Question 1

Under absorption costing,a company had the following unit costs when 9,000 units were produced. 
-Compute the total product cost per unit under variable costing if 30,000 units had been produced.
A)$31.75
B)$28.25
C)$23.45
D)$15.25
E)$20.75

Accepted Answer

The answer of Under absorption costing,a company had the following...

Question 2

Income ________ when there is zero beginning inventory and all inventory units produced are sold.
A)Will be lower under variable costing than absorption costing
B)Will be the same under both variable and absorption costing
C)Will be higher under variable costing than absorption costing
D)Will be higher than gross margin under variable costing
E)Will be lower than administrative costs under absorption costing

Accepted Answer

When there is zero beginning inventory and all units produced are sold, there is no difference in inventory levels at the beginning and end of the period under both costing methods. Therefore, the treatment of fixed manufacturing overhead costs does not affect income, making it the same under both variable and absorption costing.

Question 3

Mentor Corp.has provided the following information for the current year: 
-Calculate the unit product cost using variable costing.
A)$245
B)$275
C)$55
D)$145
E)$125

Accepted Answer

The answer of Mentor Corp.has provided the following information for...

Question 4

Which of the following statements is true regarding absorption costing?
A)It is not the traditional costing approach.
B)It is not permitted to be used for financial reporting.
C)It is not permitted to be used for tax reporting.
D)It assigns all manufacturing costs to products.
E)It requires only variable costs to be treated as product costs.

Accepted Answer

Absorption costing assigns all manufacturing costs, both fixed and variable, to products. It is a traditional costing approach and is allowed for both financial and tax reporting purposes. Option E is incorrect as absorption costing treats both variable and fixed costs as product costs.

Question 5

Geneva Company manufactures dolls that are sold to various customers.The company works at full capacity for half the year to meet peak demand,and operates at 80% capacity for the other half of the year.The following information is provided:  Geneva receives a purchase order to make 5,000 dolls as a one-time event.The good news is that this order is during a period when Geneva does have sufficient excess capacity.What is the lowest selling price Geneva should accept for this purchase order?
A)$35.00
B)$26.00
C)$29.50
D)$23.50
E)$25.00

Accepted Answer

Since the order is during a period when Geneva has excess capacity, the selling price should be at least equal to the variable cost per doll plus the opportunity cost of the production capacity. The variable cost per doll is $16.50 (direct materials of $10 plus direct labor of $5 plus variable overhead of $1.50). The opportunity cost of production capacity is the contribution margin that Geneva would have earned if it used that capacity to produce its own dolls. During the 80% capacity period, Geneva has a contribution margin ratio of 40%, so the opportunity cost of one doll is 40% of the sale price, or $12. The lowest selling price Geneva should accept is therefore $16.50 + $12 = $28.50. The only choice that is greater than $28.50 is B) $26.00, making it the best choice.

Question 6

When the number of units sold exceed the number of units produced,income reported under absorption costing will be lower than variable costing.Which of the following gives the best justification of the above statement?
A)Income under absorption costing is always less than income reported using variable costing,regardless of the number of units produced.
B)Income under absorption costing is always more than income reported using variable costing,regardless of the number of units produced.
C)The fixed overhead cost deferred in ending inventory is greater than the fixed overhead cost recognized from beginning inventory.
D)The fixed overhead cost deferred in ending inventory is less than the fixed overhead cost recognized from beginning inventory.
E)Fixed overhead is treated as a period cost under absorption costing.

Accepted Answer

When the number of units sold exceed the number of units produced, absorption costing will result in higher ending inventory and deferred fixed overhead costs. This means that the fixed overhead cost deferred in ending inventory is less than the fixed overhead cost recognized from beginning inventory. As a result, more fixed overhead costs are expensed under absorption costing, leading to lower reported income compared to variable costing.

Question 7

Which of the following statements is true regarding variable costing?
A)It is a traditional costing approach.
B)Only manufacturing costs that change in total with changes in production level are included in product costs.
C)It is not permitted to be used for managerial reporting.
D)It treats overhead in the same manner as absorption costing.
E)It makes it easier to manipulate earnings with changes in production levels.

Accepted Answer

Variable costing only includes manufacturing costs that change in total with changes in production level in product costs. It is a modern costing approach and is widely used for managerial reporting. It treats overhead differently from absorption costing, as it does not include fixed overhead in product costs. It can make it easier to manipulate earnings with changes in production levels, but this is not a characteristic of the method itself, rather a potential consequence of how management may choose to use the information derived from it.

