Question 1

An allocated portion of fixed manufacturing overhead is included in product costs under which of the following?
$\begin{array}{|l|l|}
\hline \text { Absorption Costing } & \text { Variable Costing } \
\hline \text { A) No } & \text { No } \
\hline \text { B) No } & \text { Yes } \
\hline \text { C) Yes } & \text { No } \
\hline \text { D) Yes } & \text { Yes } \
\hline
\end{array}$

Accepted Answer

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

Question 2

Erie Company manufactures a single product. Assume the following data for the year just completed:
$\begin{array}{|l|r|}
\hline \text { Variable costs per unit: } & \
\hline \text { Manufacturing } & \$ 5 \
\hline \text { Selling and administrative } & \$ 8 \
\hline \text { Fixed costs in total } & \
\hline \text { Manufacturing } & \$ 60,000\
\hline \text { Selling and administrative } & \$ 82,500 \\hline
\end{array}$
There were no units in inventory at the beginning of the year. During the year, 30,000 units were produced and 25,000 units were sold. Each unit sells for $\$ 35$.
-Under absorption costing,what was the unit product cost? Do not round intermediate calculations.

Accepted Answer

A)  $8.00. 
B)  $10.75. 
C)  $13.00 
D)  $17.75.

Question 3

Operating income reported under absorption costing will generally exceed operating income reported under variable costing for a given period in which of the following cases?

Accepted Answer

A)  If production equals sales for that period. 
B)  If production exceeds sales for that period. 
C)  If sales exceed production for that period. 
D)  If the variable manufacturing overhead exceeds the fixed manufacturing overhead.

Question 4

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 variable costing?

Accepted Answer

A)  $78. 
B)  $89. 
C)  $97. 
D)  $107.

Question 5

Last year, Walsh Company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:
$\begin{array}{|l|r|}
\hline \text { Direct materials } & \$ 100,000 \
\hline \text { Direct labour } & 75,000 \
\hline \text { Variable manufacturing overhead } & 50,000 \
\hline \text { Fixed manufacturing overhead } & 75,000 \
\hline
\end{array}$Total sales were $440,000, total variable selling and administrative expenses were $110,000, and total fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labour is a variable cost.

-Under absorption costing,what was the total amount of fixed manufacturing cost in the ending inventory?

Accepted Answer

A)  $0. 
B)  $9,000. 
C)  $14,400. 
D)  $27,000.

Question 6

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 absorption costing approach?

Accepted Answer

A)  $61,200. 
B)  $88,400. 
C)  $95,600. 
D)  $182,000

Question 7

Oakes Company,which has only one product,has provided the following data concerning its most recent month of operations:
 $\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 108 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 1,100 \
\hline \text { Units sold } & 900 \
\hline \text { Units in ending inventory } & 200 \
\hline \text { Variable costs per unit: } &\
\hline \text { Direct materials } & \$ 28 \
\hline \text { Direct labour } & \$ 30 \
\hline \text { Variable manufacturing overhead } & \$ 7 \
\hline \text { Variable selling and administrative } & \$ 11 \
\hline \text { Fixed costs: } &\
\hline \text { Fixed manufacturing overhead }& \$ 14,300  \
\hline\text { Fixed selling and administrative }& \$ 1,800\
\hline
\end{array}$
 
Required:
a)Prepare an income statement for the month using the contribution format and the variable costing method.
b)Prepare an income statement for the month using the absorption costing method.

Accepted Answer

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

Question 8

Khanam Company, which has only one product, has provided the following data concerning its most recent month of operations:
$\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 97 \
\hline \text { Units in beginning inventory } & 500 \
\hline \text { Units produced } & 8,400 \
\hline \text { Units in ending inventory } & 400 \
\hline \text { Variable costs per unit: } & \\hline \text { Direct materials } & \$ 20 \
\hline \text { Direct labour } & \$ 37 \
\hline \text { Variable manufacturing overhead } & \$ 1 \
\hline \text { Variable selling and administrative } & \$ 11 \\hline \text { Fixed costs: } & \
\hline \text { Fixed manufacturing overhead } & \$ 67,200 \
\hline \text { Fixed selling and administrative } & \$ 161,500 \
\hline
\end{array}$The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

-What is the amount of fixed overhead deferred under absorption costing?

Accepted Answer

A)  $0 
B)  $3,200 
C)  $4,000 
D)  $67,200

Question 9

Last year,Stephen Company had 20,000 units in its ending inventory.During the year,Stephen Company's variable production costs were $12 per unit.The fixed manufacturing overhead cost was $8 per unit in the beginning inventory.The company's operating income for the year was $9,600 higher under variable costing than it was under absorption costing.Given these facts,what must have been the number of units of product in the beginning inventory last year?

