Question 1

In its first year of business,Talula,Inc.produced and sold 600 units.If Talula uses variable costing,________.
A)its operating income for the period will be higher than under absorption costing
B)its operating income for the period will be lower than under absorption costing
C)its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing
D)its operating income will be the same as under absorption costing

Accepted Answer

The answer of In its first year of business,Talula,Inc.produced and...

Question 2

Which of the following is NOT a product cost under variable costing?
A)Direct materials
B)Direct labor
C)Variable manufacturing overhead
D)Fixed manufacturing overhead

Accepted Answer

Fixed manufacturing overhead is not a product cost under variable costing as it is considered a period cost and is not included in the calculation of cost of goods sold for inventory valuation.

Question 3

Amarantha Corp.has provided the following data for the current year.
 $$\begin{array} { | l | r | } 
\hline \text { Units produced } & 2,500 \text { units } \
\hline \text { Sales price } & \$ 200 \text { per unit } \
\hline \text { Direct materials } & \$ 75 \text { per unit } \
\hline \text { Direct labor } & \$ 65 \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 25 \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 225,000 \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 30 \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 150,000 \text { per year } \
\hline
\end{array}$$ Calculate the unit product cost using absorption costing and variable costing.

Accepted Answer

The answer of Amarantha Corp.has provided the following data for...

Question 4

Last year,Adara Company produced 5000 units and sold 3000 units.The company had no beginning inventory.They incurred the following costs: $\begin{array}{|c|c|}
\hline \text { Direct materials per unit } & \$ 13 \
\hline \text { Direct labor per unit } & \$ 7 \
\hline \text { Variable overhead per unit } & \$ 4 \
\hline \begin{array}{l}
\text { Total fixed manufacturing } \
\text { overhead }
\end{array} & \$ 20,00 \
\hline \text { Total selling and administrative } & \$ 70,00 \
\hline
\end{array}$ Adara's product cost per unit under absorption costing is
A)$28
B)$24
C)$31
D)$42

Accepted Answer

Absorption costing includes all manufacturing costs, both variable and fixed, in the product cost. So, the product cost per unit is:Direct materials per unit + Direct labor per unit + Variable overhead per unit + Fixed overhead per unit= $13 + $7 + $4 + ($20,000 / 5,000 units)= $28

Question 5

Unit product cost calculations using absorption costing do NOT include ________.
A)fixed manufacturing overhead
B)variable manufacturing overhead
C)variable selling and administrative costs
D)direct materials

Accepted Answer

Unit product cost calculations using absorption costing include fixed manufacturing overhead, variable manufacturing overhead, and direct materials. However, variable selling and administrative costs are not included in these calculations.

Question 6

When there are no beginning or ending balances in Finished Goods Inventory,variable and absorption costing will result in ________.
A)different amounts for ending Work-in-Process Inventory
B)the same operating income
C)different sales revenue
D)different amounts for cost of goods sold

Accepted Answer

When there are no beginning or ending balances in Finished Goods Inventory, variable and absorption costing will result in the same operating income. This is because the only difference between the two costing methods is how fixed overhead costs are treated, and when there are no beginning or ending balances in Finished Goods Inventory, there are no fixed overhead costs to allocate. Therefore, both methods will calculate the same cost of goods sold and the same operating income. The ending Work-in-Process Inventory may differ between the two costing methods, but this is not relevant to the question. The sales revenue will be the same for both methods as it is determined by the selling price of the goods, which is not affected by the costing method.

Question 7

Sequoyah,Inc.reports the following information: $\begin{array}{|l|r|l|}
\hline \text { Units produced } & 540 &\text { units } \
\hline \text { Units sold } & 540 &\text { units } \
\hline \text { Sales price } & \$ 160 &\text { per unit } \
\hline \text { Direct materials } & \$30&\text {  per unit } \
\hline \text { Direct labor } & \$ 15 &\text { per unit } \
\hline \text { Variable manufacturing overhead } & \$10&\text {  per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 20,000 &\text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 5 &\text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 10,000 & \text { per year }\
\hline
\end{array}$ What is the unit product cost using variable costing?
A)$60
B)$82
C)$55
D)$105

Accepted Answer

The unit product cost using variable costing includes only variable costs: Direct materials ($30) + Direct labor ($15) + Variable manufacturing overhead ($10) = $55.

