Deck 7: Cost-Volume-Profit Analysis, Absorption and Variable Costing

Question 1

A company that desires to lower its break-even point should strive to:

A)decrease selling prices.
B)reduce variable costs.
C)increase fixed costs.
D)sell more units.
E)increase variable costs.

Answer 1

B

Question 2

Lucid Corporation has fixed costs of $2,800 and a per-unit contribution margin of $6. Which of the following statements is (are) true?

A)Each unit "contributes" $6 towards covering the fixed costs of $2,800.
B)The situation described is not possible and there must be an error.
C)Once the break-even point is reached, Lucid will lose money at the rate of $6 per unit.
D)Lucid will definitely lose money in this situation.
E)In order for Lucid to break-even they must increase their fixed costs.

Answer 2

A

Question 3

Dunrobin Company sells a single product for $12. Variable costs are $8 per unit and fixed costs total $360,000 at a volume level of 60,000 units. Assuming that fixed costs does not change, Dunrobin's break-even point would be:

A)30,000 units.
B)45,000 units.
C)60,000 units
D)90,000 units.
E)negative because the company loses $2 on every unit sold.

Answer 3

D

Question 4

A recent income statement of Toronto Corporation reported the following data: units sold 10,000; sales revenue $9,500,000; variable costs $4,000,000; fixed costs $1,600,000. If Dagwood wanted to earn a target net profit of $1,150,000, it would have to sell:

A)2,091 units.
B)2,895 units.
C)3,481 units.
D)5,000 units.
E)6.875 units.

Question 5

Which of the following expressions can be used to calculate the break-even point in sales dollars with the contribution-margin ratio (CMR)?

A)CMR ÷ fixed costs.
B)CMR x fixed costs.
C)Fixed costs ÷ CMR.
D)(Fixed costs + variable costs) x CMR.
E)(Sales revenue - variable costs) ÷ CMR.

Question 6

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. Each unit that Contemporary sells will:

A)contribute to overall profitability by $20.
B)contribute to overall profitability by $32.
C)contribute to overall profitability by $48.
D)contribute to overall profitability by $28.
E)contribute to overall profitability by some other amount.

Question 7

Which of the following would take place if a company experienced an increase in fixed costs, all other things remaining constant?

A)The net income would increase.
B)The break-even point would increase.
C)The contribution margin would increase.
D)The contribution margin would decrease.
E)The break-even point would decrease.

Question 8

Bingo Inc. sells a single product for $20. Variable costs are $14 per unit and fixed costs total $220,000 at a volume level of 10,000 units. What dollar sales level would Bingo Inc. have to achieve to earn a target net profit of $340,000?

A)$314,286.
B)$485,714.
C)$566,667.
D)$1,866,667.
E)$733,333.

Question 9

The unit contribution margin is calculated as the difference between:

A)selling price and fixed cost per unit.
B)selling price and variable cost per unit.
C)selling price and product cost per unit.
D)fixed cost per unit and variable cost per unit.
E)fixed cost per unit and product cost per unit.

Question 10

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. In order to produce a target profit of $22,000, Contemporary's dollar sales must total:

A)$36,667.
B)$833,333.
C)$870,000.
D)$1,250,000.
E)$1,305,000.

Question 11

The contribution-margin ratio is defined as:

A)the difference between the selling price and the variable cost per unit.
B)fixed cost per unit divided by variable cost per unit.
C)variable cost per unit divided by the selling price.
D)unit contribution margin divided by the unit selling price.
E)unit contribution margin divided by fixed cost per unit.

Question 12

Orion recently reported sales revenues of $800,000, a total contribution margin of $300,000, and fixed costs of $180,000. If sales volume amounted to 10,000 units, the company's variable cost per unit must have been:

A)$12.
B)$30.
C)$32.
D)$50.
E)$92.

Question 13

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. Contemporary:

A)will break-even by selling 27,000 units.
B)will break-even by selling 10,417 units.
C)will break-even by selling 15,625 units.
D)will break-even by selling 18,000 units.
E)will break even by selling 12,000 units.

