Question 1

Theele Corporation
Theele Corporation has the following information for April, May, and June: $\begin{array}{llll}&\text { April}&\text { May}&\text { June }\
\text { Units produced } & 10,000 & 10,000 & 10,000 \
\text { Units sold } & 7,000 & 8,500 & 10,500
\end{array}$ Production costs per unit (based on 10,000 units) are as follows: $$\begin{array} { l l } 
\text { Direct materials } & \$ 13 \
\text { Direct labour } & 9 \
\text { Variable manufacturing overhead } & 7 \
\text { Fixed manufacturing overhead } & 5 \
\text { Variable selling and administrative expenses } & 10 \
\text { Fixed selling and administrative expenses } & 4
\end{array}$$ The company had no beginning inventories for April, and all units were sold for $55 per unit. Costs are stable over the three months.
-Refer to Theele Corporation. What is the June ending Finished Goods Inventory using the variable costing method?

Accepted Answer

A)  $15,000 
B)  $116,000 
C)  $120,000 
D)  $260,000

Question 2

Shedding Company has two divisions with the following segment margins for the current year: Northern, $400,000; Southern, $800,000. Common expenses of the company are $100,000. What is Shedding Company's net income?

Accepted Answer

A)  $300,000 
B)  $350,000 
C)  $700,000 
D)  $1,100,000

Question 3

Select the appropriate classification of each of the costs listed below.* Each classification may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-Direct materials for units sold

Accepted Answer

A) deduction from Revenue in calculation of Contribution Margin 
B) deduction from Revenue in calculation of Gross Margin 
C) deduction from Revenue in calculation of both Contribution Margin and Gross Margin 
D) deduction from both Contribution Margin and Gross Margin in calculating Operating Income

Question 4

Inventory using the absorption costing method includes direct materials, direct labour, variable manufacturing overhead, and fixed manufacturing overhead.

Accepted Answer

A) True 
 B)False

Question 5

Ella Company
Last year, Ella Company produced 10,000 units and sold 9,000 units at a sales price of $9 per unit. Costs for last year were as follows: $$\begin{array} { |l | r | } 
\hline\text { Direct materials } & \$ 10,000 \
\hline \text { Direct labour } & 15,000 \
\hline \text { Variable manufacturing overhead } & 5,000 \
\hline \text { Fixed manufacturing overhead } & 20,000 \
\hline \text { Variable selling expense } & 7,200 \
\hline \text { Fixed selling expense } & 5,000 \
\hline \text { Fixed administrative expense } & 12,000 \
\hline
\end{array}$$ Fixed manufacturing overhead is applied on the basis of expected production. Last year, the company expected to produce 10,000 units.The company had no beginning inventories.
-Refer to Ella Company. What is the value of ending Finished Goods Inventory using the variable costing method?

Accepted Answer

A)  $2,000 
B)  $3,000 
C)  $3,720 
D)  $5,000

Question 6

How does a JIT system achieve the objective of minimizing purchase costs without carrying inventory?

Accepted Answer

A)  by ensuring that sufficient inventory is on hand to prevent stockouts 
B)  by purchasing extra raw materials when purchase price discounts are offered 
C)  by negotiating long-term contracts with supplier to lock in low purchase prices 
D)  by selecting an inventory level that minimizes the total of ordering and carrying costs

Question 7

Which of the following occurs under a JIT system?

Accepted Answer

A)  Stockouts are never a problem. 
B)  Safety stock is set at relatively high levels. 
C)  Inventory levels are set at 10% of total production levels. 
D)  Customer demand pulls units through the production line.

Question 8

Westwood Company
Westwood Company has the following information the current year: $$\begin{array} { l l } 
\text { Selling sales price } & \$ 300 \text { per unit } \
\text { Variable production costs } & \$ 80 \text { per unit produced } \
\text { Variable selling and administrative expenses } &\$ 32 \text { per unit sold } \
\text { Fixed production costs } & \$ 400,000 \
\text { Fixed selling and administrative expenses } & \$ 280,000 \
\text { Units produced } & 20,000 \text { units } \
\text { Units sold } & 16,000 \text { units }
\end{array}$$ The company had no beginning inventories
-Refer to Westwood Company. What is the ending Finished Goods Inventory using the absorption costing method?

Accepted Answer

A)  $80,000 
B)  $120,000 
C)  $180,000 
D)  $400,000

Question 9

All other things being equal, if the number of units produced in a period is larger than the number of units sold in a period, absorption costing income will be higher than variable costing income.

Accepted Answer

A) True 
 B)False

Question 10

Match each of the following descriptions with the correct term from the items listed below.
-Economic order quantity

Accepted Answer

A) The costs of not having a product available when demanded by a customer 
B) The costs of carrying inventory 
C) Approach that maintains goods should be pulled through the system by present demand 
D) The number of units in the order quantity that minimizes the total cost 
E) The costs of placing and receiving an order

Question 11

Direct fixed expenses are fixed expenses that are directly traceable to a segment.

Accepted Answer

A) True 
 B)False

Question 12

Which type of cost does NOT appear on a variable costing income statement?

Accepted Answer

A)  direct labour 
B)  direct materials 
C)  opportunity cost 
D)  variable selling expense

Question 13

Inventory costs using the variable costing method include only direct materials, direct labour, and fixed manufacturing overhead.

