Deck 8: Variable Costing: a Tool for Management

Question 1

Under variable costing,which of the following costs are treated as period costs?

A) Only fixed manufacturing costs.
B) Both variable and fixed manufacturing costs.
C) All fixed costs.
D) Only fixed selling and administrative costs.

Answer 1

C

Question 2

Which of the following are considered to be product costs under absorption costing?

A) I,II,and III.
B) I and II only.
C) I and III only.
D) I only.

Answer 2

B

Question 3

What is the costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques?

A) Variable costing.
B) Absorption costing.
C) Process costing.
D) Job-order costing.

Answer 3

A

Question 4

Which of the following statements is true for a firm that uses variable costing?

A) The unit product cost changes as a result of changes in the number of units manufactured.
B) Both variable selling costs and variable production costs are included in the unit product cost.
C) Operating income moves in the same direction as sales.
D) Operating income is greatest in periods when production is highest.

Question 5

Which of the following costs/expenses is included in product costs under both absorption costing and variable costing?

A) Supervisory salaries.
B) Office equipment depreciation.
C) Variable manufacturing costs.
D) Variable selling expenses.

Question 6

For the most recent year,Atlantic Company's operating income computed using the absorption costing method was $7,400,and its operating income computed using the variable costing method was $10,100.The company's unit product cost was $17 under variable costing and $22 under absorption costing.Atlantic produces the same number of units each year.What must have been the beginning inventory if the ending inventory consisted of 1,460 units?

A) 920 units.
B) 1,460 units.
C) 2,000 units.
D) 12,700 units.

Question 7

During the year just ended,Roberts Company's operating income under absorption costing was $3,000 lower than its operating income under variable costing.The company sold 9,000 units during the year,and its variable costs were $9 per unit,of which $3 was variable selling expense.If production cost is $11 per unit under absorption costing every year,how many units did the company produce during the year?

A) 8,000 units.
B) 8,400 units.
C) 9,600 units.
D) 10,000 units.

Question 8

An allocated portion of fixed manufacturing overhead is included in product costs under which of the following?

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

Question 9

Which of the following statements is true about the difference in operating income between variable costing and absorption costing if the number of units in work-in-process and finished goods inventories increase?

A) There will be no difference in net income.
B) Operating income computed using variable costing will be higher.
C) The difference in operating income cannot be determined from the information given.
D) Operating income computed using variable costing will be lower.

Question 10

Last year,Silver Company's total variable production costs were $7,500,and its total fixed manufacturing overhead costs were $4,500.The company produced 3,000 units during the year and sold 2,400 units.There were no units in the beginning inventory.Which of the following statements is true?

A) Under variable costing,the average cost of the units in the ending inventory will be $4 each.
B) The operating income under absorption costing for the year will be $900 lower than the operating income under variable costing.
C) The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.
D) Under absorption costing,the average cost of the units in ending inventory will be $2.50 each.

Question 11

During the most recent year,Evans Company had operating income of $90,000 using absorption costing and $84,000 using variable costing.The fixed manufacturing overhead application rate was $6 per unit.There were no beginning inventories.If 22,000 units were produced last year,what were the sales in units for last year?

A) 15,000 units.
B) 21,000 units.
C) 23,000 units.
D) 28,000 units.Sales = 22,000 - 1,000 = 21,000 units.

Question 12

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?

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 13

The term "gross margin" for a manufacturing company refers to the excess of sales over which of the following?

A) Cost of goods sold,excluding fixed manufacturing overhead.
B) All variable costs,including variable selling and administrative expenses.
C) Cost of goods sold,including fixed manufacturing overhead.
D) Variable costs,excluding variable selling and administrative expenses.

Question 14

Which of the following is normally included in product cost under the variable costing method?

A) Direct materials cost,direct labour cost,but NOT manufacturing overhead cost.
B) Direct materials cost,direct labour cost,and variable manufacturing overhead cost.
C) Prime cost but NOT conversion cost.
D) Prime cost and all conversion cost.