Question 14

The break-even point is the volume of activity where:

A)total revenue equals total cost.
B)variable cost equals fixed cost.
C)total contribution margin equals the sum of variable cost plus fixed cost.
D)sales revenue equals total variable cost.
E)profit is greater than zero.

Question 15

Skinner Manufacturing reported sales revenue of $3,800,000, variable costs of $800,000, and fixed costs of $300,000. If these data are based on the sale of 20,000 units, the break-even point in units would be:

A)1,714 units.
B)2,000 units.
C)2,222 units.
D)4,571 units.
E)5,333 units.

Question 16

At a volume level of 500,000 units, Sullivan reported the following information: sales price $60; variable cost per unit $20; fixed cost per unit $20. Sullivan's contribution margin ratio is:

A)0.33.
B)0.40.
C)0.50.
D)0.67.
E)0.83.

Question 17

Which of the following would take place if a company was able to reduce its variable cost per unit, all of things remaining constant? $\begin{array} { | l | l | l | } \hline & \text { Contribution Margin } & \text { Break-even Point } \\\hline 1 & \text { Increase } & \text { Increase } \\\hline 2 & \text { Increase } & \text { Decrease } \\\hline 3 & \text { Decrease } & \text { Increase } \\\hline 4 & \text { Decrease } & \text { Decrease } \\\hline 5 & \text { Increase } & \text { No effect } \\\hline\end{array}$

A)1
B)2
C)3
D)4
E)5

Question 18

A recent income statement of Hendrix Inx. reported sales revenue of $5,000,000, variable costs of $3,000,000, and fixed costs of $1,000,000. If these data are based on the sale of 40,000 units, the contribution margin per unit would be:

A)$25.
B)$50.
C)$75.
D)$100.
E)$200.

Question 19

At a volume of 50,000 units, MGMT Incorporated reported sales revenues of $2,050,000, variable costs of $550,000, and fixed costs of $360,000. The company's contribution margin per unit is:

A)$7.20.
B)$11.00.
C)$18.20.
D)$22.80.
E)$30.00.

Question 20

Ribco Co. makes and sells only one product. The unit contribution margin is $6 and the break-even point in unit sales is 24,000. The company's fixed costs are:

A)$4,000.
B)$14,400.
C)$40,000.
D)$144,000.
E)$24,000.

Question 21

Tetra Manufacturing has the following sales mix for its three products: A, 40%; B, 20%; and C, 40%. Fixed costs total $800,000 and the weighted-average contribution margin is $100. How many units of product A must be sold to break-even?

A)3,200.
B)4,800.
C)8,000.
D)20,000.
E)32,000.

Question 22

All of the following are expensed under variable costing except:

A)variable manufacturing overhead.
B)fixed manufacturing overhead.
C)variable selling and administrative costs.
D)fixed selling and administrative costs.
E)variable selling and administrative costs and fixed selling and administrative costs.

Question 23

The underlying difference between absorption costing and variable costing lies in the treatment of:

A)direct labour.
B)variable manufacturing overhead.
C)fixed manufacturing overhead.
D)variable selling and administrative expenses.
E)fixed selling and administrative expenses.

Question 24

If a company desires to increase its safety margin, it should:

A)increase fixed costs.
B)decrease the contribution margin.
C)decrease selling prices, assuming the price change will have no effect on demand.
D)stimulate sales volume.
E)attempt to raise the break-even point.

Question 25

WenWen Company makes and sells two types of peanut butter, Smooth and Chunky. Data concerning these products are as follows: $\begin{array} { l c c } & \text { Smooth } & \text { Chunky } \\\text { Unit selling price } & \$ 40.00 & \$ 55.00 \\\text { Variable cost per unit } & 16.00 & 24.50\end{array}$ Forty percent of the unit sales are Chunky, and annual fixed expenses are $159,600. The weighted-average unit contribution margin is:

A)$24.00.
B)$26.60.
C)$27.90.
D)$30.50.
E)$54.50.

Question 26

WenWen Company makes and sells two types of peanut butter, Smooth and Chunky. Data concerning these products are as follows: $\begin{array} { l c c } & \text { Smooth } & \text { Chunky } \\\text { Unit selling price } & \$ 40.00 & \$ 55.00 \\\text { Variable cost per unit } & 16.00 & 24.50\end{array}$ Forty percent of the unit sales are Chunky, and annual fixed expenses are $159,600. Assuming that the sales mix remains constant, the number of units of Smooth that the company must sell to break even is:

A)1,757.
B)3,140.
C)3,432.
D)3,600.
E)3,990.

