Question 1

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. Under absorption costing, a portion of fixed manufacturing overhead is included in the cost of inventory, so a higher ending inventory will result in a higher amount of fixed overhead being included in the cost of goods sold, lowering operating income. However, under variable costing, fixed overhead is expensed in the period it is incurred, so the level of inventory on hand does not affect operating income.

Question 2

In its first year of business,Smith,Inc.produced and sold 600 units.If Smith 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,Smith,Inc.produced and...

Question 3

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

Accepted Answer

If there are no beginning or ending balances in Finished Goods Inventory, it means that all units produced have been sold, resulting in zero ending inventory. In this case, both variable and absorption costing will result in the same operating income as the difference in cost of goods sold (COGS) will be offset by the difference in fixed overhead absorbed between the two methods. Therefore, the choice is B, the same operating income.

Question 4

In variable costing,all fixed manufacturing overhead costs are expensed in the period incurred.

Accepted Answer

In variable costing, only variable manufacturing overhead costs are included in product costs, while fixed manufacturing overhead costs are expensed in the period incurred.

Question 5

Which of the following costing methods charges all the manufacturing costs to the products?
A)variable costing
B)direct costing
C)absorption costing
D)contribution costing

Accepted Answer

Absorption costing charges all manufacturing costs, including direct materials, direct labor, and overhead, to the products. Variable costing, direct costing, and contribution costing only charge variable costs to the products.

Question 6

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, whereas under variable costing, only variable manufacturing costs are included. When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold, a higher proportion of fixed costs will be absorbed into the cost of goods sold under absorption costing, resulting in a higher operating income.

Question 7

When production is greater than sales,the operating income will be higher under absorption costing than variable costing.Assume zero 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 ending 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 profits.

Accepted Answer

Absorption costing includes all fixed manufacturing overhead costs in the cost of goods sold. When production is greater than sales, some of these fixed costs will still be included in ending inventory, causing a higher operating income under absorption costing compared to variable costing which only accounts for variable costs in the cost of goods sold. The other choices do not explain why there is a difference in operating income between absorption and variable costing.

Question 8

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 9

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

Accepted Answer

The answer of Zot-Ice Corp.has provided the following data for...

Question 10

Medbam,Inc.has collected the following data.(There are no beginning inventories. ): $$\begin{array} { | l | r | r|} 
\hline \text { Units produced } & 560 &\text { units } \
\hline \text { Units sold } & 560& \text { units } \
\hline \text { Sales price } & \$ 180& \text { per unit } \
\hline \text { Direct materials } & \$ 10 &\text { per unit } \
\hline \text { Direct labor } & \$ 35 &\text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 20 &\text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 20,000 &\text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 15 &\text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 20,000 &\text { per year } \
\hline
\end{array}$$ 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)$44,402
B)$36,002
C)$16,002
D)$24,402

Accepted Answer

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

Question 11

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 12

Flexlux,Inc.reports the following information: $$\begin{array} { | l | r |r| } 
\hline \text { Units produced } & 520 &\text { units } \
\hline \text { Units sold } & 520& \text { units } \
\hline \text { Sales price } & \$ 110 &\text { per unit } \
\hline \text { Direct materials } & \$ 40& \text { per unit } \
\hline \text { Direct labor } & \$ 25& \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$30 &\text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 14,000& \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 15& \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 25,000& \text { per year } \
\hline
\end{array}$$  What is the unit product cost using variable costing?
A)$110
B)$92
C)$95
D)$15

Accepted Answer

The answer of Flexlux,Inc.reports the following information: \[\begin{array} { |...

Question 13

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 the units produced are sold, there is no inventory left and therefore no fixed manufacturing overhead cost left in inventory. All costs incurred during production have been charged to the cost of goods sold, resulting in the same operating income under both absorption and variable costing methods.

Question 14

In its first year of business,Greenlam,Inc.produced 600 units and sold 400 units.If Greenlam 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

Under variable costing, only variable manufacturing costs are included in the product cost, while fixed manufacturing costs are treated as period expenses. As a result, when fewer units are produced than sold, the fixed manufacturing costs associated with the unsold units are expensed in the period, resulting in lower operating income compared to absorption costing. The value of ending Finished Goods Inventory reported in the balance sheet would be the same under both variable and absorption costing.

