Question 1

UHF Antennas,Inc.,produces and sells a unique television antenna.The company has just opened a new plant to manufacture the antenna,and the following cost and revenue data have been reported for the first month of the new plant's operation:
 $\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 108 \
\hline \text { Beginning inventory } & 0 \
\hline \text { Units produced } & 35,000 \
\hline \text { Units sold } & 30,000 \
\hline \text { Selling price per unit } & \$ 50\ 
\hline\text { Selling and administrative expenses: } & \
\hline \text { Variable per unit } &\$2  \
\hline \text { Fixed (total) } &\$ 360,000 \
\hline \text { Manufacturing costs: }\
\hline \text { Manufacturing costs: } &\$ 9 \
\hline \text { Direct material cost per unit } &  \$ 8 \
\hline \text { Direct labour cost per unit } & \$ 3\
\hline \text { Variable overhead cost per unit } & \$ 350,000 \
\hline
\end{array}$
 
Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month.Assume that direct labour is a variable cost.
Required:
a)Assuming that the company uses absorption costing,compute the unit product cost and prepare an income statement.
b)Assuming that the company uses variable costing,compute the unit product cost and prepare an income statement.
c)Explain the reason for any difference in the ending inventories under the two costing methods and the impact of this difference on reported operating income.

Accepted Answer

The answer of UHF Antennas,Inc.,produces and sells a unique television...

Question 2

New Look Company, which has only one product, has provided the following data concerning its most recent month of operations:
$\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 95 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 3,800 \
\hline \text { Units sold } & 3,600 \
\hline \text { Units in ending inventory } & 200 \
\hline \text { Variable costs per unit: } & \\hline \text { Direct materials } & \$ 22 \
\hline \text { Direct labour } & \$ 11 \
\hline \text { Variable manufacturing overhead } & \$ 2 \
\hline \text { Variable selling and administrative } & \$ 9 \\hline \text { Fixed costs: } & \
\hline \text { Fixed manufacturing overhead } & \$ 102,600 \
\hline \text { Fixed selling and administrative } & \$ 63,200 \
\hline
\end{array}$

-What was the total period cost for the month under the variable costing approach?

Accepted Answer

A)  $88,400. 
B)  $93,600. 
C)  $154,800. 
D)  $200,000.

Question 3

Elliot Company, which has only one product, has provided the following data concerning its most recent month of operations:
$\begin{array}{l|r|}
\hline \text { Selling price } & \$ 112 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 4,900 \
\hline \text { Units sold } & 4,500 \
\hline \text { Units in ending inventory } & 400 \
\hline \text { Variable costs per unit: } & \\hline \text { Direct materials } & \$ 19 \
\hline \text { Direct labour } & \$ 45 \
\hline \text { Variable manufacturing overhead } & \$ 6 \
\hline \text { Variable selling and administrative } & \$ 9 \\hline \text { Fixed costs: } & \
\hline \text { Fixed manufacturing overhead } & \$ 117,600 \
\hline \text { Fixed selling and administrative } & \$ 22,500 \
\hline
\end{array}$

-What was the operating income (loss)for the month under absorption costing?

Accepted Answer

A)  ($19,600). 
B)  $8,400. 
C)  $9,600. 
D)  $18,000.

Question 4

Gabbert Company, which has only one product, has provided the following data concerning its most recent month of operations:
$\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 90 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 3,600 \
\hline \text { Units sold } & 3,400 \
\hline \text { Units in ending inventory } & 200 \
\hline \text { Variable costs per unit: } & \\hline \text { Direct materials } & \$ 23 \
\hline \text { Direct labour } & \$ 11 \
\hline \text { Variable manufacturing overhead } & \$ 2 \
\hline \text { Variable selling and administrative } & \$ 8 \
\hline \text { Fixed costs: } & \
\hline \text { Fixed manufacturing overhead } & \$ 93,600 \
\hline \text { Fixed selling and administrative } & \$ 61,200 \
\hline
\end{array}$

-What was the total period cost for the month under the variable costing approach?

Accepted Answer

A)  $88,400. 
B)  $93,600. 
C)  $154,800. 
D)  $182,000.

Question 5

Which of the following statements is true for a firm that uses variable costing?

Accepted Answer

A)  The unit product cost changes as a result of changes in the number of units manufactured. 
B)  Both variable selling costs and variable production costs are included in the unit product cost. 
C)  Operating income moves in the same direction as sales. 
D)  Operating income is greatest in periods when production is highest.