Question 27

Bowmanville Manufacturing Company is studying the profitability of a change in operation and has gathered the following information: $\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Current } \\\text { Operation }\end{array} & \begin{array} { c } \text { Anticipated } \\\text { Operation }\end{array} \\\hline \text { Fixed costs } & \text { S38,000 } & \$ 48,000 \\\hline \text { Selling price } & \text { S16 } & \$ 22 \\\hline \text { Variable cost } & \text { S10 } & \$ 12 \\\hline \text { Sales (units) } & 9,000 & 6,000 \\\hline\end{array}$ Should Bowmanville make the change?

A)Yes, the company will be better off by $6,000.
B)No, because sales will drop by 3,000 units.
C)No, because the company will be worse off by $4,000.
D)No, because the company will be worse off by $22,000.
E)It is impossible to judge because additional information is needed.

Question 28

All other things being equal, a company that sells multiple products should attempt to structure its sales mix so the greatest portion of the mix is composed of those products with the highest:

A)selling price.
B)variable cost.
C)contribution margin.
D)fixed cost.
E)gross margin.

Question 29

WenWen Company makes and sells two types of peanut butter, Smooth and Chunky. Data concerning these products are as follows: $\begin{array} { l c c } & \text { Smooth } & \text { Chunky } \\\text { Unit selling price } & \$ 40.00 & \$ 55.00 \\\text { Variable cost per unit } & 16.00 & 24.50\end{array}$ Forty percent of the unit sales are Chunky, and annual fixed expenses are $159,600. Assuming that the sales mix remains constant, the total number of units that the company must sell to break even is:

A)2,928.
B)5,233.
C)5,720.
D)6,000.
E)6,650.

Question 30

The budget of Nightingale Company for the upcoming year revealed the following figures: sales revenue $900,000; contribution margin $604,000; net income $58,000. If the company's break-even sales total $800,000, Nightingale's safety margin would be:

A)$58,000.
B)$100,000.
C)$196,000.
D)$296,000.
E)$742,000.

Question 31

Pattimore Inc. sells a single product at $30 per unit. The firm's most recent income statement revealed unit sales of 200,000, variable costs of $900,000, and fixed costs of $3,500,000. If a $6 drop in selling price will boost unit sales volume by 30%, Pattimore will experience:

A)no change in profit because a 20% drop in sales price is balanced by the 30% increase in volume.
B)a $30,000 drop in profitability.
C)a $1,200,000 drop in profitability.
D)a $1,530,000 increase in profitability.
E)a $1,570,000 drop in profitability.

Question 32

Under variable costing, fixed manufacturing overhead is:

A)expensed immediately when incurred.
B)never expensed.
C)applied directly to Finished-Goods Inventory.
D)applied directly to Work-in-Process Inventory.
E)treated in the same manner as variable manufacturing overhead.

Question 33

O'Dell sells three products: R, S, and T. Budgeted information for the upcoming accounting period follows: $\begin{array}{|c|c|r|r|r|}\hline \text { Product } & \text { Sales Volume (Units) } & {\text { Selling Price }} & \text { Variable Cost } \\\hline \mathrm{R} & 16,000 & \$ 14 & \$ 9 \\\hline \mathrm{S} & 12,000 & 10 & 6 \\\hline \mathrm{T} & 52,000 & 11 & 8 \\\hline\end{array}$ The company's weighted-average unit contribution margin is:

A)$3.00.
B)$3.55.
C)$4.00.
D)$12.00.
E)$19.35.

Question 34

St. Martin Company has computed the following unit costs for the year just ended: $\begin{array} { l l } \text { Direct material used } & \$ 22 \\\text { Direct labour } & 38 \\\text { Variable manufacturing overhead } & 20 \\\text { Fixed manufacturing overhead } & 25 \\\text { Variable selling and administrative cost } & 11 \\\text { Fixed selling and administrative cost } & 18\end{array}$ Under variable costing, each unit of the company's inventory would be carried at:

A)$31.
B)$80.
C)$91.
D)$105.
E)$134.