Question 15

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 variable costing than absorption costing.

Accepted Answer

Under variable costing, only variable manufacturing costs are included in product costs, whereas under absorption costing, both variable and fixed manufacturing costs are included. When units produced are more than units sold, absorption costing allocates some fixed costs to the ending inventory, reducing the cost of goods sold and potentially increasing operating income compared to variable costing, where all fixed costs are expensed in the period incurred.

Question 16

Fasetech,Inc.has collected the following data.(There are no beginning inventories. ) $$\begin{array} { | l | r | r|} 
\hline \text { Units produced } &510& \text { units } \
\hline \text { Sales price } & \$ 150 &\text { per unit } \
\hline \text { Direct materials } & \$ 16 &\text { per unit } \
\hline \text { Direct labor } & \$ 10& \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 10 &\text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 16,000& \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 9& \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 10,500 &\text { per year } \
\hline
\end{array}$$ What is the operating income using absorption costing if 500 units are sold? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )
A)$27,500
B)$26,315
C)$31,641
D)$38,315

Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to each unit produced. The cost per unit is calculated by adding direct materials, direct labor, variable manufacturing overhead, and allocated fixed manufacturing overhead. The operating income is then calculated by subtracting total costs from total sales revenue.

Question 17

SailFind,Inc.has collected the following data.(There are no beginning inventories. ) $$\begin{array} { | l | r |r| } 
\hline \text { Units produced } & 600 &\text { units } \
\hline \text { Sales price } & \$ 120 &\text { per unit } \
\hline \text { Direct materials } & \$ 10& \text { per unit } \
\hline \text { Direct labor } & \$ 10& \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 7 &\text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 16,400 &\text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 7 &\text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 11,700& \text { per year } \
\hline
\end{array}$$ What is the operating income using variable costing if 500 units are sold?
A)$14,900
B)$43,000
C)$48,300
D)$11,100

Accepted Answer

Explanation:Variable cost per unit = Direct materials + Direct labor + Variable manufacturing overhead + Variable selling and administrative costs = $10 + $10 + $7 + $7 = $34Operating income = (Sales price per unit * Units sold) - (Variable cost per unit * Units sold) - Fixed manufacturing overhead - Fixed selling and administrative costs= ($120 * 500) - ($34 * 500) - $16,400 - $11,700= $60,000 - $17,000 - $16,400 - $11,700= $14,900

Question 18

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

Accepted Answer

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

Question 19

Under variable costing,the units in the beginning Finished Goods Inventory contain fixed manufacturing overhead costs.

Accepted Answer

Under variable costing, fixed manufacturing overhead costs are treated as period costs and are not included in the cost of inventory. Therefore, the units in the beginning Finished Goods Inventory do not contain fixed manufacturing overhead costs.

Question 20

Kaycom,Inc.reports the following information: $$\begin{array} { | l | r |r| } 
\hline \text { Units produced } & 520 &\text { units } \
\hline \text { Units sold } & 520& \text { units } \
\hline \text { Sales price } & \$ 180 &\text { per unit } \
\hline \text { Direct materials } & \$ 40& \text { per unit } \
\hline \text { Direct labor } & \$ 15& \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 20 &\text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 13,000& \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 10& \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 15,000& \text { per year } \
\hline
\end{array}$$ 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)$40.00
B)$80.00
C)$125.00
D)$100.00

Accepted Answer

The answer of Kaycom,Inc.reports the following information: \[\begin{array} { |...

Quiz 21: 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.

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

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

In variable costing,all fixed manufacturing overhead costs are expensed in the period incurred.

Which of the following costing methods charges all the manufacturing costs to the products?

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 production is greater than sales,the operating income will be higher under absorption costing than variable costing.Assume zero beginning and ending inventories.Which of the following gives the correct reason for the above statement?

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

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 its first year of business,Greenlam,Inc.produced 600 units and sold 400 units.If Greenlam uses variable costing,________.

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 variable costing than absorption costing.

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

Under variable costing,the units in the beginning Finished Goods Inventory contain fixed manufacturing overhead costs.