Deck 6: Operational Budgets

Question 1

Leeds Electronics, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the net operating income for the month under absorption costing?

A)£43,000
B)£45,700
C)£44,100
D)(£16,000)

Answer 1

£43,000

Question 2

If an income statement is prepared as an internal report, under which of the following methods would the term gross margin most likely appear

A)Both absorption costing and variable costing.
B)Absorption costing but not variable costing.
C)Variable costing but not absorption costing.
D)Neither variable costing nor absorption costing.

Answer 2

B

Question 3

What is the unit product cost for the month under variable costing

A)£94
B)£115
C)£90
D)£111

Answer 3

£90

Question 4

Willis Company had a net operating income of £75,000 using variable costing and a net operating income of £57,000 using absorption costing. Variable production costs were £15 per unit. Total fixed manufacturing overhead was £120,000 and 10,000 units were produced. During the year, the stock level

A)increased by 1,200 units.
B)increased by 1,500 units.
C)decreased by 1,500 units.
D)decreased by 1,200 units.

Question 5

Leeds Electronics, which has only one product, has provided the following data concerning its most recent month of operations:

-The management accountant has discovered an error in last month's accounts. The fixed manufacturing overhead should have been stated at £230,000.
What is the net operating income for the month under absorption costing if the fixed manufacturing overhead is £230,000?

A)£31,333
B)£23,333
C)£18,500
D)(£0)

Question 6

Columbia Company's variable costing income statement for November appears below:

-Under absorption costing, for the month ended November 30 the company would report a;

A)£145,000 profit.
B)£125,000 profit.
C)£125,000 loss.
D)£120,000 profit.

Question 7

Last year, Clayton Company's variable production costs totaled £8,000 and its fixed manufacturing overhead costs totaled £4,800. The company produced 4,000 units during the year and sold 3,600 units. Assuming no units in the beginning stock

A)under variable costing, the units in ending stock will be costed at £3.20 each.
B)the net operating income under absorption costing for the year will be £480 lower than net operating income under variable costing.
C)the ending stock under variable costing will be £480 lower than the ending stock under absorption costing.
D)the net operating income under absorption costing for the year will be £800 lower than net operating income under variable costing.

Question 8

Farris Company, which has only one product, has provided the following data concerning its most recent month of operations:

-
What is the unit product cost for the month under variable costing?

A)£61
B)£37
C)£32
D)£66

Question 9

Leeds Electronics, which has only one product, has provided the following data concerning its most recent month of operations:

-
What is the net operating income for the month under variable costing?

A)£28,500
B)£25,700
C)£34,400
D)(£12,900)

Question 10

Leeds Electronics, which has only one product, has provided the following data concerning its most recent month of operations:

-
The management accountant has discovered an error in last month's accounts. The fixed manufacturing overhead should have been stated at £230,000.
What is the net operating income for the month under variable costing if the fixed manufacturing overhead is £230,000?

A)£(18,700)
B)£(5,700)
C)£16,000
D)(£9,000)

Question 11

Variable costing is not permitted for external reporting, but it is fully acceptable as a costing method for income tax purposes

Question 12

Leeds Electronics, which has only one product, has provided the following data concerning its most recent month of operations:

-The market price for direct materials was lower last month. The normal cost of direct materials is £26.
What is the net operating income for the month under absorption costing if the cost of direct material is £26?

A)£(8,700)
B)£0
C)£12,400
D)(£1,000)

Question 13

Under variable costing, fixed manufacturing overhead cost is treated as a product cost

Question 14

Absorption costing is more compatible with cost-volume-profit analysis than is variable costing.

Question 15

Columbia Company's variable costing income statement for November appears below:

-
The pound value of the company's stock on November 30 under the absorption costing method would be:

A)£54,000.
B)£66,000.
C)£78,000.
D)£81,000.

Question 16

Leeds Electronics, which has only one product, has provided the following data concerning its most recent month of operations:

-The market price for direct materials was lower last month. The normal cost of direct materials is £26.
What is the net operating income for the month under variable costing if the cost of direct material is £26?

A)£(8,700)
B)£(5,700)
C)£14,400
D)(£9,000)

Question 17

Farris Company, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the net operating income for the month under absorption costing?

