Ch6 Variable Costing And Analysis Test Questions & Answers

Managerial Accounting, 7e (Wild)

Chapter 6 Variable Costing and Analysis

1) Under variable costing, product costs consist of direct labor, direct materials, and variable overhead.

2) Under variable costing, product costs consist of direct labor, direct materials, and fixed overhead.

3) The absorption costing approach assigns all manufacturing costs to products.

4) Absorption costing is required under GAAP.

5) The use of absorption costing can result in misleading product cost information.

6) Variable costing treats fixed overhead cost as a period cost.

7) The biggest problems with producing too much are lost sales and customer dissatisfaction.

8) Many companies link manager bonuses to income computed under absorption costing because this is how income is reported to shareholders.

9) Under absorption costing, a company had the following unit costs when 10,000 units were produced:

The total product cost per unit under absorption costing if 25,000 units had been produced would be $11.

10) Assume a company had the following production costs:

Under absorption costing, the total product cost per unit when 4,000 units are produced would be $22.50.

11) When the number of units produced is equal to the number of units sold, net income reported under variable costing is identical to net income reported under absorption costing.

12) When there are zero units in beginning Finished Goods Inventory and more units are produced than sold, the income will be lower under variable costing than under absorption costing.

13) Variable costing is required by Generally Accepted Accounting Principles (GAAP) for financial statement purposes.

14) Since fixed costs remain constant in the short run, special orders should be accepted as long as the order price is greater than the variable costs.

15) For short-term pricing decisions, absorption costing is an appropriate costing method to use.

16) When setting long-term sales prices for products, the sales price must cover all costs, including fixed costs.

17) Evaluating and rewarding managers based on absorption costing income can lead to overproduction.

18) Cost information from both absorption costing and variable costing can aid managers in pricing.

19) Managers should accept special orders provided the special order price exceeds the product cost per unit under absorption costing.

20) Absorption costing is useful because it reflects the full costs that sales must exceed for the company to be profitable.

21) The traditional income statement format used for financial reporting is called the contribution margin format.

22) If a company has excess capacity, increases in production level will increase variable production costs but not fixed production costs.

23) Fixed costs change in the short run depending upon management's decision to accept or reject special orders.

24) Variable costing separates variable costs from fixed costs and therefore makes it easier to identify and assign control over costs.

25) A company normally sells a product for $20 per unit. Variable per unit costs for this product are: $2 direct materials, $4 direct labor, and $1.50 variable overhead. The company is currently operating at 70% of capacity producing 14,000 units per year. Total fixed costs are $42,000 per year. The company should not accept a special order for 2,000 units which would be sold for $10 per unit because there would be an incremental loss on the order.

26) A company normally sells a product for $25 per unit. Variable per unit costs for this product are: $3 direct materials, $5 direct labor, and $2 variable overhead. The company is currently operating at 100% of capacity producing 30,000 units per year. Total fixed costs are $75,000 per year. The company should accept a special order for 1,000 units which would be sold for $13 per unit because the special order price exceeds variable costs.

27) Absorption costing is usually used for internal management purposes, and variable costing is usually used for external reporting purposes.

28) Assuming fixed costs remain constant, and a company produces and sells the same number of units, then income under absorption costing is less than income under variable costing.

29) Assuming fixed costs remain constant, and a company produces more units than it sells, then income under absorption costing is less than income under variable costing.

30) Assuming fixed costs remain constant, and a company sells more units than it produces, then income under absorption costing is less than income under variable costing.

31) The data needed for cost-volume-profit analysis is readily available if the income statement is prepared under absorption costing.

32) The data needed for cost-volume-profit analysis is readily available if the income statement is prepared using a contribution format.

33) Given the following data, total product cost per unit under variable costing is $10.75.

34) Given the following data, total product cost per unit under variable costing is $7.09.

35) Given the following data, total product cost per unit under variable costing will be greater than total product cost under absorption costing.

36) Given the following data, total product cost per unit under absorption costing is $9.14.

37) Given the following data, total product cost per unit under absorption costing is $11.40.

38) Given the following data, total product cost per unit under absorption costing will be greater than total product cost per unit under variable costing.

39) Given the following data, total product cost per unit under absorption costing will be $400 greater than total product cost per unit under variable costing.

40) The variable costing income statement classifies costs based on cost behavior rather than function.

41) Contribution margin is also known as gross margin.

42) Under an income statement prepared using absorption costing, expenses are grouped according to cost behavior.

43) A variable costing income statement focuses attention on the relationship between costs and sales that is not evident from the absorption costing format.

44) When units produced equal units sold, reported income is identical under absorption costing and variable costing.

45) Sales less total variable costs equals manufacturing margin.

46) When units produced exceed the units sold, income under absorption costing is higher than income under variable costing.

47) When units produced are less than units sold, income under absorption costing is higher than income under variable costing.

48) Income under absorption costing will always be different than income under variable costing.

