Question 1

All of the following are inventoried under variable costing except:

Accepted Answer

A)  direct materials. 
B)  direct labor. 
C)  variable manufacturing overhead. 
D)  fixed manufacturing overhead. 
E)  variable manufacturing overhead and fixed manufacturing overhead. 
A)  direct materials. 
B)  direct labor. 
C)  variable manufacturing overhead. 
D)  fixed manufacturing overhead. 
E)  variable manufacturing overhead and fixed manufacturing overhead. D

Question 2

Coastal Corporation, which uses throughput costing, began operations at the start of the current year. Planned and actual production equaled 20,000 units, and sales totaled 17,500 units at $95 per unit. Cost data for the year were as follows: $\begin{array}{lr}
\begin{array}{l}
\text { Direct materials (per unit) } \
\text { Conversion cost: }
\end{array} & \$ 18 \
\quad \text { Direct labor } & 160,000 \
\text { Variable manufacturing overhead } & 280,000 \
\quad \text { Fixed manufacturing overhead } & 340,000 \
\text { Selling and administrative costs (total) } & 430,000
\end{array}$ 
Required: 
A. Compute the company's total cost for the year.
B. How much of this cost would be held in year-end inventory under (1) absorption costing and (2) variable costing?
C. How much of the company's total cost for the year would appear on the period's income statement under (1) absorption costing and (2) variable costing?

Accepted Answer

A. $$\begin{array} { l r } 
\text { Direct materials } ( 20,000 \text { units } \times ~ \$ 18 ) & \$ 360,000 \
\text { Direct labor } & 160,000 \
\text { Variable manufacturing overhead } & 280,000 \
\text { Fixed manufacturing overhead } & 340,000 \
\text { Selling and administrative costs } & 430,000 \
\text { Total } & \$ 1,570,000
\end{array}$$ B. The year-end inventory of 2,500 units (20,000 - 17,500) is costed as follows:   C. The total costs would be allocated between the current period's income statement and the year-end inventory on the balance sheet. Thus:
Absorption costing: $1,570,000 - $142,500 = $1,427,500
Variable costing: $1,570,000 - $100,000 = $1,470,000

Question 3

Variable costing of inventory and absorption costing of inventory is relevant for which of the following types of businesses?

Accepted Answer

A)  Manufacturing firms. 
B)  Not-for-profit companies. 
C)  Governmental units. 
D)  Service firms. 
E)  All of the other answers are correct. 
A)  Manufacturing firms. 
B)  Not-for-profit companies. 
C)  Governmental units. 
D)  Service firms. 
E)  All of the other answers are correct. A

Question 4

Chino began business at the start of the current year. The company planned to produce 25,000 units, and actual production conformed to expectations. Sales totaled 22,000 units at $30 each. Costs incurred were: $\begin{array}{lr}
\text { Variable manufacturing overhead per unit } & \$ 8 \
\text { Fixed manufacturing overhead } & 150,000 \
\text { Variable selling and administrative cost per unit } & 2 \
\text { Fixed selling and administrative cost } & 100,000
\end{array}$ If there were no variances, the company's absorption-costing income would be:

Accepted Answer

A)  $190,000. 
B)  $202,000. 
C)  $208,000. 
D)  $220,000. 
E)  None of the other answers are correct. 
A)  $190,000. 
B)  $202,000. 
C)  $208,000. 
D)  $220,000. 
E)  None of the other answers are correct.

Question 5

Webster, Inc. began operations at the start of the current year, having a production target of 60,000 units. Actual production totaled 60,000 units, and the company sold 95% of its manufacturing output at $50 per unit. The following costs were incurred: $$\begin{array}{l}
\text { Manufacturing: }\
\begin{array} { l r } 
\text { Direct materials used } & \$ 240,000 \
\text { Direct labor } & 480,000 \
\text { Variable manufacturing overhead } & 360,000 \
\text { Fixed manufacturing overhead } & 600,000 \
\text { ling and administrative: } & \
\text { Variable } & 180,000 \
\text { Fixed } & 630,000
\end{array}
\end{array}$$ 
Required: 
A. Assuming the use of variable costing, compute the cost of Webster's ending finished-goods inventory.
B. Compute the company's contribution margin. Would Webster disclose the contribution margin on a variable-costing income statement or an absorption-costing income statement?
C. Assuming the use of absorption costing, how much fixed selling and administrative cost would Webster include in the ending finished-goods inventory?
D. Compute the company's gross margin.

Accepted Answer

A. Variable production costs total $1,08

Question 6

The difference in income between absorption and variable costing can be explained by the change in finished-goods inventory (in units) multiplied by the standard fixed manufacturing overhead rate.
Required:
Explain why this calculation accounts for the difference noted.

Accepted Answer

The only difference between the two meth

Question 7

Costs of determining whether defects exist are called:

Accepted Answer

A)  appraisal costs. 
B)  external failure costs. 
C)  internal failure costs. 
D)  prevention costs. 
E)  defects costs. 
A)  appraisal costs. 
B)  external failure costs. 
C)  internal failure costs. 
D)  prevention costs. 
E)  defects costs.

