Question 1

Shark Corporation
The following information pertains to Shark Corporation: $$\begin{array} { l l } 
\text { Beginning inventory } & 0 \text { units } \
\text { Ending Finished Goods Inventory } & 6,000 \text { units } \
\text { Direct labour per unit } & \$ 22 \
\text { Direct materials per unit } & 18 \
\text { Variable manufacturing overhead per unit } & 6 \
\text { Fixed manufacturing overhead per unit } & 12 \
\text { Variable selling costs per unit } & 14 \
\text { Fixed selling costs per unit } & 16
\end{array}$$
-Refer to Shark Corporation. What is the value of ending Finished Goods Inventory using the absorption costing method?

Accepted Answer

A)  $200,000 
B)  $348,000 
C)  $368,000 
D)  $390,000

Question 2

Which of the following best defines variable costing?

Accepted Answer

A)  a useful tool for external reporting purposes 
B)  a useful tool for management decision making 
C)  a good way to value inventories for the balance sheet 
D)  not a useful tool for companies with multiple segments

Question 3

Fellow's Manufacturing Company produces three products: X, Y, and Z. The income statement for this year is as follows: $\begin{array}{lr}
\text { Sales } && \$ 200,000 \
\text { Less: Variable expenses } && 127,000\\text { Contribution margin }&&\$73,000\\text { Less fixed expenses: }\
\text { Manufacturing } & \$ 20,000 \
\text { Selling and administrative } & 14,000&34,000\
\text { Net income }&&\$39,000
\end{array}$ The sales, contribution margin ratios, and direct fixed expenses for the three types of products are as follows: $\begin{array}{lrrr}&X&Y&Z\
\text { Sales } & \$ 60,000 & \$ 40,000 & \$ 100,000 \
\text { Contribution margin ratio } & 35 \% & 30 \% & 40 \% \
\text { Direct fixed expenses of products } & \$ 8,000 & \$ 5,000 & \$ 4,000
\end{array}$ Required: Prepare income statements segmented by products. Include a column for the entire firm in the statement.

Accepted Answer

The answer of Fellow's Manufacturing Company produces three products: X,...

Question 4

Which accounting method is used for external reporting?

Accepted Answer

A)  variable costing 
B)  absorption costing 
C)  transfer price costing 
D)  responsibility costing

Question 5

On a segmented income statement, fixed costs are broken down into direct fixed costs and overall fixed costs.

Accepted Answer

A) True 
 B)False

Question 6

Shark Corporation
The following information pertains to Shark Corporation: $$\begin{array} { l l } 
\text { Beginning inventory } & 0 \text { units } \
\text { Ending Finished Goods Inventory } & 6,000 \text { units } \
\text { Direct labour per unit } & \$ 22 \
\text { Direct materials per unit } & 18 \
\text { Variable manufacturing overhead per unit } & 6 \
\text { Fixed manufacturing overhead per unit } & 12 \
\text { Variable selling costs per unit } & 14 \
\text { Fixed selling costs per unit } & 16
\end{array}$$
-Refer to Shark Corporation. What is the relationship between absorption costing net income and variable costing net income?

Accepted Answer

A)  Absorption costing net income is $72,000 less. 
B)  Absorption costing net income is $70,000 less. 
C)  Absorption costing net income is $72,000 greater. 
D)  Absorption costing net income is $70,000 greater.

Question 7

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 selling expense

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 8

Which statement best describes the general relationship between inventory values calculated using the variable costing method and inventory values calculated using the absorption costing method?

Accepted Answer

A)  They will be equal. 
B)  Inventory values calculated using the variable costing method will be less. 
C)  Inventory values calculated using the variable costing method will be greater. 
D)  Inventory values calculated using the variable costing method will be twice as much.

Question 9

Triple M Company
Triple M Company had the following data for the month: $$\begin{array}{l}
\text { Variable costs per unit: }\
\begin{array} { l r } 
\text { Direct materials } & \$ 4.00 \
\text { Direct labour } & 3.20 \
\text { Variable manufacturing overhead } & 1.00 \
\text { Variable selling expenses } & 0.40
\end{array}
\end{array}$$ Fixed manufacturing overhead is $4,000 per month, which is applied to production on the basis of normal activity of 2,000 units. During the month, 2,000 units were produced. The company started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at sales price of $14 per unit. Selling and administrative expense for the month, all fixed, totalled $3,600.
-Refer to Triple M Company. What is the unit product cost using the absorption costing method?

Accepted Answer

A)  $7.20 
B)  $8.20 
C)  $8.60 
D)  $10.20

Question 10

Absorption costing income statements and variable costing income statements may differ because of their treatment of fixed manufacturing overhead costs.