Question 15

Which of the following are considered to be product costs under variable costing?

A) I only.
B) I and II only.
C) I and III only.
D) I,II,and III.

Question 16

During the last year,Hansen Company had operating income under absorption costing that was $5,500 lower than its operating income under variable costing.The company sold 9,000 units during the year,and its variable costs were $10 per unit,of which $6 was variable selling expense.If fixed production cost is $5 per unit under absorption costing every year,how many units did the company produce during the year?

A) 7,625 units.
B) 7,900 units.
C) 8,450 units.
D) 10,100 units.

Question 17

What factor is the cause of the difference between operating income computed using absorption costing and operating income computed using variable costing?

A) Absorption costing considers all manufacturing costs in the determination of operating income,whereas variable costing considers only prime costs.
B) Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories,and variable costing considers all fixed manufacturing costs as period costs.
C) Absorption costing includes all variable manufacturing costs in product costs,but variable costing considers variable manufacturing costs to be period costs.
D) Absorption costing includes all fixed manufacturing costs in product costs,but variable costing expenses all fixed manufacturing costs.

Question 18

The total fixed manufacturing overhead costs of Cay Company are $100,000,and the total variable selling costs are $80,000.Under variable costing,how should these costs be classified?

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

Question 19

Operating income determined using absorption costing can be reconciled to operating income determined using variable costing by computing the difference between which of the following?

A) Fixed manufacturing overhead costs deferred in or released from inventories.
B) Discretionary costs included in the beginning and ending inventories.
C) Gross margin (absorption costing method)and contribution margin (variable costing method).
D) Sales as recorded under the variable costing method and sales as recorded under the absorption costing methoD.

Question 20

Indiana Corporation produces a single product that it sells for $9 per unit.During the first year of operations,100,000 units were produced and 90,000 units were sold.Manufacturing costs and selling and administrative expenses for the year were as follows:
What was Indiana Corporation's operating income for the year using variable costing?

A) $181,000.
B) $271,000.
C) $281,000.
D) $371,000.

Question 21

Last year,Ben Company's operating income under absorption costing was $4,400 lower than its operating income under variable costing.The company sold 8,000 units during the year,and its variable costs were $8 per unit,of which $3 was variable selling expense.Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing.Ending inventory was zero.How many units did the company produce during the year?

A) 3,600 units.
B) 7,120 units.
C) 7,450 units.
D) 12,400 units.

Question 22

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

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

Question 23

What is the unit product cost for the month under absorption costing?

A) $60.
B) $66.
C) $87.
D) $93.

Question 24

What is the operating income (loss)for the month under absorption costing?

A) ($14,100).
B) $3,900.
C) $8,100.
D) $12,000.

Question 25

During the last year,Moore Company's total variable production costs were $10,000,and its total fixed manufacturing overhead costs were $6,800.The company produced 5,000 units during the year and sold 4,600 units.There were no units in the beginning inventory.Which of the following statements is true?

A) The operating income under absorption costing for the year will be $800 higher than operating income under variable costing.
B) The operating income under absorption costing for the year will be $544 higher than operating income under variable costing.
C) The operating income under absorption costing for the year will be $544 lower than operating income under variable costing.
D) The operating income under absorption costing for the year will be $800 lower than operating income under variable costing.

Question 26

At the end of last year,Lee Company had 30,000 units in its ending inventory.Every year,Lee Company's variable production costs are $10 per unit,and its fixed manufacturing overhead costs are $5 per unit.The company's operating income for the year was $12,000 higher under variable costing than under absorption costing.Given these facts,what must have been the number of units of product in inventory at the beginning of the year?

A) 27,600 units.
B) 28,800 units.
C) 32,400 units.
D) 42,000 units.

Question 27

What is the total gross margin for the month under the absorption costing approach?

A) $12,000.
B) $72,000.
C) $98,100.
D) $198,000.