49) Reporting contribution margin by market segment is useful in assessing the profitability of each segment.

50) Contribution margin is the excess of sales over total variable costs.

51) Variable costing is the only acceptable basis for both external reporting and tax reporting.

52) The bottom line of a contribution margin report is net income.

53) Under variable costing, fixed manufacturing overhead is expensed at the time the units are produced. Under absorption costing, fixed manufacturing overhead is expensed at the time the units are sold.

54) Under absorption costing, fixed manufacturing overhead is expensed at the time the units are produced. Under variable costing, fixed manufacturing overhead is expensed at the time the units are sold.

55) When the number of units produced exceeds the number of units sold, absorption costing defers some of the fixed costs incurred.

56) Information presented in a variable costing format can assist management when making short-term pricing decisions.

57) It is not possible to convert reports prepared using variable costing to absorption costing reports.

58) To convert variable costing income to absorption costing income, management will need to add fixed overhead cost deferred in ending inventory and subtract fixed overhead cost recognized from beginning inventory.

59) Which of the following costing methods charges all manufacturing costs to its products?

A) Direct costing

B) ABC costing

C) Variable costing

D) Absorption costing

E) Period costing

60) Which of the following is not a product cost under variable costing?

A) Direct materials.

B) Fixed manufacturing overhead.

C) Direct labor.

D) Variable manufacturing overhead.

E) All variable manufacturing costs.

61) Using absorption costing, which of the following manufacturing costs are assigned to products?

A) Direct materials and direct labor.

B) Direct labor and variable manufacturing overhead.

C) Fixed manufacturing overhead, direct materials, and direct labor.

D) Variable manufacturing overhead, direct materials, and direct labor.

E) Variable manufacturing overhead, direct materials, direct labor, and fixed manufacturing overhead.

62) Which of the following statements is true regarding absorption costing?

A) It is not the traditional costing approach.

B) It is not permitted to be used for financial reporting.

C) It is not permitted to be used for tax reporting.

D) It assigns all manufacturing costs to products.

E) It requires only variable costs to be treated as product costs.

63) Which of the following statements is true regarding variable costing?

A) It is a traditional costing approach.

B) Only manufacturing costs that change in total with changes in production level are included in product costs.

C) It is not permitted to be used for managerial reporting.

D) It treats overhead in the same manner as absorption costing.

E) It makes it easier to manipulate earnings with changes in production levels.

64) Which of the following statements is true?

A) Variable costing treats fixed overhead as a period cost.

B) Absorption costing treats fixed overhead as a period cost.

C) Absorption costing treats fixed overhead as an expense in the period it is incurred.

D) Variable costing excludes all overhead from product costs.

E) Managers can manipulate earnings more easily under variable costing by varying the production level.

65) Which of the following would be reported on a variable costing income statement?

A) Gross margin

B) Cost of goods available for sale

C) Total cost of goods sold

D) Contribution margin

E) Work-in-process inventory

66) Which of the following statements is true?

A) Under variable costing, direct materials and direct labor are expensed as period expenses.

B) Under variable costing, fixed manufacturing overhead is expensed as period expenses.

C) Fixed manufacturing overhead costs are treated the same under both absorption costing and variable costing.

D) Reported income under absorption costing is not affected by production level changes.

E) Under absorption costing, fixed manufacturing overhead is expensed as period expenses.

67) Under absorption costing, which of the following statements is not true?

A) Over production and inventory buildup can occur because of how managers are evaluated and rewarded.

B) The fixed costs per unit decline as more units are produced.

C) Variable inventory costs are treated in the same manner as they are under variable costing.

D) Fixed inventory costs are treated in the same manner as they are under variable costing.

E) All manufacturing costs are assigned to products.

68) When the number of units sold exceed the number of units produced, income reported under absorption costing will be lower than variable costing. Which of the following gives the best justification of the above statement?

A) Income under absorption costing is always less than income reported using variable costing, regardless of the number of units produced.

B) Income under absorption costing is always more than income reported using variable costing, regardless of the number of units produced.

C) The fixed overhead cost deferred in ending inventory is greater than the fixed overhead cost recognized from beginning inventory.

D) The fixed overhead cost deferred in ending inventory is less than the fixed overhead cost recognized from beginning inventory.

E) Fixed overhead is treated as a period cost under absorption costing.

69) Mentor Corp. has provided the following information for the current year:

Calculate the unit product cost using absorption costing.

A) $245

B) $275

C) $55

D) $145

E) $125

70) Mentor Corp. has provided the following information for the current year:

Calculate the unit product cost using variable costing.

A) $245

B) $275

C) $55

D) $145

E) $125

71) Under absorption costing, a company had the following unit costs when 9,000 units were produced.

Compute the total product cost per unit under absorption costing if 25,000 units had been produced.

A) $28.25

B) $23.45

C) $26.25

D) $20.75

E) $15.25

72) Under absorption costing, a company had the following unit costs when 9,000 units were produced.