Question 35

All of the following costs are inventoried under absorption costing except:

A)direct materials.
B)direct labour.
C)variable manufacturing overhead.
D)fixed manufacturing overhead.
E)fixed administrative salaries.

Question 36

The assumptions on which cost-volume-profit analysis is based appear to be most valid for businesses:

A)over the short run.
B)over the long run.
C)over both the short run and the long run.
D)in periods of sustained profits.
E)in periods of increasing sales.

Question 37

All of the following are inventoried under absorption costing except:

A)direct labour.
B)raw materials used in production.
C)utilities cost consumed in manufacturing.
D)sales commissions.
E)machine lubricant used in production.

Question 38

All of the following are inventoried under variable costing except:

A)direct materials.
B)direct labour.
C)variable manufacturing overhead.
D)fixed manufacturing overhead.
E)variable manufacturing overhead and fixed manufacturing overhead.

Question 39

The difference between budgeted sales revenue and break-even sales revenue is the:

A)contribution margin.
B)contribution-margin ratio.
C)safety margin.
D)target net profit.
E)operating leverage.

Question 40

Which of the following underlying assumptions does not form the basis for cost-volume-profit analysis?

A)Revenues and costs behave in a linear manner.
B)Costs can be categorized as variable, fixed, or mixed.
C)Worker efficiency and productivity remain constant.
D)In multi-product organizations, the sales mix remains constant over the relevant range.
E)In manufacturing firms, the sales mix varies based on the prior year's budget.

Question 41

Red River Company sells its product for $12,000 per unit. Variable costs per unit are: Manufacturing overhead -$8,000
Selling and administrative -$150
Fixed costs are:
Manufacturing overhead -$30,000
Selling and administrative -$40,000
Red River had no beginning inventory at January 1, 2010. Production was 20 units each year in 2010, 2011, and 2012. Sales were 20 units in 2010, 16 units in 2011, and 24 units in 2012.
Income/(Loss) under absorption costing for 2012 is:

A)$7,000.
B)($2,400).
C)$16,400.
D)$56,400.
E)$60,000.

Question 42

Shrover began business at the start of the current year. The company planned to produce 40,000 units, and actual production conformed to expectations. Sales totalled 37,000 units at $42 each. Costs incurred were: $\begin{array} { | l | r | } \hline \text { Fixed manufacturing overhead } & \$ 240,000 \\\hline \text { Fixed selling and administrative cost } & 140,000 \\\hline \text { Variable manufacturing cost per unit } & 19 \\\hline \text { Variable selling and administrative cost per unit } & 7 \\\hline & \\\hline\end{array}$ If there were no variances, Shrover's variable-costing net income would be:

A)$155,000.
B)$212,000.
C)$240,500.
D)$452,000.
E)$592,000.

Question 43

Red River Company sells its product for $12,000 per unit. Variable costs per unit are: Manufacturing overhead -$8,000
Selling and administrative -$150
Fixed costs are:
Manufacturing overhead -$30,000
Selling and administrative -$40,000
Red River had no beginning inventory at January 1, 2010. Production was 20 units each year in 2010, 2011, and 2012. Sales were 20 units in 2010, 16 units in 2011, and 24 units in 2012.
Income/(Loss) under variable costing for 2012 is:

A)$12,000.
B)$16,400.
C)$40,400.
D)$48,000
E)$22,400.

Question 44

McCann Mechanics, compiled the following information for the current year: $\begin{array} { | l | r | } \hline \text { Variable manufacturing cost } & \$ 35 \\\hline \text { Fixed manufacturing cost } & 30 \\\hline \text { Variable selling and administrative } & 40 \\\text { cost } & \\\hline \text { Fixed selling and administrative cost } & 16 \\\hline\end{array}$ Which of the following choices correctly depicts the per-unit cost of inventory under variable costing and absorption costing?

A)Variable, $35; absorption, $65.
B)Variable, $35; absorption, $81.
C)Variable, $105; absorption, $105.
D)Variable, $105; absorption, $81.
E)Variable $35; absorption $105.

