Question 1

How can variable costing mitigate the pressure to manage earnings?

Accepted Answer

The answer of How can variable costing mitigate the pressure...

Question 2

H3 Co. is a farming corporation that grows and sells sugar beets. The company is publicly traded on the stock market: however, management prefers to use variable costing for decision purposes. The company's books are adjusted to arrive at Absorption Income for financial reporting purposes. The company reported the following financial information for the past month:
 The company tracks harvested crops that have not yet been shipped out as "in-process." This inventory of sugar beets increased from the equivalent of 50 full truckloads at the beginning of the month to 70 full truckloads at the end of the month.
What was Absorption Net Income?

Accepted Answer

A)  $1,988,000 
B)  $2,012,000 
C)  $1,990,000 
D)  $2,020,000 
E)  None of the above

Question 3

Under absorption costing, a change in the level of production will affect the amount of fixed costs reported on the income statement for the period.

Accepted Answer

A) True 
 B)False

Question 4

Sunlight Manufacturing produces a single product, fluorescent lightbulbs. They reported the following information from their operations last period:
  Under variable costing, what was the per-unit cost of the units produced?

Accepted Answer

The answer of Sunlight Manufacturing produces a single product, fluorescent...

Question 5

Which costing type calculates Contribution Margin?

Accepted Answer

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Question 6

Home Resorts, a residential pool installation company, is trying to prepare their financial statements for the year. The company uses variable costing to track all expenses, in an effort to maintain competitive prices. However, the bank requires Home Resorts to submit audited financial statements in accordance with GAAP in order to continue receiving funding. 
Home Resorts has the following information regarding their work for the period:
Pools in Process at the beginning of the month: $84,000 (14 partially completed pools, with $40,000 of fixed overhead costs applied).
Pools in Process at the end of the month: $90,000 (15 partially completed pools, with $24,000 of fixed overhead costs applied)
Home Resorts prepared the following variable costing income statement for the month:
  What is the amount of net operating income or loss that Home Resorts will have to report to the bank on their audited financial statements?

Accepted Answer

The answer of Home Resorts, a residential pool installation company,...

Question 7

PackALot Manufacturing produces a single product, small metal containers. They reported the following information from their operations last period:
  Under absorption costing what was the per-unit cost of the units produced?

Accepted Answer

The answer of PackALot Manufacturing produces a single product, small...

Question 8

Under absorption costing, a company can wait to recognize fixed costs as expense simply by selling more than they produced that period.

Accepted Answer

A) True 
 B)False

Question 9

Aquatic Pets Inc. makes 100-gallon plexiglass aquariums. They reported the following financial information for last year:
 Assume that the fixed costs were the same on a per-unit basis during the prior period.
What would Operating Income be under variable costing? (Round per-unit costs to the nearest cent.)

Accepted Answer

A)  $180,510 
B)  $227,490 
C)  $183,000 
D)  $225,000 
E)  None of the above

Question 10

Tropical Shelters, a pavilion installation company, is trying to prepare their financial statements for the year. The company uses variable costing to track all expenses, in an effort to maintain competitive prices. However, the bank requires Tropical Shelters to submit audited financial statements in accordance with GAAP in order to continue receiving funding. Tropical Shelters has the following information regarding their work for the period:
Pavilions in Process at the beginning of the month: $77,000 (24 partially completed pools, with $45,000 of fixed overhead costs applied).
Pavilions in Process at the end of the month: $82,000 (26 partially completed pools, with $36,000 of fixed overhead costs applied)
Tropical Shelters prepared the following variable costing income statement for the month:
  What is the amount of net operating income or loss that Tropical Shelters will have to report to the bank on their audited financial statements?

Accepted Answer

The answer of Tropical Shelters, a pavilion installation company, is...

Question 11

Patrick's Water Pets Inc. makes 100-gallon plexiglass aquariums. They reported the following financial information for last year:
 Assume that the fixed costs were the same on a per-unit basis during the prior period.
What would Operating Income be under absorption costing? (Round per-unit costs to the nearest cent.)

Accepted Answer

A)  $188,340 
B)  $219,660 
C)  $190,000 
D)  $218,000 
E)  None of the above

Question 12

LaSoho Inc. produces training videos for other companies. They hire actors, and record all films in rented facilities, which are rented on a temporary basis for each filming engagement. LaSoho reported the following financial information for last year:
  What would Operating Income be under absorption costing? (round per-unit costs to the nearest cent)

Accepted Answer

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Question 13

AgRanch Co. is a farming corporation that grows and sells crops in the Midwest. The company is publicly traded on the stock market: however, management prefers to use variable costing for decision purposes. The company's books are adjusted to arrive at Absorption Income for financial reporting purposes. 
The company reported the following financial information for the past month:
  The company tracks harvested crops that have not yet been shipped out as "in-process." This inventory of food increased from the equivalent of 50 full truckloads at the beginning of the month to 75 full truckloads at the end of the month.
What was Absorption Net Income?