Accepted Answer

A) True 
 B)False

Question 14

Select the appropriate classification of each of the costs listed below.* Each classification may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-Fixed manufacturing overhead

Accepted Answer

A) deduction from Revenue in calculation of Contribution Margin 
B) deduction from Revenue in calculation of Gross Margin 
C) deduction from Revenue in calculation of both Contribution Margin and Gross Margin 
D) deduction from both Contribution Margin and Gross Margin in calculating Operating Income

Question 15

Nute Corporation
The following information pertains to Nute Corporation (the per unit amounts apply to all years): $$\begin{array} { l l } 
\text { Beginning inventory } & 1,000 \text { units } \
\text { Ending Finished Goods Inventory } & 6,000 \text { units } \
\text { Direct labour per unit } & \$ 40 \
\text { Direct materials per unit } & 20 \
\text { Variable manufacturing overhead per unit } & 10 \
\text { Fixed manufacturing overhead per unit } & 30 \
\text { Variable selling and administrative costs per unit } & 6 \
\text { Fixed selling and administrative costs per unit } & 14
\end{array}$$
-Refer to Nute Corporation. What is the value of the ending Finished Goods Inventory using the variable costing method?

Accepted Answer

A)  $240,000 
B)  $350,000 
C)  $360,000 
D)  $420,000

Question 16

Refer to Carmel Company. The company has decided to begin ordering 60 units at a time. What is the average annual ordering cost of this new policy?

Accepted Answer

A)  $60 
B)  $135 
C)  $150 
D)  $185

Question 17

Theele Corporation
Theele Corporation has the following information for April, May, and June: $\begin{array}{llll}&\text { April}&\text { May}&\text { June }\
\text { Units produced } & 10,000 & 10,000 & 10,000 \
\text { Units sold } & 7,000 & 8,500 & 10,500
\end{array}$ Production costs per unit (based on 10,000 units) are as follows: $$\begin{array} { l l } 
\text { Direct materials } & \$ 13 \
\text { Direct labour } & 9 \
\text { Variable manufacturing overhead } & 7 \
\text { Fixed manufacturing overhead } & 5 \
\text { Variable selling and administrative expenses } & 10 \
\text { Fixed selling and administrative expenses } & 4
\end{array}$$ The company had no beginning inventories for April, and all units were sold for $55 per unit. Costs are stable over the three months.
-Refer to Theele Corporation. What is the April ending Finished Goods Inventory using the variable costing method?

Accepted Answer

A)  $87,000 
B)  $90,000 
C)  $108,000 
D)  $260,000

Question 18

Cara Company
Cara Company has the following information pertaining to its two divisions for the current year: $\begin{array}{lrr}&\text { european division}&\text { american division}\
\text { Variable selling and administrative expenses } & \$ 40,000 & \$ 55,000 \
\text { Direct fixed manufacturing expenses } & 22,000 & 60,000 \
\text { Sales } & 120,000 & 220,000 \
\text { Direct fixed selling and administrative expenses } & 18,000 & 45,000 \
\text { Wariable manufacturing expenses } & 25,000 & 55,000
\end{array}$ Common expenses are $18,000 for the current year.
-Refer to Cara Company. What is the segment margin for the American Division?

Accepted Answer

A)  $5,000 
B)  $55,000 
C)  $105,000 
D)  $155,000

Question 19

Select the appropriate classification of each of the costs listed below.* Each classification may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-Variable manufacturing overhead

Accepted Answer

A) deduction from Revenue in calculation of Contribution Margin 
B) deduction from Revenue in calculation of Gross Margin 
C) deduction from Revenue in calculation of both Contribution Margin and Gross Margin 
D) deduction from both Contribution Margin and Gross Margin in calculating Operating Income

Question 20

Which of the following reflects the formula to calculate ordering cost?

Accepted Answer

A)  number of orders per year / cost of placing an order 
B)  number of orders per year × cost of placing an order 
C)  average number of units in inventory / cost of carrying one unit in inventory 
D)  average number of units in inventory × cost of carrying one unit in inventory

Exam 8: Absorption and Variable Costing, and Inventory Management

Shedding Company has two divisions with the following segment margins for the current year: Northern, $400,000; Southern, $800,000. Common expenses of the company are $100,000. What is Shedding Company's net income?

Select the appropriate classification of each of the costs listed below.* Each classification may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Direct materials for units sold

Inventory using the absorption costing method includes direct materials, direct labour, variable manufacturing overhead, and fixed manufacturing overhead.

How does a JIT system achieve the objective of minimizing purchase costs without carrying inventory?

Which of the following occurs under a JIT system?

All other things being equal, if the number of units produced in a period is larger than the number of units sold in a period, absorption costing income will be higher than variable costing income.

Match each of the following descriptions with the correct term from the items listed below. -Economic order quantity

Direct fixed expenses are fixed expenses that are directly traceable to a segment.

Which type of cost does NOT appear on a variable costing income statement?

Inventory costs using the variable costing method include only direct materials, direct labour, and fixed manufacturing overhead.

Select the appropriate classification of each of the costs listed below.* Each classification may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Fixed manufacturing overhead

Refer to Carmel Company. The company has decided to begin ordering 60 units at a time. What is the average annual ordering cost of this new policy?

Select the appropriate classification of each of the costs listed below.* Each classification may be used more than once, and it is possible that one or more of the classifications may not be used at all. -Variable manufacturing overhead

Which of the following reflects the formula to calculate ordering cost?