Direct labor \ 3.00 per unit Variable overhead \ 45,000 in total Fixed overhead \ 240,000 in total Non-production costs Variable selling and administrative \ 10,000 in total Fixed selling and administrative \ 50,000 in total -Given the Scavenger Company data, what is net income using variable costing?

The traditional income statement format used for financial reporting is called the contribution margin format.

A company normally sells a product for $20 per unit. Variable per unit costs for this product are: $2 direct materials, $4 direct labor, and $1.50 variable overhead. The company is currently operating at 70% of capacity producing 14,000 units per year. Total fixed costs are $42,000 per year. The company should not accept a special order for 2,000 units which would be sold for $10 per unit because there would be an incremental loss on the order.

Contribution margin is the excess of sales over total variable costs.

When units produced equal units sold, reported income is identical under absorption costing and variable costing.

The data needed for cost-volume-profit analysis is readily available if the income statement is prepared using a contribution format.

Home Base, Inc. reports the following production cost information. Units produced 97,000 units Units sold 92,000 units Direct labor \ 17 per unit Direct materials \ 34 per unit Variable overhead \ 2,522,000 in total Fixed overhead \ 1,940,000 in total (a.) Compute production cost per unit under variable costing. (b.) Compute production cost per unit under absorption costing. (c.) Determine the cost of ending inventory using variable costing. (d.) Determine the cost of ending inventory using absorption costing.

A company reports the following information for its first year of operations. Units produced this year 43,000 units Units sold this year 39,000 units Direct materials \ 0.57 per unit Direct labor \ 0.83 per unit Variable overhead \ 26,660 in total Fixed overhead ? in total If the company's cost per unit of finished goods using variable costing is $2.02, what is the amount of total fixed overhead?