Question 1

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

Accepted Answer

In variable costing, only the variable manufacturing costs are included in the ending Finished Goods Inventory balance. Fixed manufacturing overhead costs are expensed in the period in which they are incurred.

Question 2

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 assigns both variable and fixed overhead to its product costs, which indicates that it is using absorption costing. In absorption costing, all manufacturing costs, including direct materials, direct labor, and both variable and fixed overhead, are assigned to products.

Question 3

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 Finished Goods Inventory, the operating income under absorption costing and variable costing will be the same because there are no inventory changes to affect the allocation of fixed manufacturing overhead.

Question 4

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, while under variable costing, fixed manufacturing costs are treated as period expenses. If there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold, more fixed manufacturing costs will be included in the cost of goods sold under absorption costing, which will result in a higher operating income compared to variable costing.

Question 5

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

Accepted Answer

Under variable costing, only the variable manufacturing costs are included in the cost of goods sold.

Total variable manufacturing costs = Direct materials + Direct labor + Variable manufacturing overhead 
Total variable manufacturing costs = $220,000

Variable cost per unit = Total variable manufacturing costs ÷ Number of units produced 
Variable cost per unit = $220,000 ÷ 11,000 units 
Variable cost per unit = $20

Therefore, Adara's product cost per unit under variable costing is:

Variable cost per unit + Fixed manufacturing overhead per unit 
$20 + $20 
= $40 per unit

Question 6

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 units produced are sold, the fixed manufacturing overhead costs allocated to each unit under absorption costing are absorbed into the cost of goods sold. Therefore, the operating income under absorption costing method will be the same as variable costing method where fixed manufacturing overhead is treated as period costs. As all costs have been recorded as expenses, there is no difference in operating income between the two methods.

Question 7

Last year, Adara Company produced 5000 units and sold 3000 units. The company had no beginning inventory. They incurred the following costs: $$\begin{array} { | l | r | } 
\hline \text { Direct materials per unit } & \$ 13 \
\hline \text { Direct labor per unit } & \$ 7 \
\hline \text { Variable overhead per unit } & \$ 4 \
\hline \text { Total fixed manufacturing } & \$ 20,000 \
\text { pverhead } &  \
\hline \text { Total selling and administrative } &\$ 70,000\
\hline
\end{array}$$ 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.Product cost per unit = Direct materials + Direct labor + Variable overhead + Fixed overhead per unit= $13 + $7 + $4 + ($20,000 / 5000)= $28

Question 8

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...

Question 9

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 reported separately from fixed costs. This allows for a clearer understanding of the contribution margin and how it relates to the net income of the company.

Question 10

Emerald Pools, Inc. has provided the following information for the year. $\begin{array}{|l|c|}
\hline \text { Units produced } & 14,000 \text { units } \
\hline \text { Sales price } & \$ 700 \text { per unit } \
\hline \text { Direct materials } & \$ 25 \text { per unit } \
\hline \text { Direct labor } & \$ 45 \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 50 \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 470,000 \text { per year } \
\hline \text { Variable selling and administration costs } & \$ 90 \text { per unit } \
\hline \text { ced selling and administration costs } & \$ 260,000 \text { per year } \
\hline
\end{array}$
 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

Under absorption costing, the unit product cost includes direct materials, direct labor, variable manufacturing overhead, and a portion of fixed manufacturing overhead. The calculation is as follows: Direct materials ($25) + Direct labor ($45) + Variable manufacturing overhead ($50) + Fixed manufacturing overhead allocated per unit ($470,000 / 14,000 units) = $25 + $45 + $50 + $33.57 ≈ $154 (rounded to the nearest dollar).

Question 11

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,...

Question 12

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....

Question 13

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 (fixed and variable) are included in the cost of goods sold. Therefore, the operating income will be the same under both costing methods.

Question 14

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 in the cost of inventory, which is not expensed until the inventory is sold. Therefore, a higher ending inventory will result in a lower cost of goods sold and higher operating income under absorption costing, while variable costing will have a constant cost of goods sold regardless of the level of ending inventory.

Question 15

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

Since there are no beginning or ending balances in Finished Goods Inventory, the only difference between variable and absorption costing will be in the treatment of fixed manufacturing overhead costs. However, these costs will be fully absorbed into the cost of goods sold or ending inventory under absorption costing, while under variable costing, they will be expensed immediately as period costs. As a result, the difference in operating income between the two methods will be solely due to the difference in treatment of fixed manufacturing overhead costs. Thus, the operating income reported under variable and absorption costing will be the same.

Question 16

Yancey, Inc. reports the following information: $$\begin{array} { | l | r | l | } 
\hline \text { Units produced } & 560 & \text { units } \
\hline \text { Units sold } & 560 & \text { units } \
\hline \text { Sales price } & \$ 150 & \text { per unit } \
\hline \text { Direct materials } & \$ 10 & \text { per unit } \
\hline \text { Direct labor } & \$ 20 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 30 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 22,000 & \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 5 & \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 10,000 & \text { per year } \
\hline
\end{array}$$ 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 answer of Yancey, Inc. reports the following information: \[\begin{array}...

Question 17

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. This is because the total fixed manufacturing overhead costs would be fully allocated to the cost of goods sold in both costing methods, leaving no difference in operating income due to inventory changes.

Question 18

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

Under variable costing, only variable manufacturing costs are included as product costs. Fixed manufacturing costs are considered period costs and are expensed in the period they are incurred rather than being allocated to the products produced.

Question 19

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

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

Question 20

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

Absorption costing includes all manufacturing costs, both fixed and variable, in the unit product cost calculation. It also includes direct materials and direct labor costs. However, absorption costing does not include variable selling and administrative costs in the unit product cost calculation. These costs are expensed as period costs and are not assigned to products.

Quiz 21: Variable Costing

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

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

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.

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.

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?

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

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

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

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

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

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

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