Compute the total product cost per unit under variable costing if 30,000 units had been produced.

A) $31.75

B) $28.25

C) $23.45

D) $15.25

E) $20.75

73) Under absorption costing, a company had the following unit costs when 8,000 units were produced.

Compute the total production cost per unit under variable costing if 25,000 units had been produced.

A) $31.75

B) $27.25

C) $26.25

D) $24.25

E) $17.50

74) When evaluating a special order, management should:

A) Only accept the order if the incremental revenue exceeds all product costs.

B) Only accept the order if the incremental revenue exceeds fixed product costs.

C) Only accept the order if the incremental revenue exceeds total variable product costs.

D) Only accept the order if the incremental revenue exceeds full absorption product costs.

E) Only accept the order if the incremental revenue exceeds regular sales revenue.

75) A company is currently operating at 80% capacity producing 5,000 units. Current cost information relating to this production is shown in the table below:

The company has been approached by a customer with a request for a 100-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

A) Any amount over $34 per unit.

B) Any amount over $20 per unit.

C) Any amount over $14 per unit.

D) Any amount over $9 per unit.

E) Any amount over $5 per unit.

76) A company is currently operating at 75% capacity and producing 3,000 units. Current cost information relating to this production is shown in the table below:

The company has been approached by a customer with a request for a 200-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

A) Any amount over $43 per unit.

B) Any amount over $17 per unit.

C) Any amount over $21 per unit.

D) Any amount over $13 per unit.

E) Any amount over $22 per unit.

77) Geneva Company manufactures dolls that are sold to various customers. The company works at full capacity for half the year to meet peak demand, and operates at 80% capacity for the other half of the year. The following information is provided:

Geneva receives a purchase order to make 5,000 dolls as a one-time event. The good news is that this order is during a period when Geneva does have sufficient excess capacity. What is the lowest selling price Geneva should accept for this purchase order?

A) $35.00

B) $26.00

C) $29.50

D) $23.50

E) $25.00

78) Which of the following best describes costs assigned to the product under the absorption costing method?

Direct labor (DL)

Direct materials (DM)

Variable selling and administrative (VSA)

Variable manufacturing overhead (VOH)

Fixed selling and administrative (FSA)

Fixed manufacturing overhead (FOH)

A) DL, DM, VSA, and VOH.

B) DL, DM, and VOH.

C) DL, DM, VOH, and FOH.

D) DL and DM.

E) DL, DM, FSA, and FOH.

79) Which of the following best describes costs assigned to the product under the variable costing method?

Direct labor (DL)

Direct materials (DM)

Variable selling and administrative (VSA)

Variable manufacturing overhead (VOH)

Fixed selling and administrative (FSA)

Fixed manufacturing overhead  (FOH)

A) DL, DM, VSA, and VOH.

B) DL, DM, and VOH.

C) DL, DM, VOH, and FOH.

D) DL and DM.

E) DL, DM, FSA, and FOH.

80) Income ________ when there is zero beginning inventory and all inventory units produced are sold.

A) Will be lower under variable costing than absorption costing

B) Will be the same under both variable and absorption costing

C) Will be higher under variable costing than absorption costing

D) Will be higher than gross margin under variable costing

E) Will be lower than administrative costs under absorption costing

81) During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. What is the value of ending inventory under absorption costing?

A) $60,000

B) $110,000

C) $50,000

D) $250,000

E) $310,000

82) During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. What is the value of ending inventory under variable costing?

A) $60,000

B) $110,000

C) $50,000

D) $250,000

E) $310,000

83) During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. Income calculated under variable costing is determined to be $315,000. How much income is reported under absorption costing?

A) $315,000

B) $265,000

C) $565,000

D) $365,000

E) $290,000

84) Special order decisions should be made using variable costing because:

A) Special order decisions usually focus on fixed costs

B) Variable costing includes all overhead costs in the calculation of product costs.

C) Only variable costs will increase as a result of the special order.

D) All costs, including variable and fixed costs, must be covered by the special order pricing.

E) Fixed overhead costs will change as a result of the special order.

85) Shore Company reports the following information regarding its production cost.

Compute product cost per unit under absorption costing.

A) $57.00

B) $60.39

C) $47.00

D) $23.00

E) $24.00

86) Urban Company reports the following information regarding its production cost:

Compute production cost per unit under variable costing.

A) $18.00

B) $36.50

C) $42.00

D) $13.00

E) $31.00

87) Hayes Inc. provided the following information for the current year:

What is the unit product cost for the year using absorption costing?

A) $98

B) $66

C) $74

D) $96

E) $95

88) Hayes Inc. provided the following information for the current year:

What is the unit product cost for the year using variable costing?

A) $98

B) $66

C) $74

D) $96

E) $95

89) Sea Company reports the following information regarding its production cost.

Compute the product cost per unit under variable costing.