Question 28

What is the total period cost for the month under the absorption costing approach?

A) $24,000.
B) $60,000.
C) $170,100.
D) $230,100.

Question 29

West Co.'s manufacturing costs are as follows:
What amount should be considered product costs for external reporting purposes if the company uses absorption costing?

A) $700,000.
B) $800,000.
C) $880,000.
D) $898,000.

Question 30

Last year,fixed manufacturing overhead costs were $30,000,variable production costs were $48,000,fixed selling and administration costs were $20,000,and variable selling administrative expenses were $9,600.There was no beginning inventory.During the year,3,000 units were produced and 2,400 units were sold at a price of $40 per unit.Under variable costing,what would be the operating income (loss)?

A) $6,000.
B) $4,000.
C) ($2,000).
D) ($4,400).Op.income = 2,400 * $40 - 38,400 - 9,600 - 30,000 - 20,000 = ($2,000)

Question 31

Under absorption costing,what was the gross margin?

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

Question 32

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?

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

Question 33

What was the operating income under variable costing?

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

Question 34

What is the total contribution margin for the month under the variable costing approach?

A) $27,900.
B) $72,000.
C) $198,000.
D) $234,000.

Question 35

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

A) ($14,100).
B) $3,900.
C) $8,100.
D) $12,000.

Question 36

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

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

Question 37

Under absorption costing,what was the unit product cost?

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

Question 38

What was the contribution margin per unit?

A) $6.00.
B) $8.00.
C) $11.00.
D) $15.00.CM = (440,000 - 22,000 * 9 - 110,000)/22,000 = $6.00.

Question 39

What is the total period cost for the month under the variable costing approach?

A) $60,000.
B) $170,000.
C) $194,100.
D) $230,100.

Question 40

What is the unit product cost for the month under variable costing?

A) $60.
B) $66.
C) $87.
D) $93.

Question 41

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

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

Question 42

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

A) ($17,200).
B) $5,600.
C) $6,600.
D) $12,200.

Question 43

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

A) ($17,000).
B) $6,000.
C) $10,600.
D) $16,600.

Question 44

What was the amount of fixed overhead cost in ending inventory under absorption costing?

A) $33,600.
B) $27,000.
C) $6,000.
D) $0

Question 45

What was the unit product cost for the month under variable costing?

A) $74.
B) $81.
C) $83.
D) $90.

Question 46

What was the unit product cost for the month under variable costing?

A) $76.
B) $84.
C) $98.
D) $106.

Question 47

What was the unit product cost for the month under variable costing?

A) $78.
B) $87.
C) $115.
D) $124.

Question 48

What was the unit product cost for the month under absorption costing?

A) $74.
B) $81.
C) $83.
D) $90.

Question 49

What was the operating income under absorption costing?

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

Question 50

What was the amount of fixed overhead released for the month under absorption costing?
Refer To: 08-04

A) $0.
B) $2,100.
C) $2,800.
D) $61,600.

Question 51

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

A) ($7,200).
B) $11,100.
C) $16,200.
D) $27,300.

Question 52

What was the operating income for the month under variable costing?

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

Question 53

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

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

Question 54

What was the total contribution margin for the month under the variable costing approach?

A) $97,100.
B) $152,500.
C) $237,900.
D) $286,700.

Question 55

What was the unit product cost for the month under variable costing?

A) $69.
B) $74.
C) $84.
D) $89.

Question 56

Under variable costing,what was the unit product cost?

A) $43.
B) $58.
C) $72.
D) $91.

Question 57

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

A) $140,300.
B) $140,800.
C) $232,300.
D) $281,100.

Question 58

What was the unit product cost for the month under absorption costing?

A) $69.
B) $74.
C) $84.
D) $89.

Question 59

What was the amount of fixed manufacturing overhead deferred under absorption costing?

A) $0.
B) $2,100.
C) $2,800.
D) $61,600.Cost deferred = 300 * 61,600/8,800 = $2,100.