Question 8

Under absorption costing,a company had the following unit costs when 9,000 units were produced.  
-Compute the total product cost per unit under absorption costing if 25,000 units had been produced.
A)$28.25
B)$23.45
C)$26.25
D)$20.75
E)$15.25

Accepted Answer

The answer of Under absorption costing,a company had the following...

Question 9

Under absorption costing,a company had the following unit costs when 8,000 units were produced.  Compute the total production cost per unit under variable costing if 25,000 units had been produced.
A)$31.75
B)$27.25
C)$26.25
D)$24.25
E)$17.50

Accepted Answer

The answer of Under absorption costing,a company had the following...

Question 10

Which of the following best describes costs assigned to the product under the variable costing method? 
Direct labor (DL)
Direct materials (DM)
Variable selling and administrative (VSA)
Variable manufacturing overhead (VOH)
Fixed selling and administrative (FSA)
Fixed manufacturing overhead (FOH)
A)DL,DM,VSA,and VOH.
B)DL,DM,and VOH.
C)DL,DM,VOH,and FOH.
D)DL and DM.
E)DL,DM,FSA,and FOH.

Accepted Answer

Variable costing method only assigns direct labor, direct materials, and variable overhead costs to the product. Fixed costs, such as fixed manufacturing overhead and fixed selling and administrative costs, are treated as period costs and are expensed in the period they are incurred.

Question 11

Which of the following statements is true?
A)Under variable costing,direct materials and direct labor are expensed as period expenses.
B)Under variable costing,fixed manufacturing overhead is expensed as period expenses.
C)Fixed manufacturing overhead costs are treated the same under both absorption costing and variable costing.
D)Reported income under absorption costing is not affected by production level changes.
E)Under absorption costing,fixed manufacturing overhead is expensed as period expenses.

Accepted Answer

Under variable costing, fixed manufacturing overhead is treated as a period expense, meaning it is expensed in the period it is incurred, rather than being allocated to the cost of goods sold like variable costs (direct materials, direct labor, and variable manufacturing overhead).

Question 12

Using absorption costing,which of the following manufacturing costs are assigned to products?
A)Direct materials and direct labor.
B)Direct labor and variable manufacturing overhead.
C)Fixed manufacturing overhead,direct materials,and direct labor.
D)Variable manufacturing overhead,direct materials,and direct labor.
E)Variable manufacturing overhead,direct materials,direct labor,and fixed manufacturing overhead.

Accepted Answer

Absorption costing assigns all direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead costs to products.

Question 13

Which of the following best describes costs assigned to the product under the absorption costing method? 
Direct labor (DL)
Direct materials (DM)
Variable selling and administrative (VSA)
Variable manufacturing overhead (VOH)
Fixed selling and administrative (FSA)
Fixed manufacturing overhead (FOH)
A)DL,DM,VSA,and VOH.
B)DL,DM,and VOH.
C)DL,DM,VOH,and FOH.
D)DL and DM.
E)DL,DM,FSA,and FOH.

Accepted Answer

Absorption costing assigns all variable (direct labor, direct materials, variable overhead) and fixed (fixed overhead) manufacturing costs to the product. Therefore, choice C is the correct answer as it includes all the costs assigned under absorption costing.

Question 14

Under absorption costing,which of the following statements is not true?
A)Over production and inventory buildup can occur because of how managers are evaluated and rewarded.
B)The fixed costs per unit decline as more units are produced.
C)Variable inventory costs are treated in the same manner as they are under variable costing.
D)Fixed inventory costs are treated in the same manner as they are under variable costing.
E)All manufacturing costs are assigned to products.

Accepted Answer

Under absorption costing, fixed overhead costs are included as part of the cost of a product and are assigned to inventory. This means that as inventory builds up, more fixed overhead costs are assigned to it, which can result in higher reported profits. This can create an incentive for managers to produce and hold more inventory than is necessary, leading to overproduction and inventory buildup. However, this statement is not true for fixed inventory costs, as they are not treated in the same manner as they are under variable costing. Fixed inventory costs, such as property taxes and insurance premiums for a warehouse, are not assigned to products and instead are expensed in the period they are incurred.

Question 15

A company is currently operating at 75% capacity and producing 3,000 units.Current cost information relating to this production is shown in the table below:  The company has been approached by a customer with a request for a 200-unit special order.What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?
A)Any amount over $43 per unit.
B)Any amount over $17 per unit.
C)Any amount over $21 per unit.
D)Any amount over $13 per unit.
E)Any amount over $22 per unit.