Accepted Answer

A)  18,800 units. 
B)  19,200 units. 
C)  19,520 units. 
D)  21,200 units.

Question 10

Jarvix Company, which has only one product, has provided the following data concerning its most recent month of operations:
$\begin{array}{l|r|}
\hline \text { Selling price } & \$ 111 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 8,800 \
\hline \text { Units sold } & 8,900 \
\hline \text { Variable costs per unit: } & \
\hline \text { Direct materials } & \$ 34 \\hline \text { Direct labour } & \$ 37 \
\hline \text { Variable manufacturing overhead } & \$ 3 \
\hline \text { Variable selling and administrative } & \$ 9 \
\hline \text { Fixed costs: } &\
\hline \text { Fixed manufacturing overhead } & \$ 61,600 \
\hline \text { Fixed selling and administrative } & \$ 169,100 \
\hline
\end{array}$The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

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

Accepted Answer

A)  $2,100. 
B)  $17,800. 
C)  $18,500. 
D)  $25,900.

Question 11

Last year, Walsh Company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:
$\begin{array}{|l|r|}
\hline \text { Direct materials } & \$ 100,000 \
\hline \text { Direct labour } & 75,000 \
\hline \text { Variable manufacturing overhead } & 50,000 \
\hline \text { Fixed manufacturing overhead } & 75,000 \
\hline
\end{array}$Total sales were $440,000, total variable selling and administrative expenses were $110,000, and total fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labour is a variable cost.

-Under absorption costing,what was the gross margin?

Accepted Answer

A)  $21,000. 
B)  $66,000. 
C)  $176,000. 
D)  $242,000.

Question 12

Harper Company,which has only one product,has provided the following data concerning its most recent month of operations:
 $\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 111 \
\hline \text { Units in beginning inventory } & 400 \
\hline \text { Units produced } & 8,800 \
\hline \text { Units sold } & 8,900 \
\hline \text { Variable costs per unit: } & \\hline \text { Direct materials } & \$ 34 \
\hline \text { Direct labour } & \$ 37 \
\hline \text { Variable manufacturing overhead } & \$ 3 \
\hline \text { Variable selling and administrative } & \$ 9 \\hline \text { Fixed costs: } & \
\hline \text { Fixed manufacturing overhead } & \$ 61,600 \
\hline \text { Fixed selling and administrative } & \$ 169,100\
\hline
\end{array}$ 
The company produces the same number of units every month,although the sales in units vary from month to month.The company's variable costs per unit and total fixed costs have been constant from month to month.
Required:
a.Compute the total Contribution Margin.
b.Compute the Operating Income under Variable Costing.
c.Prepare a reconciliation from your Variable Costing Operating Income to compute Operating Income under absorption costing.

Accepted Answer

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

Question 13

Last year, Harris Company manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:
$\begin{array} { | l | r | } 
\hline \text { Direct materials } & \$ 153,000 \
\hline \text { Direct labour } & 110,500 \
\hline \text { Variable manufacturing overhead } & 204,000 \
\hline \text { Fixed manufacturing overhead } & 255,000 \
\hline
\end{array}$Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labour is a variable cost.

-Under absorption costing,what was the carrying value on the balance sheet of the ending inventory for the year? Do not round intermediate calculations.

Accepted Answer

A)  $0. 
B)  $170,000. 
C)  $190,800. 
D)  $230,800.

Question 14

Gordon Company produces a single product that sells for $10 per unit. Last year, there were no beginning inventories, 100,000 units were produced, and 80,000 units were sold. The company has the following cost structure:
$\begin{array} { | l | r | r | } 
\hline & \text { Fixed Costs } & \text { Variable Costs } \
\hline \text { Raw materials } & - - & \$ 2.00 \text { per unit produced } \
\hline \text { Direct labour } & - - & 1.25 \text { per unit produced } \
\hline \text { Factory overhead } & \$ 120,000 & 0.75 \text { per unit produced } \
\hline \text { Selling and administrative } & 70,000 & 1.00 \text { per unit sold } \
\hline
\end{array}$

-Under absorption costing,what was the carrying value on the balance sheet of the ending finished goods inventory? Do not round intermediate calculations.

Accepted Answer

A)  $80,000. 
B)  $104,000. 
C)  $110,000. 
D)  $200,000.