Question 45

When production exceeds sales for a given year, the income reported under absorption costing and variable costing will be:

A)always the same.
B)typically different.
C)always higher under absorption costing.
D)always higher under variable costing.
E)always the same or higher under absorption costing.

Question 46

Bonsai Company incurred the following costs during the past year when planned production and actual production each totaled 20,000 units: $\begin{array} { l r } \text { Direct materials used } & \$ 400,000 \\\text { Direct labour } & 320,000 \\\text { Variable manufacturing overhead } & 260,000 \\\text { Fixed manufacturing overhead } & 200,000 \\\text { Variable selling and administrative costs } & 80,000 \\\text { Fixed selling and administrative costs } & 70,000\end{array}$ The per-unit inventoriable cost for Bonsai under absorption costing is:

A)$36.00.
B)$40.00.
C)$49.00.
D)$59.00.
E)$66.50.

Question 47

The following data relate to Lobo Corporation for the year just ended: $\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 750,000 \\\hline \text { Cost of goods sold: } & \\\hline \text { Variable portion } & 370,000 \\\hline \text { Fixed portion } & 110,000 \\\hline \text { Variable selling and administrative cost } & 50.000 \\\hline \text { Fixed selling and administrative cost } & 75.000 \\\hline\end{array}$ Which of the following statements is correct?

A)Lobo's variable-costing income statement would reveal a gross margin of $270,000.
B)Lobo's variable costing income statement would reveal a contribution margin of $330,000.
C)Lobo's absorption-costing income statement would reveal a contribution margin of $330,000.
D)Lobo's absorption costing income statement would reveal a gross margin of $330,000.
E)Lobo's absorption-costing income statement would reveal a gross margin of $145,000

Question 48

Which of the following statements pertain to variable costing?

A)This method must be used for external financial reporting.
B)Fixed manufacturing overhead is attached to each unit produced.
C)The income statement discloses a company's gross margin.
D)Variable manufacturing overhead is immediately expensed.
E)Fixed not fixed manufacturing overhead is not applied to work in process as a product cost.

Question 49

Red River Company sells its product for $12,000 per unit. Variable costs per unit are: Manufacturing overhead -$8,000
Selling and administrative -$150
Fixed costs are:
Manufacturing overhead -$30,000
Selling and administrative -$40,000
Red River had no beginning inventory at January 1, 2010. Production was 20 units each year in 2010, 2011, and 2012. Sales were 20 units in 2010, 16 units in 2011, and 24 units in 2012.
Income/(Loss) under variable costing for 2011 is:

A)$12,000.
B)($2,400).
C)($8,400).
D)$16,400.
E)$40,400

Question 50

Bonsai Company incurred the following costs during the past year when planned production and actual production each totaled 20,000 units: $\begin{array} { l r } \text { Direct materials used } & \$ 400,000 \\\text { Direct labour } & 320,000 \\\text { Variable manufacturing overhead } & 260,000 \\\text { Fixed manufacturing overhead } & 200,000 \\\text { Variable selling and administrative costs } & 80,000 \\\text { Fixed selling and administrative costs } & 70,000\end{array}$ If Bonsai uses variable costing, the total inventoriable costs for the year would be:

A)$720,000.
B)$800,000.
C)$980,000.
D)$1,060,000.
E)$1,330,000.

Question 51

Dumphee Manufacturing has computed the following unit costs for the year just ended: $\begin{array}{l}\begin{array}{lll} \text { Direct material used}\\ \text { Direct labour}\\ \text { Variable manufacturing overhead}\\ \text { Fixed manufacturing overhead}\\ \text { Variable selling and administrative cost}\\ \text { Fixed selling and administrative cost}\\\end{array}\begin{array}{lll}\$ 44 \\16 \\30 \\20 \\18 \\40\end{array}\end{array}$

Which of the following choices correctly depicts the per-unit cost of inventory under variable costing and absorption costing? $\begin{array} { l c c } & \text { Variable Costing } & \text { Absorption Costing } \\1 & \$ 90 & \$ 110 \\2 & \$ 90 & \$ 168 \\3 & \$ 108 & \$ 110 \\4 & \$ 108 & \$ 168 \\5 & \$ 90 & \$ 108\end{array}$