Accepted Answer

The answer of A company is currently operating at 75%...

Question 16

A company is currently operating at 80% capacity producing 5,000 units.Current cost information relating to this production is shown in the table below:  The company has been approached by a customer with a request for a 100-unit special order.What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?
A)Any amount over $34 per unit.
B)Any amount over $20 per unit.
C)Any amount over $14 per unit.
D)Any amount over $9 per unit.
E)Any amount over $5 per unit.

Accepted Answer

The answer of A company is currently operating at 80%...

Question 17

Mentor Corp.has provided the following information for the current year: 
-Calculate the unit product cost using absorption costing.
A)$245
B)$275
C)$55
D)$145
E)$125

Accepted Answer

The unit product cost using absorption costing is calculated by taking the total manufacturing costs (direct materials, direct labor, and overhead) and dividing it by the number of units produced. Using the information provided, the total manufacturing costs are $980,000 ($350,000 + $280,000 + $350,000). The number of units produced is 4,000. Therefore, the unit product cost is $245 ($980,000 ÷ 4,000).

Question 18

Which of the following would be reported on a variable costing income statement?
A)Gross margin
B)Cost of goods available for sale
C)Total cost of goods sold
D)Contribution margin
E)Work-in-process inventory

Accepted Answer

Variable costing income statements focus on the contribution margin, which is calculated by subtracting variable expenses from sales revenue. Cost of goods sold is also reported, but gross margin and cost of goods available for sale are not relevant to this format. Work-in-process inventory is a balance sheet account and would not be reported on an income statement.

Question 19

Which of the following statements is true?
A)Variable costing treats fixed overhead as a period cost.
B)Absorption costing treats fixed overhead as a period cost.
C)Absorption costing treats fixed overhead as an expense in the period it is incurred.
D)Variable costing excludes all overhead from product costs.
E)Managers can manipulate earnings more easily under variable costing by varying the production level.

Accepted Answer

Variable costing treats fixed overhead as a period cost and excludes it from product costs, while absorption costing treats fixed overhead as a product cost and includes it in the cost of goods sold.

Question 20

When evaluating a special order,management should:
A)Only accept the order if the incremental revenue exceeds all product costs.
B)Only accept the order if the incremental revenue exceeds fixed product costs.
C)Only accept the order if the incremental revenue exceeds total variable product costs.
D)Only accept the order if the incremental revenue exceeds full absorption product costs.
E)Only accept the order if the incremental revenue exceeds regular sales revenue.

Accepted Answer

When evaluating a special order, management should accept the order if the incremental revenue exceeds total variable product costs. This is because fixed costs are typically unaffected by the order in the short term, so the decision should be based on whether the additional revenue covers the additional costs directly associated with the order.

Quiz 19: Variable Costing and Analysis

Under absorption costing,a company had the following unit costs when 9,000 units were produced. -Compute the total product cost per unit under variable costing if 30,000 units had been produced.

Income ________ when there is zero beginning inventory and all inventory units produced are sold.

Mentor Corp.has provided the following information for the current year: -Calculate the unit product cost using variable costing.

Which of the following statements is true regarding absorption costing?

When the number of units sold exceed the number of units produced,income reported under absorption costing will be lower than variable costing.Which of the following gives the best justification of the above statement?

Which of the following statements is true regarding variable costing?

Under absorption costing,a company had the following unit costs when 9,000 units were produced. -Compute the total product cost per unit under absorption costing if 25,000 units had been produced.

Under absorption costing,a company had the following unit costs when 8,000 units were produced. Compute the total production cost per unit under variable costing if 25,000 units had been produced.

Which of the following best describes costs assigned to the product under the variable costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative (VSA) Variable manufacturing overhead (VOH) Fixed selling and administrative (FSA) Fixed manufacturing overhead (FOH)

Which of the following statements is true?

Using absorption costing,which of the following manufacturing costs are assigned to products?

Which of the following best describes costs assigned to the product under the absorption costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative (VSA) Variable manufacturing overhead (VOH) Fixed selling and administrative (FSA) Fixed manufacturing overhead (FOH)

Under absorption costing,which of the following statements is not true?

Mentor Corp.has provided the following information for the current year: -Calculate the unit product cost using absorption costing.

Which of the following would be reported on a variable costing income statement?

Which of the following statements is true?

When evaluating a special order,management should: