Question 1

Stosho Company incurred the following costs in manufacturing desk calculators:
During the period, the company produced and sold 2,000 units.
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 28 \
\text { Indirect materials (variable) } & 8 \
\text { Direct labour } & 16 \
\text { Indirect labour (variable) } & 12 \
\text { Other variable factory overhead } & 20 \
\text { Fixed factory overhead } & 56 \
\text { Variable selling expenses } & 40 \
\text { Fixed selling expenses } & 28
\end{array}$$
-Refer to the Figure.What is the inventory cost per unit using absorption costing?

Accepted Answer

A) $32 
B) $84 
C) $104 
D) $140

Question 2

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

Accepted Answer

A) $280,000 
B) $325,000 
C) $350,000 
D) $400,000

Question 3

Which inventory cost can include processing costs,cost of insurance for shipping,and unloading?

Accepted Answer

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

Question 4

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 5

Which of the following is NOT a traditional reason for carrying inventory?

Accepted Answer

A) to satisfy customer demand 
B) to avoid shutting down manufacturing facilities 
C) to support a reliable production process 
D) to hedge against future price increases

Question 6

Carmel Company uses 810 units of a part each year. The cost of placing one order is $10; the cost of carrying one unit in inventory for a year is $4.
-Refer to the Figure.What is the EOQ for Benton?

Accepted Answer

A) 20 
B) 30 
C) 45 
D) 162

Question 7

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

Accepted Answer

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

Question 8

Which of the following costs is NOT included in inventory under absorption costing?

Accepted Answer

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

Question 9

What is the primary difference between variable and absorption costing?

Accepted Answer

A) inclusion of fixed selling expenses in product costs 
B) inclusion of variable factory overhead in period costs 
C) inclusion of fixed selling expenses in period costs 
D) inclusion of fixed factory overhead in product costs

Question 10

Match each statement with the correct item below.
-Ordering costs

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

On which type of income statement does each of the following costs appear?
-Direct materials for units sold

Accepted Answer

A) Variable costing income statement 
B) Absorption costing income statement 
C) Both types of income statements

Question 12

Westwood Company has the following information the current year:
Eastwood had no beginning inventories.
 $\begin{array}{lr}
\text { Selling price } & \$ 300 \text { per unit } \
\text { Variable production costs } & \$ 80 \text { per unit produced } \
\text { Variable selling and administrative expenses } & \$ 32 \text { per unit sold } \
\text { Fixed production costs } & \$ 400,000 \
\text { Fixed selling and administrative expenses } & \$ 280,000 \
\text { Units produced } & 20,000 \text { units } \
\text { Units sold } & 16,000 \text { units }
\end{array}$
-Refer to the Figure.What is the net income for Westwood using the variable costing method?

Accepted Answer

A) $412,000 
B) $480,000 
C) $600,000 
D) $1,200,000

Question 13

Operating Company has the following information pertaining to its two divisions for the current year:
Common expenses are $50,000 for the current year.
 $\begin{array}{lrr}&\text { North Division }&\text { South Division}\
\text { Variable selling and administrative expenses } & \$ 70,000 & \$ 90,000 \
\text { Direct fixed manufacturing expenses } & 35,000 & 100,000 \
\text { Sales } & 300,000 & 500,000 \
\text { Direct fixed selling and administrative expenses } & 30,000 & 70,000 \
\text { Variable manufacturing expenses } & 40,000 & 100,000
\end{array}$
-Refer to the Figure.What is the net income for Operating Company?

Accepted Answer

A) $41,000 
B) $65,000 
C) $215,000 
D) $325,000

Question 14

Inventory under absorption costing includes direct materials,direct labour,variable factory overhead,and fixed factory overhead.

Accepted Answer

A) True 
 B)False

Question 15

On which type of income statement does each of the following costs appear?
-Administrative expense

Accepted Answer

A) Variable costing income statement 
B) Absorption costing income statement 
C) Both types of income statements

Question 16

Suppose monthly production volume is constant and sales volume is less than production.How will net income react when using variable-costing procedures?

Accepted Answer

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

Question 17

What costs do the ordering costs become when the economic order quantity (EOQ)model is applied to units produced within the company?

Accepted Answer

A) setup costs 
B) stockout costs 
C) carrying costs 
D) safety-stock costs

Exam 8: Absorption and Variable Costing, and Inventory Management

Which inventory cost can include processing costs,cost of insurance for shipping,and unloading?

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.

Which of the following is NOT a traditional reason for carrying inventory?

Carmel Company uses 810 units of a part each year. The cost of placing one order is $10; the cost of carrying one unit in inventory for a year is $4. -Refer to the Figure.What is the EOQ for Benton?

Which of the following costs is NOT included in inventory under absorption costing?

What is the primary difference between variable and absorption costing?

Match each statement with the correct item below. -Ordering costs

On which type of income statement does each of the following costs appear? -Direct materials for units sold

Inventory under absorption costing includes direct materials,direct labour,variable factory overhead,and fixed factory overhead.

On which type of income statement does each of the following costs appear? -Administrative expense

Suppose monthly production volume is constant and sales volume is less than production.How will net income react when using variable-costing procedures?

What costs do the ordering costs become when the economic order quantity (EOQ) model is applied to units produced within the company?