Question 6

Mahugh Company,which has only one product,has provided the following data concerning its most recent month of operations:
 $\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 122 \
\hline \text { Units in beginning inventory } & 0,300 \
\hline \text { Units produced } & 8,200 \
\hline \text { Units sold } & 100\
\hline \text { Variable costs per unit: } & \
\hline \text { Direct materials } & \$ 27 \
\hline \text { Direct labour } & \$ 46 \
\hline \text { Variable manufacturing overhead } & \$ 4 \
\hline \text { Variable selling and administrative } & \$ 7 \
\hline \text { Fixed costs: } & \
\hline \text { Fixed manufacturing overhead } & \$ 199,200 \
\hline \text { Fixed selling and administrative } & \$ 106,600\
\hline
\end{array}$
 
Required:
a)What is the unit product cost for the month under variable costing?
b)What is the unit product cost for the month under absorption costing?
c)Prepare an income statement for the month using the contribution format and the variable costing method.
d)Prepare an income statement for the month using the absorption costing method.
e)Reconcile the variable costing and absorption costing operating incomes for the month.

Accepted Answer

The answer of Mahugh Company,which has only one product,has provided...

Question 7

What is the costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques?

Accepted Answer

A)  Variable costing. 
B)  Absorption costing. 
C)  Process costing. 
D)  Job-order costing.

Question 8

Which of the following statements is true about the difference in operating income between variable costing and absorption costing if the number of units in work-in-process and finished goods inventories increase?

Accepted Answer

A)  There will be no difference in net income. 
B)  Operating income computed using variable costing will be higher. 
C)  The difference in operating income cannot be determined from the information given. 
D)  Operating income computed using variable costing will be lower.

Question 9

Under variable costing,the unit product cost contains some fixed manufacturing overhead cost.

Accepted Answer

A) True 
 B)False

Question 10

Chown Company, which has only one product, has provided the following data concerning its most recent month of operations:
$\begin{array}{l|r|}
\hline \text { Selling price } & \$ 110 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 8,000 \
\hline \text { Units sold } & 7,800 \
\hline \text { Units in ending inventory } & 200 \
\hline \text { Variable costs per unit: } & \\hline \text { Direct materials } & \$ 22 \
\hline \text { Direct labour } & \$ 31 \
\hline \text { Variable manufacturing overhead } & \$ 3 \
\hline \text { Variable selling and administrative } & \$ 4 \\hline \text { Fixed costs: } & \
\hline \text { Fixed manufacturing overhead } & \$ 248,000 \
\hline \text { Fixed selling and administrative } & \$ 140,400 \
\hline
\end{array}$

-What was the total gross margin for the month under the absorption costing approach?

Accepted Answer

A)  $7,800. 
B)  $179,400. 
C)  $196,800. 
D)  $390,000.

Question 11

During the last year,Moore Company's total variable production costs were $10,000,and its total fixed manufacturing overhead costs were $6,800.The company produced 5,000 units during the year and sold 4,600 units.There were no units in the beginning inventory.Which of the following statements is true?

Accepted Answer

A)  The operating income under absorption costing for the year will be $800 higher than operating income under variable costing. 
B)  The operating income under absorption costing for the year will be $544 higher than operating income under variable costing. 
C)  The operating income under absorption costing for the year will be $544 lower than operating income under variable costing. 
D)  The operating income under absorption costing for the year will be $800 lower than operating income under variable costing.

Question 12

Bateman Company, which has only one product, has provided the following data concerning its most recent month of operations:
$\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 117 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 4,700 \
\hline \text { Units sold } & 4,400 \
\hline \text { Units in ending inventory } & 300 \
\hline \text { Variable costs per unit: } & \\hline \text { Direct materials } & \$ 36 \
\hline \text { Direct labour } & \$ 38 \
\hline \text { Variable manufacturing overhead } & \$ 4 \
\hline \text { Variable selling and administrative } & \$ 11 \\hline \text { Fixed costs: } & \
\hline \text { Fixed manufacturing overhead } & \$ 89,300 \
\hline \text { Fixed selling and administrative } & \$ 26,400 \
\hline
\end{array}$

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

Accepted Answer

A)  $78. 
B)  $89. 
C)  $97. 
D)  $108.

