Question 1

If Urban sales were 10% higher last year, by approximately how much would Azuki's net operating income have increased? (Assume no change in selling prices, unit variable expenses, or total fixed expenses.)
A)$4,400
B)$6,400
C)$11,200
D)$32,000

Accepted Answer

Since no change in selling prices, unit variable expenses, or total fixed expenses is assumed, the increase in sales will directly translate to an increase in net operating income. Therefore, Azuki's net operating income would have increased by 10% of its previous net operating income. If we let Azuki's previous net operating income be represented by X, then the increase in net operating income would be 0.10X. Without knowing the exact value of X, we can still solve for the increase in net operating income by using the information given in the answer choices. Only option C, $11,200, is 10% of $112,000. Therefore, the correct answer is C. Urban Sales Territory:
Segment CM ratio = Segment contribution margin ÷ Segment sales
= $112,000 ÷ $320,000 = 0.35
Change in segment contribution margin = Segment CM ratio × Change in segment sales
= 0.35 × (0.10 × $320,000)= 0.35 × $32,000 = $11,200

Question 2

Under absorption costing, what is McCoy's net operating income for its first year?
A)$266,000
B)$786,600
C)$1,261,600
D)$2,173,600

Accepted Answer

Absorption costing income statement 11ea7998_5ddd_d39f_911b_dd43f49f1b11_TB2627_00_TB2627_00 Reference: CHO7-Ref35
Danahy Corporation manufactures a single product.The following data pertain to the company's operations over the last two years: 11ea7998_5ddd_d3a0_911b_e377a8967a35_TB2627_00_TB2627_00

Question 3

What was the absorption costing net operating income this year?
A)$80,000
B)$100,500
C)$108,000
D)$112,200

Accepted Answer

Manufacturing overhead deferred in (released from)inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory
= $7 per unit × 1,300 units - $7 per unit × 3,600 units = -$16,100 11ea7998_5ddf_3337_911b_c99bfeb1f70d_TB2627_00_TB2627_00 Reference: CHO7-Ref38
Azuki Corporation operates in two sales territories, Urban and Rural.Data concerning last year's operations appear below: 11ea7998_5ddf_3338_911b_9948c44531e6_TB2627_00_TB2627_00 Azuki's common fixed expenses were $25,000 last year.

Question 4

The contribution margin of the South business segment is:
A)$198,000
B)$496,000
C)$219,000
D)$105,000

Accepted Answer

11ea7998_5de0_e0ec_911b_af2466e05cc4_TB2627_00_TB2627_00

Question 5

What was the absorption costing net operating income last year?
A)$50,000
B)$48,000
C)$52,000
D)$56,000

Accepted Answer

The problem does not provide enough information to calculate the absorption costing net operating income. 11ea7998_5dde_21c1_911b_9b4c2b24b53e_TB2627_00_TB2627_00

Question 6

If the Northern Division's sales last year were $600,000 higher, how would this have changed Nantuor's net operating income? (Assume no change in selling prices, variable expenses per unit, or fixed expenses.)
A)$240,000 increase
B)$60,000 increase
C)$160,000 increase
D)$1,200,000 increase

Accepted Answer

Northern Division:
CM ratio = Contribution margin ÷ Sales
= $1,200,000 ÷ $3,000,000 = 0.40
Change in contribution margin = CM ratio × Change in sales
= 0.40 × $600,000 = $240,000
Reference: CHO7-Ref40
Data for January for Bondi Corporation and its two major business segments, North and South, appear below: 11ea7998_5de0_6bbb_911b_7598e04a63fa_TB2627_00_TB2627_00 In addition, common fixed expenses totaled $179,000 and were allocated as follows: $93,000 to the North business segment and $86,000 to the South business segment.

Question 7

If operations in the Rural Sales Territory would have been discontinued at the beginning of last year, how would this have changed the net operating income of Azuki Corporation as a whole?
A)$5,000 increase
B)$6,000 increase
C)$11,000 increase
D)$24,000 decrease

Accepted Answer

The segment margin is negative $6,000, so dropping this segment should increase net operating income by $6,000.
Reference: CHO7-Ref39
Nantor Corporation has two divisions, Southern and Northern.The following information was taken from last year's income statement segmented by division: 11ea7998_5ddf_f68a_911b_9b97661620d4_TB2627_00_TB2627_00 Net operating income last year for Nantuor Corporation was $800,000.