Question 8

Which of the following situations would cause variable-costing income to be higher than absorption-costing income?

Accepted Answer

A)  Units sold equaled 39,000 and units produced equaled 42,000. 
B)  Units sold and units produced were both 42,000. 
C)  Units sold equaled 55,000 and units produced equaled 49,000. 
D)  Sales prices decreased by $7 per unit during the accounting period. 
E)  Selling expenses increased by 10% during the accounting period. 
A)  Units sold equaled 39,000 and units produced equaled 42,000. 
B)  Units sold and units produced were both 42,000. 
C)  Units sold equaled 55,000 and units produced equaled 49,000. 
D)  Sales prices decreased by $7 per unit during the accounting period. 
E)  Selling expenses increased by 10% during the accounting period.

Question 9

Consider the following statements about absorption costing and variable costing:
I. Variable costing is consistent with contribution reporting and cost-volume-profit analysis.
II. Absorption costing must be used for external financial reporting.
III. A number of companies use both absorption costing and variable costing.
Which of the above statements is (are) true?

Accepted Answer

A)  I only. 
B)  II only. 
C)  III only. 
D)  I and II. 
E)  I, II, and III. 
A)  I only. 
B)  II only. 
C)  III only. 
D)  I and II. 
E)  I, II, and III.

Question 10

For external-reporting purposes, generally accepted accounting principles require that net income be based on variable costing.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following product-costing systems is/are required for tax purposes?

Accepted Answer

A)  Absorption costing. 
B)  Variable costing. 
C)  Throughput costing. 
D)  Either absorption or variable costing. 
E)  Either absorption, variable costing, or throughput costing. 
A)  Absorption costing. 
B)  Variable costing. 
C)  Throughput costing. 
D)  Either absorption or variable costing. 
E)  Either absorption, variable costing, or throughput costing.

Question 12

Which of the following conditions would cause absorption-costing income to be lower than variable-costing income?

Accepted Answer

A)  Units sold exceeded units produced. 
B)  Units sold equaled units produced. 
C)  Units sold were less than units produced. 
D)  Sales prices decreased. 
E)  Selling expenses increased. 
A)  Units sold exceeded units produced. 
B)  Units sold equaled units produced. 
C)  Units sold were less than units produced. 
D)  Sales prices decreased. 
E)  Selling expenses increased.

Question 13

Indiana Company incurred the following costs during the past year when planned production and actual production each totaled 20,000 units: $$\begin{array} { l r } 
\text { Direct material used } & \$ 280,000 \
\text { Direct labor } & 120,000 \
\text { Variable manufacturing overhead } & 160,000 \
\text { Fixed manufacturing overhead } & 100,000 \
\text { Variable selling and administrative cost } & 60,000 \
\text { Fixed selling and administrative cost } & 90,000
\end{array}$$ Indiana's per-unit inventoriable cost under variable costing is:

Accepted Answer

A)  $9.50. 
B)  $25.00. 
C)  $28.00. 
D)  $33.00. 
E)  $40.50. 
A)  $9.50. 
B)  $25.00. 
C)  $28.00. 
D)  $33.00. 
E)  $40.50.

Question 14

Garcia's inventory increased during the year. On the basis of this information, income reported under absorption costing:

Accepted Answer

A)  will be the same as that reported under variable costing. 
B)  will be higher than that reported under variable costing. 
C)  will be lower than that reported under variable costing. 
D)  will differ from that reported under variable costing, the direction of which cannot be determined from the information given. 
E)  will be less than that reported in the previous period. 
A)  will be the same as that reported under variable costing. 
B)  will be higher than that reported under variable costing. 
C)  will be lower than that reported under variable costing. 
D)  will differ from that reported under variable costing, the direction of which cannot be determined from the information given. 
E)  will be less than that reported in the previous period.

Question 15

Hirsch Company has per-unit fixed and variable manufacturing costs of $40 and $15, respectively. Variable selling and administrative costs are $9 per unit. Consider the two independent cases that follow for the firm.
Case A: Variable-costing income, $110,000; sales, 6,000 units; production, 6,000 units
Case B: Variable-costing income, $178,000; sales, 7,500 units; production, 7,100 units
Required:
A.
A. From a product-costing perspective, what is the basic difference between absorption costing and variable costing?
B.
B. Compute Hirsch's absorption-costing income in Case
C. Compute Hirsch's absorption-costing income in Case

Accepted Answer

A. The difference between absorption cos

Question 16

Consider the following statements about absorption- and variable-costing income:
I. Yearly income reported under absorption costing will differ from income reported under variable costing if production and sales volumes differ.
II. In the long-run, total income reported under absorption costing will often be close to that reported under variable costing.
III. Differences in income under absorption and variable costing can often be reconciled by multiplying the change in inventory (in units) by the variable manufacturing overhead cost per unit.
Which of the above statements is (are) true?

Accepted Answer

A)  I only. 
B)  II only. 
C)  III only. 
D)  I and II. 
E)  II and III. 
A)  I only. 
B)  II only. 
C)  III only. 
D)  I and II. 
E)  II and III.