A) $28.00

B) $82.50

C) $80.00

D) $63.00

E) $35.00

90) Sea Company reports the following information regarding its production costs:

Compute the product cost per unit under absorption costing.

A) $28.00

B) $82.50

C) $80.00

D) $63.00

E) $35.00

[The following information applies to the questions displayed below.]

Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year.

91) Given Advanced Company's data, compute cost per unit of finished goods under variable costing.

A) $20.00

B) $25.00

C) $21.88

D) $23.00

E) $28.50

92) Given Advanced Company's data, compute cost per unit of finished goods under absorption costing.

A) $20.00

B) $34.17

C) $25.32

D) $23.00

E) $28.50

93) Given Advanced Company's data, compute cost of finished goods in inventory under absorption costing.

A) $285,000

B) $712,500

C) $427,500

D) $230,000

E) $345,000

94) Given Advanced Company's data, compute cost of finished goods in inventory under variable costing.

A) $285,000

B) $712,500

C) $427,500

D) $230,000

E) $345,000

95) Given Advanced Company's data, and the knowledge that the product is sold for $50 per unit and operating expenses are $200,000, compute the net income under absorption costing.

A) $55,000

B) $67,500

C) $80,500

D) $122,500

E) $205,000

96) Given Advanced Company's data, and the knowledge that the product is sold for $50 per unit and operating expenses are $200,000, compute the net income under variable costing.

A) $55,000

B) $67,500

C) $80,500

D) $122,500

E) $205,000

97) Clear Company reports the following information for its first year of operations:

If the company's cost per unit of finished goods using absorption costing is $19.30, what is total fixed overhead?

A) $350,000

B) $255,000

C) $150,000

D) $249,900

E) $147,000

98) Milton Company reports the following information for the current year:

If the company's cost per unit of finished goods using absorption costing is $18, what is total fixed overhead?

A) $225,000

B) $180,000

C) $270,000

D) $315,000

E) $720,000

99) Gage Company reports the following information for its first year of operations:

If the company's cost per unit of finished goods using variable costing is $63, what is total variable overhead?

A) $21,000

B) $71,500

C) $77,000

D) $19,500

E) $16,590

100) A company reports the following information for its first year of operations:

If the company's cost per unit of finished goods using variable costing is $2,375, what is total variable overhead?

A) $237,500

B) $75,000

C) $312,500

D) $406,250

E) $97,500

101) Magenta Inc. reports the following information for the current year, which is its first year of operations:

If the company's cost per unit of finished goods using absorption costing is $39.75, what is total variable overhead?

A) $925,000

B) $877,500

C) $937,500

D) $865,800

E) $5,437,500

102) A company reports the following information for its first year of operations:

If the company's cost per unit of finished goods using variable costing is $2.02, what is the amount of total fixed overhead?

A) $26,660

B) $35,690

C) $24,510

D) $60,200

E) Cannot be determined from the given data.

103) A company reports the following information for its first year of operations:

If the company's cost per unit of finished goods using absorption costing is $27, how many units were produced?

A) 4,000 units.

B) 3,600 units.

C) 1,846 units.

D) 2,667 units.

E) 2,000 units.

104) Accurate Metal Company sold 32,000 units of its product at a price of $250 per unit. Total variable cost per unit is $150, consisting of $145 in variable production cost and $5 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.

A) $8,000,000

B) $4,960,000

C) $4,800,000

D) $3,360,000

E) $3,200,000

105) Chance, Inc. sold 3,000 units of its product at a price of $72 per unit. Total variable cost per unit is $51, consisting of $32 in variable production cost and $19 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.

A) $96,000

B) $63,000

C) $120,000

D) $216,000

E) ($90,000)

106) Vision Tester, Inc., a manufacturer of optical glass, began operations on February 1 of the current year. During this time, the company produced 900,000 units and sold 800,000 units at a sales price of $12 per unit. Cost information for this year is shown in the following table:

Given this information, which of the following is true?

A) Net income under variable costing will exceed net income under absorption costing by $50,000.

B) Net income under absorption costing will exceed net income under variable costing by $50,000.

C) Net income will be the same under both absorption and variable costing.

D) Net income under variable costing will exceed net income under absorption costing by $60,000.

E) Net income under absorption costing will exceed net income under variable costing by $60,000.

[The following information applies to the questions displayed below.]

Galaxy, Inc., a manufacturer of telescopes, began operations on June 1 of the current year. During this time, the company produced 60,000 units and sold 40,000 units at a sales price of $600 per unit. Cost information for this year is shown in the following table:

107) Given the Galaxy, Inc. data, what is net income using absorption costing?

A) $11,275,000

B) $17,400,000

C) $16,360,000

D) $16,800,000

E) $16,220,000

108) Given the Galaxy Inc. data, what is net income using variable costing?

A) $16,220,000

B) $17,400,000

C) $16,360,000

D) $11,275,000

E) $16,800,000

[The following information applies to the questions displayed below.]