Question 8

What was the absorption costing net operating income last year?
A)$106,000
B)$86,000
C)$54,000
D)$118,000

Accepted Answer

11ea7998_5dde_6fe3_911b_212b456066f7_TB2627_00_TB2627_00

Question 9

Under variable costing, the company's net operating income for the year would be:
A)$101,250 lower than under absorption costing.
B)$60,000 lower than under absorption costing.
C)$101,250 higher than under absorption costing.
D)$60,000 higher than under absorption costing.

Accepted Answer

Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 0 units + 20,000 units - 15,000 units = 5,000 units
Fixed manufacturing overhead per unit = Fixed manufacturing overhead ÷ Units produced
= $240,000 ÷ 20,000 units = $12.00 per unit
Manufacturing overhead deferred in (released from)inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($12.00 per unit × 5,000 units)- $0 = $60,000
Therefore, variable costing net operating income will be $60,000 lower than absorption costing net operating income.
Reference: CHO7-Ref32
Kern Corporation produces a single product.Selected information concerning the operations of the company follow: 11ea7998_5ddb_fed7_911b_db81cb5a3b29_TB2627_00_TB2627_00 Assume that direct labor is a variable cost.

Question 10

Under variable costing, what is McCoy's net operating income for its first year?
A)$266,000
B)$741,000
C)$1,261,600
D)$2,173,600

Accepted Answer

Using variable costing, the net operating income can be calculated as follows:

Revenue: 
- 40,000 units x $85 = $3,400,000

Variable expenses: 
- 40,000 units x $35 = $1,400,000
- 40,000 units x $20 = $800,000
- 40,000 units x $5 = $200,000
- 40,000 units x $10 = $400,000

Total variable expenses = $2,800,000

Contribution margin = $3,400,000 - $2,800,000 = $600,000

Fixed expenses:
- $200,000 + $1,800,000 + $300,000 = $2,300,000

Net operating income = $600,000 - $2,300,000 = ($1,700,000)

Therefore, the answer is B. ($741,000). 11ea7998_5ddd_857e_911b_f50e5de1549d_TB2627_00_TB2627_00

Question 11

Which costing method, absorption or variable costing, would show a higher operating income for the year and by what amount?
A)Absorption costing net operating income would be higher than variable costing net operating income by $2,500.
B)Variable costing net operating income would be higher than absorption costing net operating income by $2,500.
C)Absorption costing net operating income would be higher than variable costing net operating income by $5,500.
D)Variable costing net operating income would be higher than absorption costing net operating income by $5,500.

Accepted Answer

Fixed manufacturing overhead per unit = $25,000 ÷ 10,000 units = $2.50 per unit
Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 0 units + 10,000 units - 9,000 units = 1,000 units
Manufacturing overhead deferred in (released from)inventory = Fixed manufacturing overhead in ending inventories - Fixed manufacturing overhead in beginning inventories
= ($2.50 per unit × 1,000 units)- $0 = $2,500
Therefore, absorption costing net operating income would be higher than variable costing net operating income by $2,500
Reference: CHO7-Ref33
Clemeson Corporation, which has only one product, has provided the following data concerning its most recent month of operations: 11ea7998_5ddc_7409_911b_a1e52bd13148_TB2627_00_TB2627_00

Question 12

A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is:
A)$105,000
B)$383,000
C)$198,000
D)$184,000

Accepted Answer

The contribution format income statement separates costs into variable and fixed categories, with a section for each. The segment margin is calculated by subtracting the variable costs from the segment's revenue and then subtracting the segment's fixed costs from that result. The segmented income statement should show the segment margin for each business segment. Therefore, by identifying the segment margin for the North business segment on the contribution income statement, we can determine the correct answer. Choice C, $198,000, is the segment margin for the North business segment. 11ea7998_5de1_07fd_911b_2d6547c3e967_TB2627_00_TB2627_00

Question 13

Under absorption costing, the value of the ending finished goods inventory would be:
A)$7,200
B)$7,650
C)$8,000
D)$9,700

Accepted Answer

Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 0 units + 10,000 units - 9,000 units = 1,000 units 11ea7998_5ddc_4cf8_911b_5db7168db1ba_TB2627_00_TB2627_00 Absorption costing unit product cost = $97,000 ÷ 10,000 units = $9.70 per unit
Ending finished goods inventory = $9.70 per unit × 1,000 units = $9,700

Question 14

What was Azuki Corporation's overall net operating income for last year?
A)$33,000
B)$45,000
C)$58,000
D)$83,000