A)1
B)2
C)3
D)4
E)5

Question 52

Red River Company sells its product for $12,000 per unit. Variable costs per unit are: Manufacturing overhead -$8,000
Selling and administrative -$150
Fixed costs are:
Manufacturing overhead -$30,000
Selling and administrative -$40,000
Red River had no beginning inventory at January 1, 2010. Production was 20 units each year in 2010, 2011, and 2012. Sales were 20 units in 2010, 16 units in 2011, and 24 units in 2012.
Income/(Loss) under absorption costing for 2011 is:

A)$12,000.
B)($2,400).
C)($7,000).
D)$7,000.
E)$16,400

Question 53

Windsor Corporation began business at the start of the current year. The company planned to produce 25,000 units, and actual production conformed to expectations. Sales totalled 22,000 units at $30 each. Actual costs incurred were: fixed manufacturing overhead $150,000; fixed selling and administrative costs $100,000; variable manufacturing cost per unit $8; variable selling and administrative cost per unit $2. If there were no variances, Windsor's absorption-costing net income would be:

A)$190,000.
B)$202,000.
C)$208,000.
D)$220,000.
E)$252,000.

Question 54

Robertson Company, which began business at the start of 2012, had the following data: Planned and actual production: 40,000 units
Sales: 37,000 units at $15 per unit
Production costs: Variable, $4 per unit; Fixed, $260,000
Selling and administrative costs: Variable $1 per unit; Fixed $32,000
The gross margin that Robertson would disclose on its 2012 absorption-costing income statement is:

A)$97,500.
B)$147,000.
C)$166,500.
D)$370,000.
E)$403,500.

Question 55

Which of the following statements pertain to both variable costing and absorption costing?

A)The income statement discloses the amount of gross margin generated during the reporting period.
B)Fixed selling and administrative expenses are treated in the same manner as fixed manufacturing overhead.
C)Fixed selling and administrative expenses are treated in the same manner as variable manufacturing overhead.
D)Both variable and absorption costing can be used for external financial reporting.
E)Variable selling costs are treated as period costs.

Question 56

Red River Company sells its product for $12,000 per unit. Variable costs per unit are: Manufacturing overhead -$8,000
Selling and administrative -$150
Fixed costs are:
Manufacturing overhead -$30,000
Selling and administrative -$40,000
Red River had no beginning inventory at January 1, 2010. Production was 20 units each year in 2010, 2011, and 2012. Sales were 20 units in 2010, 16 units in 2011, and 24 units in 2012.
For the three years from 2010 to 2012 inclusive:

A)absorption costing income exceeds variable costing income by $6,000.
B)absorption costing income equals variable costing income.
C)variable costing income exceeds absorption costing income by $6,000.
D)variable costing income is less than absorption costing by $2,400.
E)absorption costing income may be greater than, equal to, or less than variable costing income depending on the situation.

Question 57

Ralph Corporation has computed the following unit costs for the year just ended: $\begin{array} { | l | c | } \hline \text { Direct material used } & \$ 21 \\\hline \text { Direct labour } & 27 \\\hline \text { Variable manufacturing overhead } & 31 \\\hline \text { Fixed manufacturing overhead } & 33 \\\hline \text { Variable selling and administrative cost } & 15 \\\hline \text { Fixed selling and administrative cost } & 37 \\\hline\end{array}$ Under absorption costing, each unit of the company's inventory would be carried at:

A)$46.
B)$52.
C)$112.
D)$127.
E)164.

Question 58

Franz began business at the start of this year and had the following costs: variable manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling and administrative costs per unit, $2; and fixed selling and administrative costs, $220,000. The company sells its units for $45 each. There were no variances. Planned and actual production was 10,000 units. Sales were 8,500 units. The net income/(loss) under absorption costing is:

A)$(7,500).
B)$9,000.
C)$15,000.
D)$18,000.
E)$35,000.

Question 59

Franz began business at the start of this year and had the following costs: variable manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling and administrative costs per unit, $2; and fixed selling and administrative costs, $220,000. The company sells its units for $45 each. There were no variances. Planned and actual production was 10,000 units. Sales were 8,500 units. The net income (loss) under variable costing is:

A)$(7,500).
B)$9,000.
C)$15,000.
D)$18,000.
E)$26,000.