Scavenger Company, a manufacturer of recycling bins, began operations on January 1 of the current year. During this time, the company produced 60,000 units and sold 55,000 units at a sales price of $15 per unit. Cost information for this year is shown in the following table:

109) Given the Scavenger Company data, what is net income using absorption costing?

A) $201,250

B) $181,250

C) $150,000

D) $177,600

E) $276,250

110) Given the Scavenger Company data, what is net income using variable costing?

A) $201,250

B) $181,250

C) $150,000

D) $177,600

E) $276,250

111) Brush Industries reports the following information for May:

Calculate the operating income for May under absorption costing.

A) $650,000

B) $325,000

C) $525,000

D) $550,000

E) $350,000

[The following information applies to the questions displayed below.]

Cool Pools, a manufacturer of above ground pools, began operations on January 1 of the current year. During this time, the company produced 45,000 units and sold 44,000 units at a sales price of $60 per unit. Cost information for this year is shown in the following table:

112) Given the Cool Pools Company data, what is net income using absorption costing?

A) $1,649,480

B) $1,648,600

C) $1,627,150

D) $1,709,480

E) $1,708,600

113) Given the Cool Pools Company data, what is net income using variable costing?

A) $1,649,480

B) $1,648,600

C) $1,627,150

D) $1,709,480

E) $1,708,600

114) Brush Industries reports the following information for May:

Calculate the gross margin for May under absorption costing.

A) $650,000

B) $325,000

C) $525,000

D) $550,000

E) $575,000

115) Reliance Corporation sold 4,000 units of its product at a price of $15 per unit. Total variable cost per unit is $8.50, consisting of $7.75 in variable production cost and $0.75 in variable selling and administrative cost. Compute the contribution margin for the company.

A) $26,000

B) $34,000

C) $60,000

D) $31,000

E) $36,900

116) Quaker Corporation sold 6,600 units of its product at a price of $42.40 per unit. Total variable cost per unit is $19.25, consisting of $10.15 in variable production cost and $9.10 in variable selling and administrative cost. Compute contribution margin for the company.

A) $279,840

B) $119,130

C) $66,990

D) $152,790

E) $60,060

117) Geneva Co. reports the following information for July:

Calculate the contribution margin for July.

A) $525,000

B) $425,000

C) $650,000

D) $750,000

118) Alexis Co. reported the following information for May:

What is the manufacturing margin for Part A?

A) $1,000,000

B) $1,400,000

C) $3,600,000

D) $2,600,000

E) $2,400,000

119) Alexis Co. reported the following information for May:

What is the contribution margin for Part A?

A) $1,000,000

B) $1,400,000

C) $3,600,000

D) $2,600,000

E) $3,000,000

120) Swisher, Incorporated reports the following annual cost data for its single product:

This product is normally sold for $48 per unit. If Swisher increases its production to 50,000 units, while sales remain at the current 30,000 unit level, by how much would the company's income increase or decrease under absorption costing?

A) $60,000 decrease.

B) $90,000 decrease.

C) There is no change in income.

D) $90,000 increase.

E) $60,000 increase.

121) Swisher, Incorporated reports the following annual cost data for its single product:

This product is normally sold for $48 per unit. If Swisher increases its production to 50,000 units, while sales remain at the current 30,000 unit level, by how much would the company's income increase or decrease under variable costing?

A) $60,000 decrease.

B) $90,000 decrease.

C) There is no change in income.

D) $90,000 increase.

E) $60,000 increase.

122) Swola Company reports the following annual cost data for its single product.

This product is normally sold for $25 per unit. If Swola increases its production to 200,000 units, while sales remain at the current 75,000 unit level, by how much would the company's income increase or decrease under absorption costing?

A) $187,500 increase.

B) $112,500 increase.

C) There will be no change in income.

D) $112,500 decrease.

E) $187,500 decrease.

123) Swola Company reports the following annual cost data for its single product.

This product is normally sold for $25 per unit. If Swola increases its production to 200,000 units, while sales remain at the current 75,000 unit level, by how much would the company's income increase or decrease under variable costing?

A) $187,500 increase.

B) $112,500 increase.

C) There will be no change in income.

D) $112,500 decrease.

E) $187,500 decrease.

[The following information applies to the questions displayed below.]

Red and White Company reported the following monthly data:

124) What is Red and White's contribution margin for this month if 980 units were sold?

A) $38,000

B) $18,620

C) $24,500

D) $50,000

E) $21,560

125) What is Red and White's net income under absorption costing if 980 units are sold and selling and administrative expenses are $12,000?

A) $(1,380)

B) $(2,000)

C) $2,700

D) $6,620

E) $10,620

126) What is Red and White's net income under variable costing if 980 units are sold and operating expenses are $12,000?