Question 13

Although variable costing is NOT permitted for income tax purposes in Canada,it is widely accepted for external financial reports.

Accepted Answer

A) True 
 B)False

Question 14

During the year just ended,Roberts Company's operating income under absorption costing was $3,000 lower than its operating income under variable costing.The company sold 9,000 units during the year,and its variable costs were $9 per unit,of which $3 was variable selling expense.If production cost is $11 per unit under absorption costing every year,how many units did the company produce during the year?

Accepted Answer

A)  8,000 units. 
B)  8,400 units. 
C)  9,600 units. 
D)  10,000 units.

Question 15

Iancu Company, which has only one product, has provided the following data concerning its most recent month of operations:
$\begin{array} { | l | r | } 
\hline \text { Selling price } & \$ 149 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 4,200 \
\hline \text { Units sold } & 3,900 \
\hline \text { Units in ending inventory } & 300 \
\hline \text { Variable costs per unit: } & \
\hline \text { Direct materials } & \$ 27 \
\hline \text { Direct labour } & \$ 46 \
\hline \text { Variable manufacturing overhead } & \$ 5 \
\hline \text { Variable selling and administrative } & \$ 9 \
\hline \text { Fixed costs: } & \
\hline \text { Fixed manufacturing overhead } & \$ 155,400  \
\hline \text { Fixed selling and administrative } &\$ 70,200 \ 
\hline
\end{array}$

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

Accepted Answer

A)  $78. 
B)  $87. 
C)  $115. 
D)  $124.

Question 16

The following data were provided by Green Enterprises for the most recent period:
$\begin{array} { | l | r | } 
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 8,000 \
\hline \text { Units sold } & 6,000 \
\hline \text { Variable costs per unit: } & \
\hline \text { Manufacturing } &  \$ 15 \ 
\hline \text { Selling and administrative } &\$ 5 \
\hline \text { Fixed costs in total } & \
\hline \text { Manufacturing } &  \$ 24,000\
\hline \text { Selling and administrative } & \$ 16,000\
\hline
\end{array}$

-What was the unit product cost under absorption costing?

Accepted Answer

A)  $15. 
B)  $18. 
C)  $20. 
D)  $25.

Question 17

The following data were provided by Green Enterprises for the most recent period:
$\begin{array} { | l | r | } 
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 8,000 \
\hline \text { Units sold } & 6,000 \
\hline \text { Variable costs per unit: } & \
\hline \text { Manufacturing } &  \$ 15 \ 
\hline \text { Selling and administrative } &\$ 5 \
\hline \text { Fixed costs in total } & \
\hline \text { Manufacturing } &  \$ 24,000\
\hline \text { Selling and administrative } & \$ 16,000\
\hline
\end{array}$

-What was the unit product cost under variable costing?

Accepted Answer

A)  $15. 
B)  $18. 
C)  $20. 
D)  $22.

Question 18

Which of the following costs/expenses is included in product costs under both absorption costing and variable costing?

Accepted Answer

A)  Supervisory salaries. 
B)  Office equipment depreciation. 
C)  Variable manufacturing costs. 
D)  Variable selling expenses.

Question 19

Under variable costing,the impact of both fixed manufacturing and non-manufacturing cost is emphasized because the total amount of such cost for the period appears in the income statement.

Accepted Answer

A) True 
 B)False

Question 20

The term "gross margin" for a manufacturing company refers to the excess of sales over which of the following?

Accepted Answer

A)  Cost of goods sold, excluding fixed manufacturing overhead. 
B)  All variable costs, including variable selling and administrative expenses. 
C)  Cost of goods sold, including fixed manufacturing overhead. 
D)  Variable costs, excluding variable selling and administrative expenses.

Exam 8: Variable Costing: A Tool for Management

Which of the following statements is true for a firm that uses variable costing?

What is the costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques?

Which of the following statements is true about the difference in operating income between variable costing and absorption costing if the number of units in work-in-process and finished goods inventories increase?

Under variable costing,the unit product cost contains some fixed manufacturing overhead cost.

Although variable costing is NOT permitted for income tax purposes in Canada,it is widely accepted for external financial reports.

Which of the following costs/expenses is included in product costs under both absorption costing and variable costing?

Under variable costing,the impact of both fixed manufacturing and non-manufacturing cost is emphasized because the total amount of such cost for the period appears in the income statement.

The term "gross margin" for a manufacturing company refers to the excess of sales over which of the following?