A)£2,900
B)£11,300
C)£17,400
D)£14,500

Question 18

Smith Company had net operating income of £125,000 using variable costing and £105,000 using absorption costing. Variable production costs were £20 per unit. Total fixed manufacturing overhead was £176,000 and 11,000 units were produced. During the year, the stock level

A)increased by 1,000 units.
B)increased by 1,250 units.
C)decreased by 1,000 units.
D)decreased by 1,250 units.

Question 19

A manufacturing company has provided the following data concerning its most recent month of operations.
The total gross margin for the month under the absorption costing approach is

A)£6,800.
B)£197,200.
C)£149,600.
D)£179,000.

Question 20

Leeds Electronics, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the net operating income for the month under absorption costing?

A)£8,700
B)£5,700
C)£14,400
D)(£12,000)

Question 21

Net operating income is affected by changes in production under both the variable costing and absorption costing approaches.

Question 22

Norfolk Engineering, which has only one product, has provided the following data concerning its most recent month of operations:

-The total gross margin for the month under the absorption costing approach is:

A)£149,600
B)£10,200
C)£115,400
D)£91,800

Question 23

During July, Roy Co. produced 10,000 units. Costs incurred by Roy during the month were as follows: $\begin{array}{lrr} \text { Direct materials } &£ 10,000\\ \text { Direct labour.} &20,000\\ \text { Variable manufacturing overhead. } &6,000\\ \text {Variable selling and administrative. } &3,000\\ \text { Fixed manufacturing overhead. } &9,000\\ \text { Fixed selling and administrative. } &4,000\\ \text {Total.}&£61,000\end{array}$

Under absorption costing, any unsold units would be carried in the stock account at a unit product cost of

A)£5.10.
B)£4.40.
C)£3.80.
D)£3.50.

Question 24

Norfolk Engineering, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the net operating income for the month under absorption costing?

A)£10,200
B)£5,700
C)£14,400
D)(£10,000)

Question 25

Norfolk Engineering, which has only one product, has provided the following data concerning its most recent month of operations:

-
The total contribution margin for the month under the variable costing approach is:

A)£70,400
B)£149,600
C)£166,600
D)£91,800

Question 26

George Company has no beginning stock and manufactures a single product. If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will

A)be equal to the net operating income under variable costing.
B)be greater than the net operating income under variable costing.
C)be equal to the net operating income under variable costing plus total fixed manufacturing costs.
D)be equal to the net operating income under variable costing less total fixed manufacturing costs.

Question 27

When production is less than sales for the period, absorption costing net operating income will generally be less than variable costing net operating income

Question 28

In an income statement prepared using variable costing, fixed manufacturing overhead would

A)not be used.
B)be used in the computation of net operating income but not in the computation of the contribution margin.
C)be used in the computation of the contribution margin.
D)be treated the same as variable manufacturing overheaD.

Question 29

Norfolk Engineering, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the net operating income for the month under variable costing?

A)£5,800
B)£25,700
C)£21,400
D)(£18,000)

Question 30

Variable manufacturing overhead costs are treated as period costs under both absorption and variable costing

Question 31

Norfolk Engineering, which has only one product, has provided the following data concerning its most recent month of operations:

-The demand for last month was very good and nearly all of its competitors increased their selling prices. Calculate the total contribution margin for the month under the variable costing approach if the selling price had been increased to £155.

A)£176,600
B)£183,600
C)£166,600
D)£189,600

Question 32

Under the absorption costing method, a company can increase profits by increasing production rather than by increasing sales

Question 33

Farris Company, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the unit product cost for the month under absorption costing?

A)£32
B)£61
C)£37
D)£66

Question 34

Last year, Craft Company had a net operating income of £80,000 using absorption costing and £74,500 using variable costing. The fixed manufacturing overhead cost has been £5 per unit for the last three years. If 21,500 units were produced last year, then sales last year were

A)16,000 units.
B)20,400 units.
C)22,600 units.
D)27,000 units.

Question 35

Farris Company, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the net operating income for the month under variable costing?

A)£14,500
B)£17,400
C)£11,300
D)£2,900

Question 36

In a manufacturing company using absorption costing, the fixed costs associated with idle production capacity are commonly included as part of the product cost.

Question 37

Last year, Chang Company had a net operating income of £77,000 using absorption costing and a net operating income of £70,700 using variable costing. The fixed manufacturing overhead cost has been £3 per unit for the last three years. If 18,000 units were produced last year, then sales last year were

A)20,100 units.
B)24,300 units.
C)11,700 units.
D)15,900 units.