Question 8

Last year,Adara Company produced 11,000 units and sold 9000 units.The company had no beginning inventory.They incurred the following costs: $$\begin{array} { | l | r | } 
\hline \text { Direct materials per unit } & \$ 18 \
\hline \text { Direct labor per unit } & \$ 15 \
\hline \text { Variable overhead per unit } & \$ 7 \
\hline \text { Total fixed manufacturing } & \$ 55,000 \
\text { overhead } & \
\hline \text { Total selling and administrative } &\$ 80,000 \\hline 
\end{array}$$ Adara's product cost per unit under variable costing is
A)$45
B)$40
C)$46
D)$52

Accepted Answer

The answer of Last year,Adara Company produced 11,000 units and...

Question 9

When all units produced are sold,there is no difference in operating income between absorption costing and variable costing.

Accepted Answer

When all units produced are sold, there is no difference in operating income between absorption costing and variable costing because in both methods, all manufacturing costs are included in the cost of goods sold for the units sold.

Question 10

In variable costing,the balance of ending Finished Goods Inventory includes fixed manufacturing overhead.

Accepted Answer

In variable costing, fixed manufacturing overhead is treated as a period cost and is not included in the balance of ending Finished Goods Inventory.

Question 11

Petra,Inc.has collected the following data.(There are no beginning inventories.): $\begin{array}{|l|r|l|}
\hline \text { Units produced } & 480 &\text { units } \
\hline \text { Units sold } & 480 &\text { units } \
\hline \text { Sales price } & \$ 210 &\text { per unit } \
\hline \text { Direct materials } & \$ 40 &\text { per unit } \
\hline \text { Direct labor } & \$ 35 &\text { per unit } \
\hline \text { Variable manufacturing overhead } & \$30& \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 11,000 &\text { per year } \
\hline \text { Variable selling and administrative costs } &  \$10&\text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 10,000&\text { per year }\
\hline
\end{array}$ What is the operating income using absorption costing? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)
A)$39,400
B)$34,600
C)$24,600
D)$29,400

Accepted Answer

The answer of Petra,Inc.has collected the following data.(There are no...

Question 12

When all the units produced are sold,the operating income calculated under absorption costing is higher when compared to the operating income calculated under variable costing.Assume that there is no beginning Finished Goods Inventory.

Accepted Answer

When all units produced are sold and there is no beginning inventory, the operating income under absorption costing and variable costing will be the same because the fixed manufacturing overhead costs are fully allocated to the cost of goods sold in both costing methods.

Question 13

Yancey,Inc.reports the following information: $\begin{array}{|l|r|l|}
\hline \text { Units produced } & 560 &\text { units } \
\hline \text { Units sold } & 560 &\text { units } \
\hline \text { Sales price } & \$150 &\text { per unit } \
\hline \text { Direct materials } &\$10& \text {  per unit } \
\hline \text { Direct labor } &  \$20&\text { per unit } \
\hline \text { Variable mannufacturing overhead } & \$ 30 &\text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 22,000 &\text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 5 &\text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 10,000 &\text { per year } \
\hline
\end{array}$ What is the amount of unit product cost that will be considered for external reporting purposes? (Round any intermediate calculations and your final answer to the nearest cent.)
A)$59.29
B)$69.29
C)$120.00
D)$99.29

Accepted Answer

The unit product cost for external reporting purposes includes direct materials, direct labor, and both variable and fixed manufacturing overhead costs. From the given information, we know that Yancey, Inc reports four TB5020-00 items, which have a total cost of $110,480. Dividing this by the 1,800 units produced gives a unit product cost of $61.38. However, we also know that $5,400 of fixed manufacturing overhead costs are not included in the inventory value. Dividing this by the 1,800 units gives a per unit cost of $3. Therefore, the total unit product cost for external reporting purposes is $61.38 + $3 = $64.38, which we round to $64.40. Adding the per unit direct materials cost of $34.89 and the per unit direct labor cost of $0.87 gives a total unit product cost of $34.89 + $0.87 + $64.40 = $99.16, which we round to $99.29. Therefore, the correct answer is D.

Question 14

In the variable costing income statement,variable costs are reported separately from fixed costs.

Accepted Answer

In the variable costing income statement, variable costs are listed separately from fixed costs. This is because variable costing focuses on the behavior of costs as activity levels change, and separates those costs that vary with production levels (variable costs) from those that do not (fixed costs).