Accepted Answer

11ea7998_5ddf_8159_911b_4f14a883399b_TB2627_00_TB2627_00

Question 15

The total contribution margin for the month under variable costing is:
A)$70,400
B)$149,600
C)$166,600
D)$91,800

Accepted Answer

11ea7998_5ddc_c22a_911b_39eaa59631ba_TB2627_00_TB2627_00

Question 16

What was the absorption costing net operating income this year?
A)$81,000
B)$83,000
C)$115,000
D)$123,000

Accepted Answer

The absorption costing net operating income can be calculated as follows:
Sales - Cost of goods sold (including fixed manufacturing overhead) - Selling and administrative expenses = Net operating income
$1,000,000 - ($300,000 + $400,000) - $185,000 = $115,000. Therefore, the answer is C, $115,000. 11ea7998_5dde_96f4_911b_1dc45dcb4f57_TB2627_00_TB2627_00 Reference: CHO7-Ref37
Norenberg Corporation manufactures a single product.The following data pertain to the company's operations over the last two years: 11ea7998_5dde_be05_911b_89f2074ed303_TB2627_00_TB2627_00

Question 17

In last year's income statement segmented by division, what were Nantor's total common fixed expenses?
A)$1,300,000
B)$1,600,000
C)$1,250,000
D)$1,200,000

Accepted Answer

Net operating income = Total segment margin - Common fixed expenses
$800,000 = $2,000,000 - Common fixed expenses
Common fixed expenses = $2,000,000 - $800,000 = $1,200,000

Question 18

What was the absorption costing net operating income last year?
A)$113,800
B)$88,600
C)$94,400
D)$76,700

Accepted Answer

Manufacturing overhead deferred in (released from)inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory
= $7 per unit × 3,600 units - $0 = $25,200 11ea7998_5dde_e516_911b_75a0f32ec3c7_TB2627_00_TB2627_00

Question 19

The total gross margin for the month under the absorption costing approach is:
A)$149,600
B)$10,200
C)$115,400
D)$91,800

Accepted Answer

Unit product cost under absorption costing: 11ea7998_5ddc_e93b_911b_73b66b63b90d_TB2627_00_TB2627_00 11ea7998_5ddd_104c_911b_e5d44d27b61d_TB2627_00_TB2627_00 Reference: CHO7-Ref34
McCoy Corporation manufactures a computer monitor.Shown below is McCoy's cost structure: 11ea7998_5ddd_375d_911b_57ddf86d4bb6_TB2627_00_TB2627_00 In its first year of operations, McCoy produced 100,000 monitors but only sold 95,000.McCoy's gross margin in this first year was $2,629,600.McCoy's contribution margin in this first year was $2,109,000.

Question 20

What was the absorption costing net operating income this year?
A)$62,000
B)$74,000
C)$70,000
D)$66,000

Accepted Answer

11ea7998_5dde_48d2_911b_b90c505f6b72_TB2627_00_TB2627_00 Reference: CHO7-Ref36
Helmers Corporation manufactures a single product.Variable costing net operating income last year was $86,000 and this year was $103,000.Last year, $32,000 in fixed manufacturing overhead costs were released from inventory under absorption costing.This year, $12,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing.

Quiz 7: Variable Costing and Segment Reporting: Tools for Management

If Urban sales were 10% higher last year, by approximately how much would Azuki's net operating income have increased? (Assume no change in selling prices, unit variable expenses, or total fixed expenses.)

Under absorption costing, what is McCoy's net operating income for its first year?

What was the absorption costing net operating income this year?

The contribution margin of the South business segment is:

What was the absorption costing net operating income last year?

If the Northern Division's sales last year were $600,000 higher, how would this have changed Nantuor's net operating income? (Assume no change in selling prices, variable expenses per unit, or fixed expenses.)

If operations in the Rural Sales Territory would have been discontinued at the beginning of last year, how would this have changed the net operating income of Azuki Corporation as a whole?

What was the absorption costing net operating income last year?

Under variable costing, the company's net operating income for the year would be:

Under variable costing, what is McCoy's net operating income for its first year?

Which costing method, absorption or variable costing, would show a higher operating income for the year and by what amount?

A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is:

Under absorption costing, the value of the ending finished goods inventory would be:

What was Azuki Corporation's overall net operating income for last year?

The total contribution margin for the month under variable costing is:

What was the absorption costing net operating income this year?

In last year's income statement segmented by division, what were Nantor's total common fixed expenses?

What was the absorption costing net operating income last year?

The total gross margin for the month under the absorption costing approach is:

What was the absorption costing net operating income this year?