Deck 6: Absorption and Variable Costing

Question 1

When a company's beginning inventory is zero and everything is sold in the month it is produced, variable and absorption costing will always yield the same result.

Answer 1

True

Question 2

A company sold everything it produced in the month; therefore, variable and absorption costing will always yield the same result.

Answer 2

False

Question 3

A company's beginning and ending inventory count is the same. Therefore, the ending inventory amount on the balance sheet must be the same amount as the beginning inventory amount.

Answer 3

False

Question 4

If a company's beginning and ending inventory count is the same and production cost per unit are the same; then, the ending inventory amount on the balance sheet must be the same dollar amount as the beginning inventory dollar amount.

Question 5

If a company's beginning and ending inventory count is the same and production cost per unit are the same; then, the cost of goods sold must be the same dollar amount whether using variable or absorption costing

Question 6

GAAP requires that we assign fixed and variable manufacturing costs to the product.

Question 7

Variable costing considers all costs to be product costs.

Question 8

Assuming no beginning inventory, if production is greater than sales, ending inventory is higher under absorption costing than under variable costing.

Question 9

Assuming no beginning inventory and monthly production is greater than sales. Management who are paid a bonus based on operating income would receive a larger bonus under variable costing, because only the variable costs will be deducted in deriving operating income.

Question 10

Commissions paid to sales persons are considered a variable product cost under variable costing.

Question 11

Straight-line depreciation on the manufacturing equipment would be considered a product cost under both variable and absorption costing.

Question 12

Selling and administrative expenses (such as commissions paid to sales personnel) are considered part of product costs under variable costing.

Question 13

Seattle Enterprises produces packaged fresh meals that sell for $10 each. During the current month, Seattle produced 2,800 meals, but only sold 2,700 meals. The variable cost per meal was $6 and the sales commissions per meal were $1. Total fixed manufacturing costs were $1,400 and total fixed marketing and administrative costs were $1,200.

-Gross profit under absorption costing would be:

A) $10,800.
B) $9,450.
C) $8,250.
D) $5,550.

Question 14

Seattle Enterprises produces packaged fresh meals that sell for $10 each. During the current month, Seattle produced 2,800 meals, but only sold 2,700 meals. The variable cost per meal was $6 and the sales commissions per meal were $1. Total fixed manufacturing costs were $1,400 and total fixed marketing and administrative costs were $1,200.

-Net income under absorption costing would be:

A) $10,800.
B) $9,450.
C) $5,550.
D) $5,500.

Question 15

Seattle Enterprises produces packaged fresh meals which it sells for $10 each. During the current month, Seattle produced 2,800 meals, but only sold 2,700 meals. The variable cost per meal was $6 and the sales commissions per meal were $1. Total fixed manufacturing costs were $1,400 and total fixed marketing and administrative costs were $1,200.

-Net income under variable costing would be:

A) $10,800.
B) $9,450.
C) $5,550.
D) $5,500.

Question 16

During the current period, 20,000 units were produced and 17,000 units were sold. Fixed manufacturing costs incurred amounted to $40,000.

- If variable production costs totaled $100,000, what is the cost per unit using variable costing?

A) $2.00
B) $5.00
C) $7.00
D) $7.35

Question 17

During the current period, 20,000 units were produced and 17,000 units were sold. Fixed manufacturing costs incurred amounted to $40,000.

- If variable production costs totaled $100,000, what is the cost per unit using absorption costing?

A) $2.00
B) $5.00
C) $7.00
D) $7.35

Question 18

During the current period, 20,000 units were produced and 17,000 units were sold. Fixed manufacturing costs incurred amounted to $40,000.

- If variable production costs were $100,000, a variable costing income statement would report the variable manufacturing costs as a:

A) $85,000 deduction from sales revenue to obtain contribution margin.
B) $85,000 deduction from sales revenue to obtain gross profit.
C) $100,000 deduction from sales revenue to obtain contribution margin.
D) $100,000 deduction from sales revenue to obtain gross profit.

Question 19

During the current period, 20,000 units were produced and 17,000 units were sold. Fixed manufacturing costs incurred amounted to $40,000.

- If variable production costs were $100,000, an absorption costing income statement would report the variable manufacturing costs as a:

A) part of cost of goods sold.
B) $85,000 deduction from sales revenue to obtain contribution margin.
C) $100,000 deduction from sales revenue to obtain contribution margin.
D) $100,000 deduction from sales revenue to obtain gross profit.

Question 20

Pat's Hats produces sun visors. Production data for the first month follow:


- What is the absorption cost per hat for October?

A) $2.25
B) $2.50
C) $3.00
D) $5.00

Question 21

Pat's Hats produces sun visors. Production data for the first month follow:


- What is the variable cost per hat for October?