Question 60

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

A) ($17,000).
B) $6,000.
C) $10,600.
D) $16,600.

Question 61

What was the total gross margin for the month?

A) $39,600.
B) $88,000.
C) $123,200.
D) $171,600.

Question 62

What was the unit product cost for the month under variable costing?

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

Question 63

Under absorption costing,what was the cost of goods sold for the year?

A) $206,400.
B) $278,400.
C) $345,600.
D) $360,000.

Question 64

What was the operating income for the year under variable costing as opposed to absorption costing?

A) $28,000 lower than under absorption costing.
B) $28,000 higher than under absorption costing.
C) $50,000 lower than under absorption costing.
D) $50,000 higher than under absorption costing.

Question 65

What was the contribution margin per unit?

A) $12.10.
B) $16.60.
C) $17.70.
D) $22.10.CM = [850,000 (20,000 * 20.40)- 110,000]/20,000 = $16.60.

Question 66

What was the contribution margin per unit? Do not round intermediate calculations.

A) $17.50.
B) $25.70.
C) $27.50.
D) $32.50.CM/unit = [780,000 (13,000 * 27.50)- 88,400]/13,000 = $25.70.

Question 67

For the month noted,what was the relationship between the operating income under variable costing as opposed to under absorption costing?

A) Higher than operating income under absorption costing.
B) Lower than operating income under absorption costing.
C) The same as operating income under absorption costing.
D) The relationship between variable costing and absorption costing operating income cannot be determined with the data provideD.

Question 68

What was the total contribution margin for the month?

A) $39,600.
B) $88,000.
C) $123,200.
D) $171,600.

Question 69

Which of the following would best describe the relationship between the carrying value of the finished goods inventory at the end of the year under variable costing as opposed to under absorption costing?

A) $8,800 less than under absorption costing.
B) The same as absorption costing.
C) $5,800 less than under absorption costing.
D) $5,800 more than under absorption costing

Question 70

What was the unit product cost under variable costing?

A) $15.
B) $18.
C) $20.
D) $22.

Question 71

Under variable costing,what was the company's operating income for the year,as compared with under absorption costing?

A) $60,000 higher than under absorption costing.
B) $108,000 higher than under absorption costing.
C) $108,000 lower than under absorption costing.
D) $60,000 lower than under absorption costing.

Question 72

What was the unit product cost for the month under absorption costing?

A) $78.
B) $89.
C) $97.
D) $108.

Question 73

Under absorption costing,what was the value of the ending inventory for the year?

A) $152,000.
B) $179,500.
C) $213,500.
D) $222,000.

Question 74

Under absorption costing,what was the reported operating income (loss)for the month ending May 31?

A) ($30,000).
B) $0.
C) $30,000.
D) $60,000.

Question 75

What was the dollar value of the company's inventory on May 31 under the absorption costing method?

A) $60,000.
B) $75,000.
C) $90,000.
D) $120,000.Units in ending inventory = $75,000/$5 = 15,000.EI = 15,000 * (3 + 5)= $120,000.

Question 76

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

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

Question 77

What was the carrying value on the balance sheet of the ending finished goods inventory under variable costing?

A) $10,000.
B) $12,000.
C) $16,000.
D) $19,000.

Question 78

For the period noted,which of the following statements best describes the relationship between the operating income under absorption costing and under variable costing?

A) Absorption costing operating income would be higher than the operating income under variable costing.
B) Absorption costing operating income would be lower than the operating income under variable costing.
C) Absorption costing operating income would be the same as the operating income under variable costing.
D) The relationship between absorption costing operating income and variable costing operating income cannot be determined without additional information.

Question 79

What was the unit product cost under absorption costing?

A) $15.
B) $18.
C) $20.
D) $25.

Question 80

What was the carrying value on the balance sheet of the ending finished goods inventory under absorption costing?

A) $10,000.
B) $12,000.
C) $16,000.
D) $21,000.