A) $(1,380)

B) $(2,000)

C) $2,700

D) $6,620

E) $10,620

127) Decko Industries reported the following monthly data:

What is the company's contribution margin for this month if 50,000 units were sold?

A) $1,326,000

B) $1,716,000

C) $1,275,000

D) $1,650,000

E) $1,450,000

128) Tim's Tools, a manufacturer of cordless drills, began operations this year. During this year, the company produced 20,000 units and sold 18,000 units. At year-end, the company reported the following income statement using absorption costing:

Production costs per unit total $14, which consists of $12.90 in variable production costs and $1.10 in fixed production costs (based on the 20,000 units produced). 60% of total selling and administrative expenses are variable. Compute net income under variable costing.

A) $307,800

B) $198,000

C) $195,800

D) $288,000

E) $220,000

129) Fields Cutlery, a manufacturer of gourmet knife sets, produced 20,000 sets and sold 23,000 units during the current year. Beginning inventory under absorption costing consisted of 3,000 units valued at $66,000 (Direct materials $12 per unit; Direct labor, $3 per unit; Variable Overhead, $2 per unit, and Fixed overhead, $5 per unit.) All manufacturing costs have remained constant over the 2-year period. At year-end, the company reported the following income statement using absorption costing:

60% of total selling and administrative expenses are variable. Compute net income under variable costing.

A) $414,000

B) $399,000

C) $529,000

D) $429,000

E) $644,000

130) Wind Fall, a manufacturer of leaf blowers, began operations this year. During this year, the company produced 10,000 leaf blowers and sold 8,500. At year-end, the company reported the following income statement using absorption costing:

Production costs per leaf blower total $20, which consists of $16 in variable production costs and $4 in fixed production costs (based on the 10,000 units produced). Fifteen percent of total selling and administrative expenses are variable. Compute net income under variable costing.

A) $146,500

B) $158,500

C) $237,500

D) $206,500

E) $246,500

131) Aces, Inc., a manufacturer of tennis rackets, began operations this year. The company produced 6,000 rackets and sold 4,900. At year-end, the company reported the following income statement using absorption costing.

Production costs per tennis racket total $38, which consists of $25 in variable production costs and $13 in fixed production costs (based on the 6,000 units produced). Ten percent of total selling and administrative expenses are variable. Compute net income under variable costing.

A) $194,100

B) $165,500

C) $311,000

D) $240,500

E) $233,000

132) Jeter Corporation had net income of $212,000 based on variable costing. Beginning and ending inventories were 6,000 units and 10,000 units, respectively. Assume the fixed overhead per unit was $4 for both the beginning and ending inventory. What is net income under absorption costing?

A) $252,000

B) $228,000

C) $244,000

D) $276,000

E) $212,000

133) Kluber, Inc. had net income of $900,000 based on variable costing. Beginning and ending inventories were 55,000 units and 52,000 units, respectively. Assume the fixed overhead per unit was $1.25 for both the beginning and ending inventory. What is net income under absorption costing?

A) $833,125

B) $903,750

C) $966,875

D) $896,250

E) $900,000

134) Pact Company had net income of $972,000 based on variable costing. Beginning and ending inventories were 7,800 units and 5,200 units, respectively. Assume the fixed overhead per unit was $3.61 for both the beginning and ending inventory. What is net income under absorption costing?

A) $962,614

B) $1,018,923

C) $925,077

D) $969,400

E) $981,379

135) Front Company had net income of $72,500 based on variable costing. Beginning and ending inventories were 800 units and 1,200 units, respectively. Assume the fixed overhead per unit was $7.90 for both the beginning and ending inventory. What is net income under absorption costing?

A) $69,340

B) $75,660

C) $88,300

D) $56,700

E) $72,900

136) Given the following data, calculate product cost per unit under variable costing.

A) $7 per unit

B) $13.30 per unit

C) $11.00 per unit

D) $11.60 per unit

E) $16.50 per unit

137) Given the following data, calculate product cost per unit under absorption costing.

A) $8 per unit

B) $8.50 per unit

C) $10.25 per unit

D) $10.75 per unit

E) $12 per unit

138) Given the following data, calculate the total product cost per unit under variable costing.

A) $4.75 per unit

B) $7.05 per unit

C) $15.38 per unit

D) $13.08 per unit

E) $16 per unit

139) Given the following data, calculate the total product cost per unit under absorption costing.

A) $4.75 per unit

B) $7.05 per unit

C) $13.08 per unit

D) $15.38 per unit

E) $16 per unit

140) Match the following.

141) Identify the treatment of each of the following costs under variable costing and absorption costing:

142) What costs are treated as product costs under the absorption costing method?

143) What costs are treated as product costs under the variable costing method?

144) How can the use of absorption costing result in overproduction?

145) When excess capacity exists, what is the minimum special order price a manager should accept to increase net income?

146) What is the benefit of using variable costing in short-term pricing decisions? Is this benefit available under absorption costing?

147) What is the formula to compute manufacturing margin?