A) $2.25
B) $2.50
C) $3.00
D) $5.00

Question 22

Pat's Hats produces sun visors. Production data for the first month follow:


-What is the October net income using absorption costing?

A) $97,000
B) $97,200
C) $137,200
D) $137,000

Question 23

Pat's Hats produces sun visors. Production data for the first month follow:


-What is the October net income using variable costing?

A) $97,000
B) $97,200
C) $137,200
D) $137,000

Question 24

Pat's Hats produces sun visors. Production data for the first month follow:


-What is the value of the October ending inventory using absorption costing?

A) $1,200
B) $1,000
C) $200
D) $400

Question 25

Pat's Hats produces sun visors. Production data for the first month follow:


-What is the value of the October ending inventory using variable costing?

A) $1,200
B) $1,000
C) $200
D) $400

Question 26

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September. Roberta's Hot Stuff sold 406,000 of the soup packages in September.

- Calculate the total absorption cost per hot and sour soup package.

A) $0.70
B) $0.72
C) $0.80
D) $0.82

Question 27

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September. Roberta's Hot Stuff sold 406,000 of the soup packages in September.

- Calculate the total variable cost per hot and sour soup package.

A) $0.70
B) $0.72
C) $0.80
D) $0.82

Question 28

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September. Roberta's Hot Stuff sold 406,000 of the soup packages in September.

- Calculate the September net income using absorption costing.

A) $479,800
B) $479,200
C) $487,200
D) $527,800

Question 29

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September. Roberta's Hot Stuff sold 406,000 of the soup packages in September.

-Calculate the September net income using variable costing.

A) $479,800
B) $479,200
C) $487,200
D) $527,800

Question 30

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September. Roberta's Hot Stuff sold 406,000 of the soup packages in September.

-Calculate the September ending inventory value using absorption costing.

A) $2,800
B) $3,200
C) $4,800
D) None-Roberta's sold more soup than they made.

Question 31

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September. Roberta's Hot Stuff sold 406,000 of the soup packages in September.

-Calculate the September ending inventory value using variable costing.

A) $2,800
B) $3,200
C) $4,800
D) None-Roberta's sold more soup than they made.

Question 32

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:


-The company's June 30 ending inventory consists of 20,000 burritos. Assuming they use FIFO costing, what is the absorption cost per burrito for a burrito that is manufactured in June?

A) $0.20
B) $0.28
C) $0.25
D) $0.33

Question 33

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:


- he company's June 30 ending inventory consists of 20,000 burritos. Assuming they use FIFO costing, what is the variable cost per burrito for a burrito that is manufactured in June?

A) $0.20
B) $0.28
C) $0.25
D) $0.33

Question 34

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:


- The company's June 30 ending inventory consists of 20,000 burritos. Assuming they use FIFO costing, calculate the June net income using absorption costing?

A) $358,200
B) $379,000
C) $340,400
D) $380,600

Question 35

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:


- The company's June 30 ending inventory consists of 20,000 burritos. Assuming they use FIFO costing, calculate the June net income using variable costing?

A) $358,200
B) $379,000
C) $340,400
D) $380,600

Question 36

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:


- The company's June 30 ending inventory consists of 20,000 burritos. Assuming they use FIFO costing, calculate the June 30 ending inventory value using absorption costing?

A) $5,000
B) $4,000
C) $5,600
D) $20,000

Question 37

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:


-The company's June 30 ending inventory consists of 20,000 burritos. Assuming they use FIFO costing, calculate the June 30 ending inventory value using variable costing?

A) $5,000
B) $4,000
C) $5,600
D) $20,000

Question 38

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case. Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case.

-Calculate the September production cost per case using absorption costing.

A) $3.60
B) $3.85
C) $5.85
D) $5.00

Question 39

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case. Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case.

- Calculate the September production cost per case using variable costing.

A) $3.60
B) $3.85
C) $5.85
D) $5.00

Question 40

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case. Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case.

- Calculate the September operating income using absorption costing.

A) $206,500
B) $200,900
C) $205,500
D) $199,900

Question 41

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case. Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case.

-Calculate the September operating income using variable costing.

A) $206,500
B) $200,900
C) $205,500
D) $199,900

Question 42

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case. Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case.

-Calculate the September ending inventory value income using absorption costing.

A) $14,400
B) $0
C) $20,000
D) $15,400

Question 43

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case. Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case.

- Calculate the September ending inventory value income using variable costing.

A) $14,400
B) $0
C) $20,000
D) $15,400

Question 44

Harold's produces windmills that store power for residential use. Production data for the first month follow:


- What is the cost per unit for May using variable costing?

A) $3,900
B) $4,200
C) $4,000
D) $4,100

Question 45

Harold's produces windmills that store power for residential use. Production data for the first month follow:


- What is the cost per unit for May using absorption costing?