Question 15

When sales exceeds production for a period,absorption costing operating income will generally be greater than variable costing operating income.

Accepted Answer

A) True 
 B)False

Question 16

O'Briens Company, which has only one product, has provided the following data concerning its most recent month of operations:
$\begin{array} { | l | r | } 
\hline \text { Selling price } & \$ 165 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 4,300 \
\hline \text { Units sold } & 3,800 \
\hline \text { Units in ending inventory } & 500 \
\hline \text { Variable costs per unit: } & \
\hline \text { Direct materials } & \$ 31 \
\hline \text { Direct labour } & \$ 43 \
\hline \text { Variable manufacturing overhead } & \$ 5 \
\hline \text { Variable selling and administrative } & \$ 8 \
\hline \text { Fixed costs: } & \
\hline \text { Fixed manufacturing overhead } &\$ 165,400  \
\hline \text { Fixed selling and administrative } & \$ 80,200 \
\hline
\end{array}$

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

Accepted Answer

A)  ($7,200). 
B)  $41,100. 
C)  $50,800. 
D)  $47,300.

Question 17

Jarvix Company, which has only one product, has provided the following data concerning its most recent month of operations:
$\begin{array}{l|r|}
\hline \text { Selling price } & \$ 111 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 8,800 \
\hline \text { Units sold } & 8,900 \
\hline \text { Variable costs per unit: } & \
\hline \text { Direct materials } & \$ 34 \\hline \text { Direct labour } & \$ 37 \
\hline \text { Variable manufacturing overhead } & \$ 3 \
\hline \text { Variable selling and administrative } & \$ 9 \
\hline \text { Fixed costs: } &\
\hline \text { Fixed manufacturing overhead } & \$ 61,600 \
\hline \text { Fixed selling and administrative } & \$ 169,100 \
\hline
\end{array}$The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

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

Accepted Answer

A)  $0. 
B)  $61,600. 
C)  $230,700. 
D)  $310,800.

Question 18

Last year, Walsh Company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:
$\begin{array}{|l|r|}
\hline \text { Direct materials } & \$ 100,000 \
\hline \text { Direct labour } & 75,000 \
\hline \text { Variable manufacturing overhead } & 50,000 \
\hline \text { Fixed manufacturing overhead } & 75,000 \
\hline
\end{array}$Total sales were $440,000, total variable selling and administrative expenses were $110,000, and total fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labour is a variable cost.

-Under absorption costing,what was the unit product cost?

Accepted Answer

A)  $9.00. 
B)  $12.00. 
C)  $13.40. 
D)  $14.00.

Question 19

Data concerning Sonderegger Company's operations last year appear below:
 $\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 110 \
\hline \text { Units in beginning inventory } & 0 \
\hline \text { Units produced } & 70,000 \
\hline \text { Units sold } & 60,000 \
\hline \text { Selling price per unit } & \$ 12.00
\
\hline \text { Variable costs per unit: } & \
\hline \text { Direct materials } & \$ 2.00 \
\hline \text { Direct labour } & \$ 1.00 \
\hline \text { Variable manufacturing overhead } & \$ 1.00 \
\hline \text { Variable selling and administrative } & \$ 1.50 \
\hline \text { Fixed costs: } &  \
\hline \text { Fixed manufacturing overhead } &\$ 140,000 \
\hline\text { Fixed selling and administrative }&\$ 150,000\
\hline
\end{array}$

Required:
a)Prepare an income statement for the year using absorption costing.
b)Prepare an income statement for the year using variable costing.
c)Prepare a report reconciling the difference in operating income between absorption and variable costing for the year.

Accepted Answer

The answer of Data concerning Sonderegger Company's operations last year...

Question 20

Last year, Walsh Company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:
$\begin{array}{|l|r|}
\hline \text { Direct materials } & \$ 100,000 \
\hline \text { Direct labour } & 75,000 \
\hline \text { Variable manufacturing overhead } & 50,000 \
\hline \text { Fixed manufacturing overhead } & 75,000 \
\hline
\end{array}$Total sales were $440,000, total variable selling and administrative expenses were $110,000, and total fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labour is a variable cost.

-What was the operating income under variable costing?

Accepted Answer

A)  $2,000. 
B)  $9,000. 
C)  $12,000. 
D)  $21,000.

Exam 8: Variable Costing: A Tool for Management

Operating income reported under absorption costing will generally exceed operating income reported under variable costing for a given period in which of the following cases?

When sales exceeds production for a period,absorption costing operating income will generally be greater than variable costing operating income.