148) How does contribution margin differ from gross margin?

149) How will net income under variable costing compare to net income under absorption costing in the following three situations? Explain briefly the cause of any differences.

(a) Units produced equal units sold

(b) Units produced exceed units sold

(c) Units produced are less than units sold

150) What is a contribution margin report?

151) What are the limitations of using variable costing?

152) What is the general procedure for converting variable costing net income to absorption costing net income?

153) A company is currently operating at 60% capacity producing 10,000 units. Cost information relating to this current production is shown in the following table:

The company has been approached by a customer with a request for a special order for 5,000 units. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

154) A company is currently operating at 65% capacity producing 12,000 units. Cost information relating to this current production is shown in the following table:

The company has been approached by a customer with a request for a special order for 2,000 units. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

155) A company is currently operating at 70% capacity producing 8,000 units. Cost information relating to this current production is shown in the following table:

The company has been approached by a customer with a request for a special order for 1,500 units. The sales price per unit for this special order is $10. Should the company accept the special order?

156) Assume a company sells a given product for $33.28 per unit. How many units must the company sell to break-even if variable selling costs are $1.40 per unit, variable production costs are $23.56 per unit, and total fixed costs are $2,080,000?

157) Assume a company sells a given product for $95 per unit. Variable selling costs are $24.25 per unit and variable production costs are $53.50 per unit. If the company breaks even when selling 260,000 units, what are total fixed costs?

158) Assume a company sells a given product for $18 per unit. Variable selling costs are $0.70 per unit and variable production costs are $5.30 per unit. If the company breaks even when selling 4,000,000 units, what are total fixed costs?

159) Blackbird, Incorporated reports the following information regarding its production cost:

a. Compute production cost per unit under variable costing.

b. Compute production cost per unit under absorption costing.

160) Triton Industries reports the following information regarding its production cost:

a. Compute product cost per unit under variable costing.

b. Compute product cost per unit under absorption costing.

161) Home Base, Inc. reports the following production cost information:

Assume that productions costs have remained the same since the previous period and all units are sold for $137.00 per unit.

a. Compute production cost per unit under variable costing.

b. Compute production cost per unit under absorption costing.

c. Determine net income using variable costing.

d. Determine net income using absorption costing.

162) Home Base, Inc. reports the following production cost information:

a. Compute production cost per unit under variable costing.

b. Compute production cost per unit under absorption costing.

c. Determine the cost of ending inventory using variable costing.

d. Determine the cost of ending inventory using absorption costing.

163) Lukin Corporation reports the following first year production cost information.

a. Compute production cost per unit under variable costing.

b. Compute production cost per unit under absorption costing.

c. Determine the cost of ending inventory using variable costing.

d. Determine the cost of ending inventory using absorption costing.

164) Lukin Corporation reports the following first year production cost information:

a. Compute production cost per unit under variable costing.

b. Compute production cost per unit under absorption costing.

c. Determine the net income using variable costing.

d. Determine the net income using absorption costing.

165) Castaway Company reports the following first year production cost information:

a. Compute production cost per unit under variable costing.

b. Compute production cost per unit under absorption costing.

c. Determine the cost of ending inventory using variable costing.

d. Determine the cost of ending inventory using absorption costing.

166) Castaway Company reports the following first year production cost information:

a. Determine the net income using variable costing.

b. Determine the net income using absorption costing.

167) A company reports the following information regarding its production cost:

Required: Perform the following independent calculations.

a. Compute total variable overhead cost if the production cost per unit under variable costing is $73.

b. Compute total variable overhead cost if the production cost per unit under absorption costing is $73.

168) A company reports the following information regarding its production cost:

Required: Perform the following independent calculations.

a. Compute total variable overhead cost if the production cost per unit under variable costing is $240.

b. Compute total variable overhead cost if the production cost per unit under absorption costing is $240.

169) Digby Company manufactured and sold 37,000 units of its product at a price of $93 per unit. Total variable cost per unit is $60, consisting of $58 in variable production cost and $2 in variable selling and administrative cost. Fixed costs of manufacturing are $350,000.

a. Compute the manufacturing margin for the company under variable costing.

b. Compute the contribution margin based on this data.

c. Compute the gross margin under absorption costing.

170) Cavalier Corporation sold 26,000 units of its product at a price of $225 per unit. Total variable cost per unit is $188, consisting of $103 in variable production cost and $85 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.

171) Stonehenge Inc., a manufacturer of landscaping blocks, began operations on April 1 of the current year. During this time, the company produced 750,000 units and sold 720,000 units at a sales price of $9 per unit. Cost information for this period is shown in the following table:

a. Prepare Stonehenge's December 31st income statement for the current year under absorption costing.

b. Prepare Stonehenge's December 31st income statement for the current year under variable costing.