A) $3,900
B) $4,200
C) $4,000
D) $4,100

Question 46

Harold's produces windmills that store power for residential use. Production data for the first month follow:


- What is the value of the May ending inventory using absorption costing?

A) $3,900
B) $4,200
C) $61,500
D) $60,000

Question 47

Harold's produces windmills that store power for residential use. Production data for the first month follow:


- What is the value of the May ending inventory using variable costing?

A) $3,900
B) $4,200
C) $61,500
D) $60,000

Question 48

Harold's produces windmills that store power for residential use. Production data for the first month follow:


- If Harold's had beginning inventory of 10 units that had a $3,000 absorption cost per unit, what would be the cost of the ending inventory under absorption costing?

A) $4,100
B) $102,500
C) $91,500
D) $60,000

Question 49

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.
What is the absorption cost per cell phone for March and April production?

A) $31.00 in March and $32.00 in April
B) $32.00 in March and $33.00 in April
C) $30.50 in March and $32.00 in April
D) $33.00 in March and $34.00 in April

Question 50

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
What is the variable cost per cell phone for March and April production?

A) $31.00 in March and $32.00 in April
B) $32.00 in March and $33.00 in April
C) $30.50 in March and $32.00 in April
D) $33.00 in March and $34.00 in April

Question 51

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
What is the value of the ending inventory on March 31, 2012 using absorption costing?

A) $30,000
B) $33,000
C) $31,000
D) $32,500

Question 52

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
What is the value of the ending inventory on March 31, 2012 using variable costing?

A) $30,000
B) $33,000
C) $31,000
D) $32,500

Question 53

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
What is the value of the ending inventory on April 30, 2012 using absorption costing?

A) $22,400
B) $23,800
C) $23,100
D) $21,700

Question 54

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
What is the value of the ending inventory on April 30, 2012 using variable costing?

A) $22,400
B) $23,800
C) $23,100
D) $21,700

Question 55

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28 per phone and fixed manufacturing costs of $2 per phone. Hi-Tech uses a FIFO cost flow.

-
What is the Cost of Goods Sold for March, 2012 using absorption costing?

A) $1,320,000
B) $1,240,000
C) $1,317,000
D) $1,237,000

Question 56

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
What is the Cost of Goods Sold for April, 2012 using absorption costing?

A) $1,360,000
B) $1,311,000
C) $1,288,600
D) $1,369,200

Question 57

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
What is the Cost of Goods Sold for March, 2012 using variable costing?

A) $1,320,000
B) $1,240,000
C) $1,317,000
D) $1,237,000

Question 58

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
What is the Cost of Goods Sold for April, 2012 using variable costing?

A) $1,360,000
B) $1,311,000
C) $1,288,600
D) $1,369,200

Question 59

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
Calculate operating income for March, 2012 using absorption costing?

A) $663,000
B) $763,000
C) $683,000
D) $583,000

Question 60

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
Calculate operating income for March, 2012 using variable costing?

A) $663,000
B) $763,000
C) $683,000
D) $583,000

Question 61

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
Calculate operating income for April, 2012 using absorption costing?

A) $726,400
B) $625,800
C) $645,800
D) $626,400

Question 62

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28.00 per phone and fixed manufacturing costs of $2.00 per phone. Hi-Tech uses a FIFO cost flow.

-
Calculate operating income for April, 2012 using variable costing?

A) $726,400
B) $625,800
C) $645,800
D) $626,400

Question 63

In a period where production exceeds sales, variable costing results in lower per unit product costs and lower operating income.

Question 64

If the first month of production is 6,000 units and sales are 5,500 units, absorption costing will yield a higher ending inventory value than will variable costing.

Question 65

Absorption costing is more in-line with JIT inventory concepts than variable costing.

Question 66

Absorption costing income statements itemize fixed manufacturing overhead costs while variable costing income statements do not.

Question 67

If the first month of production is 6,000 units and sales are 5,500 units, absorption costing will yield a lower operating income than will variable costing.

Question 68

A production foreman who receives a bonus based on operating income would have no incentive to increase production and stock pile inventories if the company reports under the variable costing method.

Question 69

Hats produces sun visors. Production data for the first month follow:


-If employees receive a 3% salary bonus for keeping production costs per unit under $3.00, which method would result in a bonus?

A) Variable costing
B) Absorption costing
C) Neither
D) Both would yield the same bonus.

Question 70

Hats produces sun visors. Production data for the first month follow:


-The production manager will receive a 3% salary bonus if production costs per unit under $3.00. After reviewing October results, he decides to increase production in November to 21,000 units. If demand for the product is stable, which accounting method is the company most likely using to determine the manager's bonus?

A) Variable costing
B) Absorption costing
C) Neither
D) Both would yield the same bonus.

