Question 1

Absorption costing is more in-line with JIT inventory concepts than variable costing.

Accepted Answer

A) True 
 B)False

Question 2

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case. Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case. 
-Calculate the September production cost per case using absorption costing.

Accepted Answer

A)  $3.60 
B)  $3.85 
C)  $5.85 
D)  $5.00

Question 3

Assuming no beginning inventory and monthly production is greater than sales. Management who are paid a bonus based on operating income would receive a larger bonus under variable costing, because only the variable costs will be deducted in deriving operating income.

Accepted Answer

A) True 
 B)False

Question 4

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
 Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.
-
What is the variable cost per cell phone for March and April production?

Accepted Answer

A)  $31.00 in March and $32.00 in April 
B)  $32.00 in March and $33.00 in April 
C)  $30.50 in March and $32.00 in April 
D)  $33.00 in March and $34.00 in April

Question 5

Harold's produces windmills that store power for residential use. Production data for the first month follow:

- If Harold's had beginning inventory of 10 units that had a $3,000 absorption cost per unit, what would be the cost of the ending inventory under absorption costing?

Accepted Answer

A)  $4,100 
B)  $102,500 
C)  $91,500 
D)  $60,000

Question 6

When a company's beginning inventory is zero and everything is sold in the month it is produced, variable and absorption costing will always yield the same result.

Accepted Answer

A) True 
 B)False

Question 7

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:
 
-The company's June 30 ending inventory consists of 20,000 burritos. Assuming they use FIFO costing, what is the absorption cost per burrito for a burrito that is manufactured in June?

Accepted Answer

A)  $0.20 
B)  $0.28 
C)  $0.25 
D)  $0.33

Question 8

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
 Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.
-
Calculate operating income for April, 2012 using absorption costing?

Accepted Answer

A)  $726,400 
B)  $625,800 
C)  $645,800 
D)  $626,400

Question 9

A company's beginning and ending inventory count is the same. Therefore, the ending inventory amount on the balance sheet must be the same amount as the beginning inventory amount.

Accepted Answer

A) True 
 B)False

Question 10

Straight-line depreciation on the manufacturing equipment would be considered a product cost under both variable and absorption costing.

Accepted Answer

A) True 
 B)False

Question 11

In a period where production exceeds sales, variable costing results in lower per unit product costs and lower operating income.

Accepted Answer

A) True 
 B)False

Question 12

Pat's Hats produces sun visors. Production data for the first month follow:

- What is the absorption cost per hat for October?

Accepted Answer

A)  $2.25 
B)  $2.50 
C)  $3.00 
D)  $5.00

Question 13

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
 Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.
-
What is the value of the ending inventory on March 31, 2012 using variable costing?

Accepted Answer

A)  $30,000 
B)  $33,000 
C)  $31,000 
D)  $32,500

Question 14

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September. Roberta's Hot Stuff sold 406,000 of the soup packages in September. 
-Calculate the September net income using variable costing.

Accepted Answer

A)  $479,800 
B)  $479,200 
C)  $487,200 
D)  $527,800

Question 15

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
 Hi-Tech started March with 1,000 cell phones that had variable costs of $28 per phone and fixed manufacturing costs of $2 per phone. Hi-Tech uses a FIFO cost flow.
-
If the company pays bonuses to the production manager for keeping production cost per unit under $34.00 per cell phone, under which costing method will the manager earn a bonus for March?

Accepted Answer

A)  Variable costing 
B)  Absorption costing 
C)  Both variable and absorption costing 
D)  Neither variable nor absorption costing

Question 16

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September. Roberta's Hot Stuff sold 406,000 of the soup packages in September.
- Calculate the total absorption cost per hot and sour soup package.

Accepted Answer

A)  $0.70 
B)  $0.72 
C)  $0.80 
D)  $0.82

Question 17

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
 Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.
-
What is the value of the ending inventory on April 30, 2012 using absorption costing?

Accepted Answer

A)  $22,400 
B)  $23,800 
C)  $23,100 
D)  $21,700

Question 18

Pat's Hats produces sun visors. Production data for the first month follow:
 
-What is the value of the October ending inventory using absorption costing?

Accepted Answer

A)  $1,200 
B)  $1,000 
C)  $200 
D)  $400

Question 19

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case.
- Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case.
If the company predicts it can reduce manufacturing wages in October, and all other costs would remain the same, how will this affect per unit costs?

Accepted Answer

A)  There will be no change to either. 
B)  Variable cost per unit will decrease, but absorption cost per unit will stay the same. 
C)  Variable cost per unit will stay the same, but absorption cost per unit will decrease. 
D)  Variable cost per unit will decrease, and absorption cost per unit will decrease.

Question 20

Hats produces sun visors. Production data for the first month follow:
 
-The production manager will receive a 3% salary bonus if production costs per unit under $3.00. After reviewing October results, he decides to increase production in November to 21,000 units. If demand for the product is stable, which accounting method is the company most likely using to determine the manager's bonus?

Accepted Answer

A)  Variable costing 
B)  Absorption costing 
C)  Neither 
D)  Both would yield the same bonus.

Exam 6: Absorption and Variable Costing

Absorption costing is more in-line with JIT inventory concepts than variable costing.

Assuming no beginning inventory and monthly production is greater than sales. Management who are paid a bonus based on operating income would receive a larger bonus under variable costing, because only the variable costs will be deducted in deriving operating income.

Harold's produces windmills that store power for residential use. Production data for the first month follow: - If Harold's had beginning inventory of 10 units that had a $3,000 absorption cost per unit, what would be the cost of the ending inventory under absorption costing?

When a company's beginning inventory is zero and everything is sold in the month it is produced, variable and absorption costing will always yield the same result.

A company's beginning and ending inventory count is the same. Therefore, the ending inventory amount on the balance sheet must be the same amount as the beginning inventory amount.

Straight-line depreciation on the manufacturing equipment would be considered a product cost under both variable and absorption costing.

In a period where production exceeds sales, variable costing results in lower per unit product costs and lower operating income.

Pat's Hats produces sun visors. Production data for the first month follow: - What is the absorption cost per hat for October?

Pat's Hats produces sun visors. Production data for the first month follow: -What is the value of the October ending inventory using absorption costing?