172) Blatt Company, a manufacturer of slippers, began operations on June 1 of the current year. During this time, the company produced 210,000 units and sold 185,000 units at a sales price of $40 per unit. Cost information for this period is shown in the following table:

a. Prepare Blatt's December 31st income statement for the current year under absorption costing.

b. Prepare Blatt's December 31st income statement for the current year under variable costing.

173) Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During this time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit. Cost information for this period is shown in the following table:

a. Prepare Wrap-It's December 31st income statement for the current year under absorption costing.

b. Prepare Wrap-It's December 31st income statement for the current year under variable costing.

174) 32 Degrees, Inc., a manufacturer of frozen food, began operations on July 1 of the current year. During this time, the company produced 140,000 units and sold 140,000 units at a sales price of $125 per unit. Cost information for this period is shown in the following table:

a. Prepare 32 Degree's December 31st income statement for the current year under absorption costing.

b. Prepare 32 Degree's December 31st income statement for the current year under variable costing.

175) State Industries has the following information for 20X1:

There are no beginning inventories. Prepare an income statement for the year under absorption costing.

176) Maloney Co. provided the following information for the year 20X1:

There are no beginning inventories. Prepare an income statement using the variable costing format.

177) Materials Corporation sold 12,000 units of its product at a price of $67 per unit. Total variable cost per unit is $54.94, consisting of $45.05 in variable production cost and $9.89 in variable selling and administrative cost. Compute the total contribution margin.

178) Countdown Inc. sold 17,000 units of its product at a price of $81 per unit. Total variable cost per unit is $72.09, consisting of $69.05 in variable production cost and $3.04 in variable selling and administrative cost. Compute the total contribution margin.

179) Heather, Incorporated reports the following annual cost data for its single product:

This product is normally sold for $56 per unit. If Heather increases its production to 80,000 units while sales remain at the current 60,000 unit level, by how much would the company's gross margin increase or decrease under absorption costing? Assume the company has idle capacity to increase current production.

180) Dataport Company reports the following annual cost data for its single product:

This product is normally sold for $230 per unit. If Dataport increases its production to 100,000 units, while sales remain at the current 89,000 unit level, by how much would the company's gross margin increase or decrease under absorption costing? Assume the company has idle capacity to increase current production.

181) Chilly Chips, Inc., a producer of ice cream, began operations this year. During this year, the company produced 160,000 cartons of ice cream and sold 145,000. At year-end, the company reported the following income statement using absorption costing:

Production costs per carton total $3.50, which consists of $2.30 in variable production costs and $1.20 in fixed production costs (based on the 160,000 units produced). Sixty percent of total selling and administrative expenses are variable. Compute net income under variable costing.

182) Anchovy, Inc., a producer of frozen pizzas, began operations this year. During this year, the company produced 16,000 cases of pizza and sold 15,000. At year-end, the company reported the following income statement using absorption costing:

Production costs per case total $19, which consists of $15.50 in variable production costs and $3.50 in fixed production costs (based on the 16,000 units produced). Eight percent of total selling and administrative expenses are variable. Compute net income under variable costing.

183) Toth, Inc. had net income of $950,000 based on variable costing. Beginning and ending inventories were 60,000 units and 56,000 units, respectively. Assume the fixed overhead cost per unit was $.85 for both the beginning and ending inventory. What is net income under absorption costing?

184) Fanelli Company had net income of $678,000 based on variable costing. Beginning and ending inventories were 5,000 units and 4,200 units, respectively. Assume the fixed overhead cost per unit was $.50 for both the beginning and ending inventory. What is net income under absorption costing?

185) Under variable costing, product costs consist of direct labor, direct materials, and ________.

186) ________ and ________ are product costs that can be directly traced to the product.

187) The product costing approach required by GAAP is referred to as ________.

188) The key difference between variable costing and absorption costing is the treatment of ________ costs.

189) ________ costing treats fixed overhead as a period cost.

190) ________ is a costing method that includes all manufacturing costs in unit product costs.

191) A per unit cost that is constant at all production levels is a ________ cost per unit.

192) When excess capacity exists, managers should accept a special order if the special order price exceeds the ________.

193) ________ is equal to Sales minus Variable manufacturing costs.

194) Under variable costing, the product unit cost consists of ________, direct materials, and variable overhead.

195) Under absorption costing, the product unit cost consists of direct labor, direct materials, variable overhead, and ________.

196) On a contribution margin income statement, expenses are grouped according to ________.

197) ________ is the amount remaining from sales revenues after all variable expenses have been deducted.

198) ________ is the amount remaining from sales revenues after cost of goods sold has been deducted.

199) Reported income is identical under absorption costing and variable costing when the units produced ________ the units sold.

200) ________ is the amount remaining from manufacturing margin after all variable selling, general and administrative expenses have been deducted.

201) ________ costing is the only acceptable basis for both external reporting and tax reporting.

202) To convert variable costing net income to absorption costing net income, ________ the fixed production cost in ending inventory and ________ the fixed production cost in beginning inventory.