Accepted Answer

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Question 14

FourSquare Mfg manufactures tables and desks, which are sold in sets of 4 chairs to a table to businesses, schools, and public facilities. They reported the following financial information for last year: 
  What would Operating Income be under variable costing? (Round per-unit costs to the nearest cent.)

Accepted Answer

The answer of FourSquare Mfg manufactures tables and desks, which...

Question 15

Which of the following correctly represents how to calculate absorption net income assuming no change in the fixed overhead rate?

Accepted Answer

A)  Variable net income - (Change in Inventory units x Fixed Overhead Rate) 
B)  Variable net income + (Change in Inventory units x Fixed Overhead Rate) 
C)  Variable net income - (Change in Inventory units x Variable Overhead Rate) 
D)  Variable net income + (Change in Inventory units x Variable Overhead Rate) 
E)  None of the above

Question 16

Woodstuff Inc. produces hardwood flooring for homes and businesses. They reported the following financial information for the previous period:
 What is the per-board-foot cost of inventory produced under variable costing? Round your answer to the nearest cent.

Accepted Answer

A)  $3.26 
B)  $3.96 
C)  $6.74 
D)  $7.99 
E)  None of the above

Question 17

Beet Co. is a farming corporation that grows and sells sugar beets. The company is publicly traded on the stock market: however, management prefers to use variable costing for decision purposes. The company's books are adjusted to arrive at Absorption Income for financial reporting purposes. The company reported the following financial information for the past month:
 The company tracks harvested crops that have not yet been shipped out as "in-process." This inventory of sugar beets decreased from 50 truckloads at the beginning of the month to 40 truckloads at the end of the month.
What was Variable Net Income?

Accepted Answer

A)  $1,795,000 
B)  $2,205,000 
C)  $1,995,000 
D)  $2,005,000 
E)  None of the above

Question 18

Which of the following is a drawback to absorption costing as opposed to variable costing?

Accepted Answer

A)  Managers can manipulate earnings by simply producing more than is sold in a period 
B)  Management cannot accurately price products because non-manufacturing overhead is not applied to inventory 
C)  Fixed overhead is simply expensed as a period cost without being properly considered as a cost of inventory 
D)  Absorption costing is not allowed for GAAP purposes 
E)  There is no drawback: absorption costing is always preferable to variable costing

Question 19

An advantage of variable costing is the ability to conduct break-even analysis using information from the financial statements.

Accepted Answer

A) True 
 B)False

Question 20

CookieClub Co. uses variable costing for managerial purposes and absorption costing for external reporting. These past two months, CCC has had an even number of sales at $100,000, at a price of $10/unit. However, in an effort to reduce the risk of stock-outs, management increased production from the regular 10,000 units to 12,500 units for last month only. CCC has fixed costs of $40,000 per month. 
Assuming that sales continue to hold constant and production returns to normal levels, if absorption net income was $30,000 last month, what will it be this month? (Round per-unit costs to the nearest cent.)

Accepted Answer

The answer of CookieClub Co. uses variable costing for managerial...

Exam 7: Variable Costing: A Tool for Decision Making

How can variable costing mitigate the pressure to manage earnings?

Under absorption costing, a change in the level of production will affect the amount of fixed costs reported on the income statement for the period.

Sunlight Manufacturing produces a single product, fluorescent lightbulbs. They reported the following information from their operations last period: Under variable costing, what was the per-unit cost of the units produced?

Which costing type calculates Contribution Margin?

PackALot Manufacturing produces a single product, small metal containers. They reported the following information from their operations last period: Under absorption costing what was the per-unit cost of the units produced?

Under absorption costing, a company can wait to recognize fixed costs as expense simply by selling more than they produced that period.

Which of the following correctly represents how to calculate absorption net income assuming no change in the fixed overhead rate?

Woodstuff Inc. produces hardwood flooring for homes and businesses. They reported the following financial information for the previous period: What is the per-board-foot cost of inventory produced under variable costing? Round your answer to the nearest cent.

Which of the following is a drawback to absorption costing as opposed to variable costing?

An advantage of variable costing is the ability to conduct break-even analysis using information from the financial statements.