Accepted Answer

A) True 
 B)False

Question 11

Green Bluff
Assume the following information for the #1 Product Line for Green Bluff: $$\begin{array} { l r } 
\text { Sales } & \$ 600,000 \
\text { Variable manufacturing expenses } & 120,000 \
\text { Direct fixed manufacturing expenses } & 75,000 \
\text { Variable selling and administrative expenses } & 65,000 \
\text { Direct fixed selling and administrative expenses } & 60,000
\end{array}$$
-Refer to Green Bluff. What is the contribution margin of the product line?

Accepted Answer

A)  $215,000 
B)  $325,000 
C)  $415,000 
D)  $480,000

Question 12

Triple M Company
Triple M Company had the following data for the month: $$\begin{array}{l}
\text { Variable costs per unit: }\
\begin{array} { l r } 
\text { Direct materials } & \$ 4.00 \
\text { Direct labour } & 3.20 \
\text { Variable manufacturing overhead } & 1.00 \
\text { Variable selling expenses } & 0.40
\end{array}
\end{array}$$ Fixed manufacturing overhead is $4,000 per month, which is applied to production on the basis of normal activity of 2,000 units. During the month, 2,000 units were produced. The company started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at sales price of $14 per unit. Selling and administrative expense for the month, all fixed, totalled $3,600.
-Refer to Triple M Company. What is the unit product cost using the variable costing method?

Accepted Answer

A)  $7.20 
B)  $8.20 
C)  $8.60 
D)  $10.20

Question 13

Which inventory cost can include lost sales, cost of expediting, and cost of interrupted production?

Accepted Answer

A)  the setup cost 
B)  the carrying cost 
C)  the ordering cost 
D)  the stockout cost

Question 14

Product cost includes all costs of the company.

Accepted Answer

A) True 
 B)False

Question 15

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 net income using the absorption costing method?

Accepted Answer

A)  $452,000 
B)  $480,000 
C)  $642,000 
D)  $2,408,000

Question 16

List three problems that inventory is meant to solve. How does the JIT producer handle these problems?

Accepted Answer

The answer of List three problems that inventory is meant...

Question 17

Shark Corporation
The following information pertains to Shark Corporation: $$\begin{array} { l l } 
\text { Beginning inventory } & 0 \text { units } \
\text { Ending Finished Goods Inventory } & 6,000 \text { units } \
\text { Direct labour per unit } & \$ 22 \
\text { Direct materials per unit } & 18 \
\text { Variable manufacturing overhead per unit } & 6 \
\text { Fixed manufacturing overhead per unit } & 12 \
\text { Variable selling costs per unit } & 14 \
\text { Fixed selling costs per unit } & 16
\end{array}$$
-Refer to Shark Corporation. What is the value of ending Finished Goods Inventory using the variable costing method?

Accepted Answer

A)  $276,000 
B)  $320,000 
C)  $250,000 
D)  $390,000

Question 18

Which cost is NOT included in inventory using the absorption costing method?

Accepted Answer

A)  direct labour 
B)  direct materials 
C)  fixed selling expenses 
D)  fixed manufacturing overhead

Question 19

Which of the following reflects the two major costs associated with inventory assuming demand is known with certainty?

Accepted Answer

A)  ordering costs and setup costs 
B)  setup costs and stockout costs 
C)  ordering costs and carrying costs 
D)  stockout costs and carrying costs

Question 20

How will net income react using the variable costing method, assuming monthly production volume is constant but fewer items are sold during the period than are produced in that same period?

Accepted Answer

A)  Net income will be equal to contribution margin per unit times units sold. 
B)  Net income will be equal to net income determined using the absorption costing method. 
C)  Net income will be less than net income determined using the absorption costing method. 
D)  Net income will be greater than net income determined using the absorption costing method.

Exam 8: Absorption and Variable Costing, and Inventory Management

Which of the following best defines variable costing?

Which accounting method is used for external reporting?

On a segmented income statement, fixed costs are broken down into direct fixed costs and overall fixed costs.

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 selling expense

Which statement best describes the general relationship between inventory values calculated using the variable costing method and inventory values calculated using the absorption costing method?

Absorption costing income statements and variable costing income statements may differ because of their treatment of fixed manufacturing overhead costs.

Which inventory cost can include lost sales, cost of expediting, and cost of interrupted production?

Product cost includes all costs of the company.

List three problems that inventory is meant to solve. How does the JIT producer handle these problems?

Which cost is NOT included in inventory using the absorption costing method?

Which of the following reflects the two major costs associated with inventory assuming demand is known with certainty?

How will net income react using the variable costing method, assuming monthly production volume is constant but fewer items are sold during the period than are produced in that same period?