Question 17

Roma Corporation has computed the following unit costs for the year just ended: $$\begin{array} { l r } 
\text { Direct material used } & \$ 11 \
\text { Direct labor } & 17 \
\text { Variable manufacturing overhead } & 21 \
\text { Fixed manufacturing overhead } & 23 \
\text { Variable selling and administrative cost } & 5 \
\text { Fixed selling and administrative cost } & 27
\end{array}$$ Under absorption costing, each unit of the company's inventory would be carried at:

Accepted Answer

A)  $49. 
B)  $54. 
C)  $72. 
D)  $104. 
E)  None of the other answers are correct. 
A)  $49. 
B)  $54. 
C)  $72. 
D)  $104. 
E)  None of the other answers are correct.

Question 18

Franz began business at the start of this year and had the following costs: variable manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling and administrative costs per unit, $2; and fixed selling and administrative costs, $220,000. The company sells its units for $45 each. Additional data follow. $\begin{array}{lr}
\text { Planned production in units } & 10,000 \
\text { Actual production in units } & 10,000 \
\text { Number of units sold } & 8,500
\end{array}$ There were no variances.
The income (loss) under absorption costing is:

Accepted Answer

A)  $(7,500). 
B)  $9,000. 
C)  $15,000. 
D)  $18,000. 
E)  None of the other answers are correct. 
A)  $(7,500). 
B)  $9,000. 
C)  $15,000. 
D)  $18,000. 
E)  None of the other answers are correct.

Question 19

The following data relate to Lebeaux Corporation for the year just ended: $\begin{array}{lr}\text { Sales revenue }&\$750,000\
\text { Cost of goods sold: }\
{\text { Variable portion }} & 370,000 \
\text { Fixed portion } & 110,000 \
\text { Variable selling and administrative costs } & 50,000 \
\text { Fixed selling and administrative cost } & 75,000
\end{array}$ Which of the following statements is correct?

Accepted Answer

A)  Lebeaux's variable-costing income statement would show a gross margin of $270,000. 
B)  Lebeaux's variable costing income statement would show a contribution margin of $330,000. 
C)  Lebeaux's absorption-costing income statement would show a contribution margin of $330,000. 
D)  Lebeaux's absorption costing income statement would show a gross margin of $330,000. 
E)  Lebeaux's absorption-costing income statement would show a gross margin of $145,000. 
A)  Lebeaux's variable-costing income statement would show a gross margin of $270,000. 
B)  Lebeaux's variable costing income statement would show a contribution margin of $330,000. 
C)  Lebeaux's absorption-costing income statement would show a contribution margin of $330,000. 
D)  Lebeaux's absorption costing income statement would show a gross margin of $330,000. 
E)  Lebeaux's absorption-costing income statement would show a gross margin of $145,000.

Question 20

All of the following costs are inventoried under absorption costing except:

Accepted Answer

A)  direct materials. 
B)  direct labor. 
C)  variable manufacturing overhead. 
D)  fixed manufacturing overhead. 
E)  fixed administrative salaries. 
A)  direct materials. 
B)  direct labor. 
C)  variable manufacturing overhead. 
D)  fixed manufacturing overhead. 
E)  fixed administrative salaries.

All of the following are inventoried under variable costing except:

Variable costing of inventory and absorption costing of inventory is relevant for which of the following types of businesses?

The difference in income between absorption and variable costing can be explained by the change in finished-goods inventory (in units) multiplied by the standard fixed manufacturing overhead rate. Required: Explain why this calculation accounts for the difference noted.

Costs of determining whether defects exist are called:

Which of the following situations would cause variable-costing income to be higher than absorption-costing income?

For external-reporting purposes, generally accepted accounting principles require that net income be based on variable costing.

Which of the following product-costing systems is/are required for tax purposes?

Which of the following conditions would cause absorption-costing income to be lower than variable-costing income?

Garcia's inventory increased during the year. On the basis of this information, income reported under absorption costing:

All of the following costs are inventoried under absorption costing except:

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis, Cost Behavior, and Cost Estimation

Cost-Volume-Profit Analysis

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Compound Interest and the Concept of Present Value

Inventory Management

Filters

Exam 8: Variable Costing and the Costs of Quality and Sustainability

All of the following are inventoried under variable costing except:

Variable costing of inventory and absorption costing of inventory is relevant for which of the following types of businesses?

The difference in income between absorption and variable costing can be explained by the change in finished-goods inventory (in units) multiplied by the standard fixed manufacturing overhead rate. Required: Explain why this calculation accounts for the difference noted.

Costs of determining whether defects exist are called:

Which of the following situations would cause variable-costing income to be higher than absorption-costing income?

For external-reporting purposes, generally accepted accounting principles require that net income be based on variable costing.

Which of the following product-costing systems is/are required for tax purposes?

Which of the following conditions would cause absorption-costing income to be lower than variable-costing income?

Garcia's inventory increased during the year. On the basis of this information, income reported under absorption costing:

All of the following costs are inventoried under absorption costing except:

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis, Cost Behavior, and Cost Estimation

Cost-Volume-Profit Analysis

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Compound Interest and the Concept of Present Value

Inventory Management

Filters