Question 38

A manufacturing company has provided the following data concerning its most recent month of operations:
The total contribution margin for the month under the variable costing approach is

A)£64,200.
B)£249,900.
C)£225,400.
D)£98,000.

Question 39

Over an extended period of time in which the final ending inventories are zero, the accumulated net operating income figures reported under absorption costing will be

A)greater than those reported under variable costing.
B)less than those reported under variable costing.
C)the same as those reported under variable costing.
D)higher or lower since no generalization can be made.

Question 40

Norfolk Engineering, which has only one product, has provided the following data concerning its most recent month of operations:

-The demand for last month was very good and nearly all of its competitors increased their selling prices. Calculate the total gross margin for the month under the absorption costing approach if the selling price had been increased to £155.
The total gross margin for the month under the absorption costing approach is:

A)£149,600
B)£10,200
C)£115,400
D)£125,800

Question 41

If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will

A)be equal to the net operating income under variable costing.
B)be greater than net operating income under variable costing.
C)be equal to the net operating income under variable costing plus total fixed manufacturing costs.
D)be equal to the net operating income under variable costing less total fixed manufacturing costs.

Question 42

Selling and administrative expenses are considered to be

A)a product cost under variable costing.
B)a product cost under absorption costing.
C)part of fixed manufacturing overhead under variable costing.
D)a period cost under variable costing.

Question 43

Which of the following are considered to be product costs under absorption costing:
I.Variable manufacturing overhead.

II.Fixed manufacturing overhead.

III.Selling and administrative expenses.

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

Question 44

What is the net operating income for the month under variable costing

A)£8,700
B)£5,700
C)£14,400
D)(£12,000)

Question 45

A manufacturing company has provided the following data concerning its most recent month of operations:
What is the unit product cost for the month under variable costing
Refer To: [Manufacturing Operations Data 3]

A)£59
B)£83
C)£87
D)£55

Question 46

The costs assigned to units in stock are typically lower under absorption costing than under variable costing

Question 47

A company using Just-in-Time (JIT) methods likely would show approximately the same net operating income under both absorption and variable costing because

A)ending stock would be valued in the same manner for both methods under JIT.
B)production is geared to sales under JIT and thus there would be little or no ending stock.
C)under JIT fixed manufacturing overhead costs are charged to the period incurred rather than to the product produced.
D)there is no distinction made under JIT between fixed and variable costs.

Question 48

When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs deferred in stock under absorption costing should be added to variable costing net operating income to arrive at the absorption costing net operating income.

Question 49

Decisions made regarding the pricing of goods or services generally should be made

A)using absorption costing data in order to ensure that the full cost is recovered.
B)using absorption costing data since such data provides more complete information than does variable costing information on the effect of changes in price on volume and the effects of changes in volume on cost.
C)using variable costing data since such data provides more complete information than does absorption costing information on cost behavior and on the effects of changes in price on volume and the effect of changes in volume on cost.
D)using absorption costing data since absorption costing is required by the federal government in preparing federal tax returns.

Question 50

A manufacturing company has provided the following data concerning its most recent month of operations:
What is the unit product cost for the month under absorption costing?

A)£96
B)£83
C)£87
D)£100

Question 51

This year, Roberts Company's income under absorption costing was £2,000 lower than its income under variable costing. The company sold 8,000 units during the year, and its variable costs were £8 per unit, of which £2 was variable selling expense. If production cost was £10 per unit under absorption costing, then how many units did the company produce during the year

A)7,500 units.
B)7,000 units.
C)9,000 units.
D)8,500 units.

Question 52

Profits move in the same direction as sales when variable costing is used if selling prices, the sales mix, and the cost structure remain the same

Question 53

A portion of the total fixed manufacturing overhead cost incurred during a period may

A)be excluded from cost of goods sold under absorption costing.
B)be charged as a period cost with the remainder deferred under variable costing.
C)never be excluded from cost of goods sold under absorption costing.
D)never be excluded from cost of goods sold under variable costing.

Question 54

In an income statement prepared as an internal report using the variable costing method, variable selling and administrative expenses would

A)not be used.
B)be treated the same as fixed selling and administrative expenses.
C)be used in the computation of net operating income but not in the computation of the contribution margin.
D)be used in the computation of the contribution margin.