Question 71

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September.

-Roberta's Hot Stuff sold 406,000 of the soup packages in September. Which method would result in the larger operating income and why?

A) Variable costing- because the cost per unit is less, which means ending inventory costs are smaller
B) Variable costing- because the fixed manufacturing costs are all expensed during September
C) Absorption costing- because the cost per unit is more, which means ending inventory costs are larger
D) Absorption costing- because the fixed manufacturing costs are all expensed during September

Question 72

Roberta's Hot Stuff began making hot and sour soup in August, 2012. The soup sells for $2 for a large package. Variable production costs are $0.70 per package. Roberta's Hot Stuff incurs monthly fixed manufacturing overhead costs of $40,000 and fixed selling and administrative cost of $8,000. On August 31, 2012 ending inventory was 10,000 soup packages. Assume Roberta's Hot Stuff produced 400,000 soup packages in September.

-Roberta's Hot Stuff sold 406,000 of the soup packages in September. If employees receive a 3% salary bonus for keeping production costs per unit under $0.70, which method would result in the larger bonus?

A) Variable costing
B) Absorption costing
C) Neither
D) Both would yield the same bonus.

Question 73

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:


-The company's June 30 ending inventory consists of 20,000 burritos. Which method would result in the larger operating income and why?

A) Variable costing- because the cost per unit is less, which means ending inventory costs are smaller
B) Variable costing- because the fixed manufacturing costs are all expensed during September
C) Absorption costing- because the cost per unit is more, which means ending inventory costs are larger
D) Absorption costing- because the fixed manufacturing costs are all expensed during September

Question 74

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:


-The company's June 30 ending inventory consists of 20,000 burritos. The sales manager receives a 5% bonus based on monthly operating income. Which method would result in the larger bonus?

A) Variable costing
B) Absorption costing
C) Neither
D) Both would yield the same bonus.

Question 75

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:


-The company's June 30 ending inventory consists of 20,000 burritos. The employees receive a 5% salary bonus if they can keep per unit production cost under $.30 per burrito. Under which method would the employees receive a bonus?

A) Variable costing
B) Absorption costing
C) Neither
D) Both

Question 76

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case. Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case.

- Which method would result in the larger operating income and why?

A) Variable costing- because the cost per unit is less, which means ending inventory costs are smaller
B) Variable costing- because the fixed manufacturing costs are all expensed during September
C) Absorption costing- because the cost per unit is higher, which means ending inventory costs are larger
D) Absorption costing- because the fixed manufacturing costs are all expensed during September

Question 77

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case.

- Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case.
If the company predicts it can reduce manufacturing wages in October, and all other costs would remain the same, how will this affect per unit costs?

A) There will be no change to either.
B) Variable cost per unit will decrease, but absorption cost per unit will stay the same.
C) Variable cost per unit will stay the same, but absorption cost per unit will decrease.
D) Variable cost per unit will decrease, and absorption cost per unit will decrease.

Question 78

Mega-Thirst produces an energy drink called Mega-Caffeine. The drinks sell to grocery stores and other retailers for $10 a case. During September, the first month of production, the company used $65,000 of aluminum cans and $35,000 of syrup, soda and caffeine. September manufacturing wages were $60,000 and variable manufacturing overhead incurred was $20,000. September's fixed manufacturing overhead costs were $70,000 and fixed selling and administrative costs were $12,000. Selling commissions were $0.25 per case.

- Mega-Thirst sold 46, 000 of the 50,000 cases that were produced in September for $10 per case.
If the company plans to increase selling commissions to $0.30 per case, and all other costs would remain the same, how will this affect per unit costs?

A) There will be no change to either.
B) Variable cost per unit will decrease, but absorption cost per unit will stay the same.
C) Variable cost per unit will stay the same, but absorption cost per unit will decrease.
D) Variable cost per unit will decrease, and absorption cost per unit will decrease.

Question 79

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28 per phone and fixed manufacturing costs of $2 per phone. Hi-Tech uses a FIFO cost flow.

-
If the company pays bonuses to the production manager for keeping production cost per unit under $34.00 per cell phone, under which costing method will the manager earn a bonus for March?

A) Variable costing
B) Absorption costing
C) Both variable and absorption costing
D) Neither variable nor absorption costing

Question 80

Hi-Tech manufactures basic cell phones for cell phone service providers. Data for March and April's production follows:
Hi-Tech started March with 1,000 cell phones that had variable costs of $28 per phone and fixed manufacturing costs of $2 per phone. Hi-Tech uses a FIFO cost flow.

-
If the company pays bonuses to the production manager for keeping production cost per unit under $34.00 per cell phone, under which costing method will the manager earn a bonus for April?

A) Variable costing
B) Absorption costing
C) Both variable and absorption costing
D) Neither variable nor absorption costing