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

The following data relate to Ventura Company, a new corporation, during a period when the firm produced and sold 100,000 units and 90,000 units, respectively: Direct materials used \ 400,000 Direct labor 200,000 Fixed manufacturing overhead 250,000 Variable manufacturing overhead 120,000 Fixed selling and administrative expenses 300,000 Variable selling and administrative expenses 45,000 The company met its original planned production target of 100,000 units. There were no variances during the period, and the firm's selling price is $15 per unit. Required: A. What is the cost of Ventura's end-of-period finished-goods inventory under the variable-costing method? B. Calculate the company's variable-costing income. C. Calculate the company's absorption-costing income.

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

The following data relate to Horatio, Inc., a new company: Planned and actual production 200,000 units Sales at \ 48 per unit 170,000 units Manufacturing costs: Variable \ 18 per unit Fixed \ 840,000 Selling and administrative costs: Variable \ 7 per unit Fixed \ 925,000 There were no variances during the period. Required: A. Determine the number of units in the ending finished-goods inventory. B. Calculate the cost of the ending finished-goods inventory under (1) variable costing and (2) absorption costing. C. Determine the company's variable-costing income. D. Determine the company's absorption-costing income.

Absorption and variable costing are two different methods of measuring income and costing inventory. Required: A. Product costs are defined as costs associated with the manufacturing process. How does the operational definition of product cost differ between absorption costing and variable costing? B. An absorption-costing income statement will report gross profit or gross margin whereas a variable-costing income statement will report contribution margin. What is the difference between these terms?

Beach Bum Corporation has fixed manufacturing cost of $12 per unit. Consider the three independent cases that follow. Case A: Absorption- and variable costing income each totaled $240,000 in a period when the firm produced 18,000 units. Case B: Absorption-costing income totaled $320,000 in a period when finished-goods inventory levels rose by 7,000 units. Case C: Absorption-costing income and variable-costing income respectively totaled $220,000 and $250,000 in a period when the beginning finished-goods inventory was 14,000 units. Required: A. In Case A, how many units were sold during the period? B. In Case B, how much income would Beach Bum report under variable costing? C. In Case C, how many units were in the ending finished-goods inventory?

Springer began business at the start of the current year. The company planned to produce 40,000 units, and actual production conformed to expectations. Sales totaled 37,000 units at $42 each. Costs incurred were: Variable manufacturing overhead per unit \ 19 Fixed manufacturing overhead 240,000 Variable selling and administrative cost per unit 7 Fixed selling and administrative cost per unit 140,000 If there were no variances, the company's variable-costing income would be:

Which of the following statements about environmental costs is false?

McArthur Corp., which began business at the start of the current year, had the following data: Planned and actual production: 40,000 units Sales: 38,000 units at $15 per unit Production costs: Variable: $5 per unit Fixed: $260,000 Selling and administrative costs: Variable: $1 per unit Fixed: $32,000 The gross margin that the company would disclose on an absorption-costing income statement is:

The underlying difference between absorption costing and variable costing lies in the treatment of:

Absorption costing is required for tax purposes.

When units sold exceed units produced, absorption-costing income will be lower than variable-costing income.

All of the following are expensed under variable costing except:

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

The optimum level of product quality is where:

Moneka reported $65,000 of income for the year by using absorption costing. The company had no beginning inventory, planned and actual production of 20,000 units, and sales of 18,000 units. Standard variable manufacturing costs were $20 per unit, and total budgeted fixed manufacturing overhead was $100,000. If there were no variances, income under variable costing would be:

Consider the following comments about absorption- and variable-costing income statements: I. A variable-costing income statement discloses a firm's gross margin. II. Cost of goods sold on an absorption-costing income statement includes fixed costs. III. The amount of variable selling and administrative cost is the same on absorption- and variable-costing income statements. Which of the above statements is (are) true?

Consider the following comments about absorption- and variable-costing income statements: I. A variable-costing income statement discloses a firm's contribution margin. II. Cost of goods sold on an absorption-costing income statement includes fixed costs. III. The amount of variable selling and administrative cost is the same on absorption- and variable-costing income statements. Which of the above statements is (are) true?

Indiana Company incurred the following costs during the past year when planned production and actual production each totaled 20,000 units: Direct material used \ 280,000 Direct labor 120,000 Variable manufacturing overhead 160,000 Fixed manufacturing overhead 100,000 Variable selling and administrative cost 60,000 Fixed selling and administrative cost 90,000 If Indiana uses variable costing, the total inventoriable costs for the year would be:

Lone Star has computed the following unit costs for the year just ended: Direct material used \ 12 Direct labor 18 Variable manufacturing overhead 25 Fixed manufacturing overhead 29 Variable selling and administrative cost 10 Fixed selling and administrative cost 17 Under absorption costing, each unit of the company's inventory would be carried at:

Consider the following statements about absorption costing and variable costing: I. Variable costing is consistent with contribution reporting and cost-volume-profit analysis. II. Variable 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?