Question 60

Panda, which began business at the start of 2012, had the following data: Planned and actual production: 100,000 units
Sales: 80,000 units at $20 per unit
Production costs: Variable $6 per unit; Fixed $300,000
Selling and administrative costs: Variable $1 per unit; Fixed $32,000
The gross margin that Panda Company would disclose on its 2012 absorption-costing income statement is:

A)$0.
B)$700,000.
C)$880,000.
D)$1,300,000.
E)$1,600,000.

Question 61

The following information relates to Jenny Corporation: sales revenue $18,000,000; contribution margin $5,800,000; and net income $900,000. The operating leverage factor for Jenny Corporation is:

A)0.155.
B)0.310.
C)0.500.
D)2.000.
E)6.444.

Question 62

For external-reporting purposes, generally accepted accounting principles require that net income be based on:

A)absorption costing.
B)variable costing.
C)product costing.
D)throughput costing.
E)activity-based costing.

Question 63

A manager who wants to determine the percentage impact on net income of a given percentage change in sales would multiply the percentage increase/decrease in sales revenue by the:

A)contribution margin.
B)gross margin.
C)operating leverage factor.
D)safety margin.
E)contribution-margin ratio.

Question 64

Highline Company reported the following costs for the year just ended: $\begin{array} { | l | r | } \hline \text { Throughput manufacturing costs } & \$ 180,000 \\\hline \text { Non-throughput manufacturing costs } & 600,000 \\\hline \text { Selling and administrative costs } & 125,000 \\\hline\end{array}$ If Highline uses throughput costing and had sales revenues for the period of $950,000, which of the following choices correctly depicts the company's cost of goods sold and net income? $\begin{array} { | l | c | c | c | } \hline & \text { Cost of Goods Sold } & & \text { Net Income } \\\hline 1 & \$ 180,000 & & \$ 45,000 \\\hline 2 & \$ 180,000 & & \$ 645,000 \\\hline 3 & \$ 305,000 & & \$ 45,000 \\\hline 4 & \$ 305,000 & & \$ 645,000 \\\hline 5 & \$ 305,000 & & \$ 305,000 \\\hline\end{array}$

A)1
B)2
C)3
D)4
E)5

Question 65

Which of the following formulas can often reconcile the difference between absorption-costing net income and variable-costing net income?

A)Change in inventory units x Predetermined variable-overhead rate per unit.
B)Change in inventory units ÷ Predetermined variable-overhead rate per unit.
C)Change in inventory units x Predetermined fixed-overhead rate per unit.
D)Change in inventory units ÷ Predetermined fixed-overhead rate per unit.
E)(Absorption-costing net income - Variable-costing net income) x Fixed-overhead rate per unit.

Question 66

Canyon reported $106,000 of net income for the year by using variable costing. The company had no beginning inventory, planned and actual production of 50,000 units, and sales of 47,000 units. Standard variable manufacturing costs were $15 per unit, and total budgeted fixed manufacturing overhead was $150,000. If there were no variances, net income under absorption costing would be:

A)$52,000.
B)$97,000.
C)$106,000.
D)$115,000.
E)$160,000.

Question 67

Orion's management recently committed to incurring direct labour and all manufacturing overhead charges regardless of the number of units produced. Under throughput costing, the company's cost of goods sold would include charges for:

A)selling and administrative costs.
B)direct materials.
C)direct labour and manufacturing overhead.
D)direct materials, direct labour, and manufacturing overhead.
E)direct materials, direct labour, manufacturing overhead, and selling and administrative costs.

Question 68

Management may be tempted to overproduce

A)when using variable costing, in order to increase net income.
B)when using variable costing, in order to decrease net income.
C)when using absorption costing, in order to increase net income.
D)when using absorption costing, in order to decrease net income.
E)when using absorption costing, in order to decrease their bonus.

Question 69

Which of the following situations would cause variable-costing net income to be lower than absorption-costing net income?