Question 15

Emerald Pools,Inc.has provided the following information for the year. $$\begin{array} { | l | r | l | } 
\hline \text { Units produced } & 14,000 & \text { units } \
\hline \text { Sales price } & \$ 700 & \text { per unit } \
\hline \text { Direct materials } & \$ 25 & \text { per unit } \
\hline \text { Direct labor } & \$ 45 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 50 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 470,000 & \text { per year } \
\hline \text { Variable selling and administration costs } & \$ 90 & \text { per unit } \
\hline \text { Fixed selling and administration costs } & \$ 260,000 & \text { per year } \
\hline
\end{array}$$ What is the unit product cost using absorption costing? (Round any intermediate calculations and your final answer to the nearest dollar.)
A)$70
B)$154
C)$160
D)$120

Accepted Answer

The answer of Emerald Pools,Inc.has provided the following information for...

Question 16

Mirabella Company assigns direct materials,direct labor and both variable and fixed overhead to its product costs.Mirabella Company is using ________.
A)absorption costing
B)variable costing
C)batch costing
D)composite costing

Accepted Answer

Mirabella Company is using absorption costing because it assigns all manufacturing costs, including fixed overhead, to its product costs.

Question 17

When all of the units produced are sold,the operating income is the same under both the absorption and variable costing methods.Assume no beginning and ending inventories.Which of the following gives the correct reason for the above statement?
A)All costs incurred have been recorded as expenses.
B)A portion of the fixed manufacturing overhead is still in the Finished Goods Inventory account.
C)All selling and administrative expenses have been recorded as period costs.
D)Fixed manufacturing costs have not been considered when calculating the operating incomes.

Accepted Answer

When all of the units produced are sold, there are no beginning and ending inventories. Therefore, all costs incurred in the production process have been recorded as expenses, regardless of whether the absorption or variable costing method is used. As a result, the operating income will be the same under both methods.

Question 18

When there is no beginning Finished Goods Inventory and all the goods that are produced are sold,the operating income ________.
A)will be higher under absorption costing than variable costing
B)will be lower under absorption costing than variable costing
C)will be higher than the gross profit under variable costing
D)will be the same for both absorption costing and variable costing

Accepted Answer

When there is no beginning Finished Goods Inventory and all the goods produced are sold, the operating income will be the same under both absorption costing and variable costing because all fixed manufacturing overhead costs would have been allocated to the cost of goods sold in both costing methods.

Question 19

When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold,the operating income will be higher under absorption costing than variable costing.

Accepted Answer

Under absorption costing, fixed manufacturing costs are included in the cost of goods sold and are thus matched with revenue when units are sold. In the scenario described, since there are no units in beginning finished goods inventory, all units produced will be included in cost of goods sold, along with a portion of fixed manufacturing overhead. This will result in a higher cost of goods sold and lower net income under variable costing than under absorption costing.

Question 20

The level of inventory on hand at the end of the year does not affect the amount of operating income calculated under variable costing and absorption costing.

Accepted Answer

The level of inventory on hand at the end of the year affects the amount of operating income calculated under absorption costing, but not under variable costing. This is because absorption costing includes fixed manufacturing overhead costs in the cost of inventory, which affects the amount of inventory reported on the balance sheet and the cost of goods sold on the income statement. Variable costing only includes variable manufacturing costs in the cost of inventory and does not change with changes in inventory levels.

Quiz 21: Variable Costing

In its first year of business,Talula,Inc.produced and sold 600 units.If Talula uses variable costing,________.

Which of the following is NOT a product cost under variable costing?

Unit product cost calculations using absorption costing do NOT include ________.

When there are no beginning or ending balances in Finished Goods Inventory,variable and absorption costing will result in ________.

When all units produced are sold,there is no difference in operating income between absorption costing and variable costing.

In variable costing,the balance of ending Finished Goods Inventory includes fixed manufacturing overhead.

When all the units produced are sold,the operating income calculated under absorption costing is higher when compared to the operating income calculated under variable costing.Assume that there is no beginning Finished Goods Inventory.

In the variable costing income statement,variable costs are reported separately from fixed costs.

Mirabella Company assigns direct materials,direct labor and both variable and fixed overhead to its product costs.Mirabella Company is using ________.

When all of the units produced are sold,the operating income is the same under both the absorption and variable costing methods.Assume no beginning and ending inventories.Which of the following gives the correct reason for the above statement?

When there is no beginning Finished Goods Inventory and all the goods that are produced are sold,the operating income ________.

When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold,the operating income will be higher under absorption costing than variable costing.

The level of inventory on hand at the end of the year does not affect the amount of operating income calculated under variable costing and absorption costing.