Question 55

Suppose fewer units are sold in year 2 than in year 1. If production exceeds sales in year 2, net operating income under absorption costing could be higher in year 2 than in year 1

Question 56

Under variable costing, all variable costs are treated as product costs

Question 57

A manufacturing company has provided the following data concerning its most recent month of operations:
The total contribution margin for the month under the variable costing approach is

A)£160,000.
B)£88,000.
C)£42,600.
D)£120,000.

Question 58

In an income statement prepared as an internal report, total fixed costs normally would be shown separately under:
$\begin{array}{lrr} &\text { Absorption costing } & \text { Variable costing } &\\\end{array}$
A. $\begin{array}{lrr} &&&& \text { No} &&&&&&& \text { No } &\\\end{array}$
B. $\begin{array}{lrr} &&&& \text { No} &&&&&&& \text { Yes} &\\\end{array}$
C. $\begin{array}{lrr} &&&&\text {Yes } &&&&&&& \text {Yes } &\\\end{array}$
D. $\begin{array}{lrr}&&&& \text { Yes } &&&&&&&\text {No } &\\\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 59

Variable selling and administrative expenses are part of product costs under the variable costing approach

Question 60

A manufacturing company has provided the following data concerning its most recent month of operations
A manufacturing company has provided the following data concerning its most recent month of operations:
What is the unit product cost for the month under absorption costing

A)£124
B)£132
C)£113
D)£143

Question 61

Outline the differences made by JIT to the importance of the variable (marginal) costing and absorption costing.

Question 62

Explain the differences between variable (marginal) costing and absorption costing.

Question 63

Using the data below, reconcile the two statements and comment on the results for each quarter and the year as a whole, reconciling the profits in each quarter.
The budgeted costs of making 150,000 units are as follows:
Overhead Absorption is based on 150,000 units. Selling Price is £11 per unit
$\begin{array}{ll} &£\\ \text {Direct Material} & 390,000 \\ \text {Direct Labour} & 450,000 \\ \text {Variable Overhead }& 60,000\\ \text {Fixed Production Overhead}&150,000\\ \text {Variable Selling and Admin}& 150,000\\ \text {Fixed Selling and Admin}&100,000 \end{array}$

Question 64

Describe the relative advantages and disadvantages of variable (marginal) costing and absorption costing

Question 65

If production exceeds sales for the period, variable costing net operating income will typically be greater than absorption costing net operating income

Question 66

Routsong Company had the following sales and production data for the past four years:
Selling price per unit, variable costs per unit, and total fixed costs are the same in each year. Which of the following statements is not correct?
$\begin{array}{lrr} &\text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Year 4 } \\ \text { Production in units.} &6,000&9,000 & 4,000& 5,000\\ \text {Sales in units. } &6,000&6,000 & 5,000&7,000\\\end{array}$

A)Under variable costing, net operating income for Year 1 and Year 2 would be the same.
B)Because of the changes in production levels, under variable costing the per unit stock value will change each year.
C)The total net operating income for all four years combined would be the same under variable and absorption costing.
D)Under absorption costing, net operating income in Year 4 would be less then the net operating income in Year 2.

Question 67

AC DC LTD
The budgeted costs of making 150,000 units are as follows:
Overhead Absorption is based on 150,000 units. Selling Price is £11 per unit
The production and sales for each quarter were as follows:
$\begin{array}{lr}&£ \\\text { Direct Material } & 390,000 \\\text { Direct Labour } & 450,000 \\\text { Variable Overhead } & 60,000 \\\text { Fixed Production Overhead } &150,000\\\text { Variable Selling and Admin } &150,000 \\\text { Fixed Selling and Admin } & 100,000\end{array}$
There were no opening stocks in Quarter 1 and assume that the actual costs were identical to estimated costs
Produce in COLUMNAR from AC and MC profit statements

Question 68

During the month of April, Vane Co. produced and sold 10,000 units of a product. Manufacturing and selling costs incurred during April were as follows: $\begin{array}{lrr} \text { Direct materials and direct labour.} &£ 400,000\\ \text { Variable manufacturing overhead.} &90,000\\ \text { Fixed manufacturing overhead.} &20,000\\ \text { Variable selling costs.} &10,000\\\end{array}$

Assume that direct labour is a variable cost. The unit product cost under variable costing was

A)£49.
B)£50.
C)£51.
D)£52.

Question 69

Explain in your own words how Power Transformers managed to 'achieve' a higher profit on a lower turnover as set out on page 200 of chapter 6.