A)Units sold equaled 39,000 and units produced equaled 42,000.
B)Units sold and units produced were both 42,000.
C)Units sold equaled 55,000 and units produced equaled 49,000.
D)Sales prices decreased by $7 per unit during the accounting period.
E)Selling expenses increased by 10% during the accounting period.

Question 70

Which of the following methods defines product cost as the unit-level cost incurred each time a unit is manufactured?

A)Throughput costing.
B)Indirect costing.
C)Process costing.
D)Absorption costing.
E)Back-flush costing.

Question 71

Miller Company has an operating leverage factor of 5. Thus, an 8% change in ______ should result in a 40% change in ______. The respective amounts that change are:

A)net income; sales revenue.
B)sales revenue; net income.
C)variable cost; contribution margin.
D)fixed cost; net income.
E)variable cost; break-even sales.

Question 72

Under throughput costing, the cost of a unit typically includes:

A)selling costs.
B)fixed manufacturing overhead.
C)the direct costs incurred whenever a unit is manufactured.
D)administrative costs.
E)depreciation on the building to house head office.

Question 73

The extent to which an organization uses fixed costs in its cost structure is measured by:

A)financial leverage.
B)operating leverage.
C)fixed cost leverage.
D)contribution leverage.
E)efficiency leverage.

Question 74

Gomez's inventory increased during the year. On the basis of this information, income reported under absorption costing:

A)will be the same as that reported under variable costing.
B)will be higher than that reported under variable costing.
C)will be lower than that reported under variable costing.
D)will differ from that reported under variable costing, the direction of which cannot be determined from the information given.
E)will be less than that reported in the previous period.

Question 75

The following information relates to Paterno Company: $\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 10,000,000 \\\hline \text { Contribution margin } & 4,000,000 \\\hline \text { Net income } & 1,000,000 \\\hline\end{array}$ If a manager at Paterno desired to determine the percentage impact on net income of a given percentage change in sales, the manager would multiply the percentage increase/decrease in sales revenue by:

A)0.25.
B)0.40.
C)2.50.
D)4.00.
E)10.00.

Question 76

Which of the following conditions would cause absorption-costing net income to be lower than variable-costing net income?

A)Units sold exceeded units produced.
B)Units sold equaled units produced.
C)Units sold were less than units produced.
D)Sales prices decreased.
E)Selling expenses increased.

Question 77

You are analyzing Becker Corporation and Newton Corporation and have concluded that Becker has a higher operating leverage factor than Newton. Which one of the following choices correctly depicts (1) the relative use of fixed costs (as opposed to variable costs) for the two companies and (2) the percentage change in income caused by a change in sales? $\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Relative Use of Fixed } \\\text { Costs as Opposed to } \\\text { Variable Costs }\end{array} & \begin{array} { c } \text { Percentage Change in } \\\text { Income Caused by } \\\text { a Change in Sales }\end{array} \\\hline 1 & \text { Greater for Becker } & \text { Gruater for Becker } \\\hline 2 & \text { Greater for Becker } & \text { Lower for Becker } \\\hline 3 & \text { Greater for Becker } & \text { Equal for both } \\\hline 4 & \text { Lower for Becker } & \text { Greater for Becker } \\\hline 5 & \text { Lower for Becker } & \text { Lower for Becker } \\\hline\end{array}$

A)1
B)2
C)3
D)4
E)5

Question 78

The computation of absorption costing gross profit always involves subtracting:

A)all current-year fixed manufacturing overhead.
B)some, but not all, current-year fixed manufacturing overhead.
C)all fixed manufacturing overhead applied to units sold in the current year.
D)no fixed manufacturing overhead.
E)variable cost of goods sold.

Question 79

Monex reported $65,000 of net income for the year by using absorption costing. The company had no beginning inventory, planned and actual production of 20,000 units, and sales of 18,000 units. Standard variable manufacturing costs were $20 per unit, and total budgeted fixed manufacturing overhead was $100,000. If there were no variances, net income under variable costing would be:

A)$15,000.
B)$55,000.
C)$65,000.
D)$75,000.
E)$115,000.

Question 80

Absorption costing

A)is not allowed under GAAP.
B)is not allowed for external reporting purposes.
C)may lead to poor business decisions
D)highlights differences between variable and fixed costs.
E)optimizes business decisions.