Chapter 17: Absorption, Variable, and Throughput Costing

MULTIPLE CHOICE QUESTIONS 1. Lone Star has computed the following unit costs for the year just ended: Direct material used $12 Direct labor 18 ariable manufacturing o!erhead 2" #i$ed manufacturing o!erhead 2% ariable selling and administrati!e cost 1& #i$ed selling and administrati!e cost 1' (nder !ariable costing) each unit of the company*s in!entory would be carried at: +. $,". -. $"". .. $/". D. $80. 1. some other amount. 2. 2erber .orporation has computed the following unit costs for the year just ended: Direct material used $1" Direct labor 2, ariable manufacturing o!erhead 2& #i$ed manufacturing o!erhead ,& ariable selling and administrati!e cost 12 #i$ed selling and administrati!e cost 1% (nder absorption costing) each unit of the company*s in!entory would be carried at: +. $"8. -. $88. .. $1&&. D. $11%. 1. some other amount. ,. 3c+fee) which began business at the start of the current year) had the following data: 4lanned and actual production: 0&)&&& units Sales: ,')&&& units at $1" per unit 4roduction costs: ariable: $0 per unit #i$ed: $2/&)&&& Selling and administrati!e costs: ariable: $1 per unit #i$ed: $,2)&&& 5he amount of contribution margin the company would disclose on an absorption6costing income statement is: +. $&. -. $10')&&&.
1

.. $1//)"&&. D. $,'&)&&&. 1. none of the abo!e. (se the following to answer 7uestions 06": #ran8 began business at the start of this year and had the following costs: !ariable manufacturing cost per unit) $%9 fi$ed manufacturing costs) $/&)&&&9 !ariable selling and administrati!e costs per unit) $29 and fi$ed selling and administrati!e costs) $22&)&&&. 5he company sells its units for $0" each. +dditional data follow. 4lanned production in units 1&)&&& +ctual production in units 1&)&&& :umber of units sold 8)"&& 5here were no !ariances. 0. 5he net income ;loss< under absorption costing is: +. $;')"&&<. -. $%)&&&. .. $1")&&&. D. $18)&&&. 1. some other amount. 5he net income ;loss< under !ariable costing is: +. $;')"&&<. -. $%)&&&. .. $1")&&&. D. $18)&&&. 1. some other amount. 3one$ reported $/")&&& of net income for the year by using absorption costing. 5he company had no beginning in!entory) planned and actual production of 2&)&&& units) and sales of 18)&&& units. Standard !ariable manufacturing costs were $2& per unit) and total budgeted fi$ed manufacturing o!erhead was $1&&)&&&. =f there were no !ariances) net income under !ariable costing would be: +. $1")&&&. -. $"")&&&. .. $/")&&&. D. $'")&&&. 1. $11")&&&. .anyon reported $1&/)&&& of net income for the year by using !ariable costing. 5he company had no beginning in!entory) planned and actual production of "&)&&& units) and sales of 0')&&& units. Standard !ariable manufacturing costs were $1" per unit) and total budgeted fi$ed manufacturing o!erhead was $1"&)&&&. =f there were no !ariances) net income under absorption costing would be: +. $"2)&&&. -. $%')&&&. .. $1&/)&&&. D. $11")&&&.
2

".

/.

'.

1. $1/&)&&&. EXERCISE (Miscellaneous Calculations: Variable and Absorption Costing) 1. =nformation ta>en from ?ersey .orporation*s 3ay accounting records follows. Direct materials used Direct labor ariable manufacturing o!erhead #i$ed manufacturing o!erhead ariable selling and administrati!e costs #i$ed selling and administrati!e costs Sales re!enues $1"&)&&& /&)&&& ,&)&&& 8&)&&& "1)&&& 2&)&&& "'")&&&

@e7uired: +. +ssuming the use of !ariable costing) compute the in!entoriable costs for the month. -. .ompute the month*s in!entoriable costs by using absorption costing. .. +ssume that anticipated and actual production totaled 2&)&&& units) and that 1')&&& units were sold during 3ay. Determine the amount of fi$ed manufacturing o!erhead and fi$ed selling and administrati!e costs that would be e$pensed for the month under ;1< !ariable costing and ;2< absorption costing. D. +ssume the same data as in re7uirement A..A .ompute the contribution margin that would be reported on a !ariable6costing income statement.

(Absorption- and Variable-Costing Income Calculations) 2. 5he following data relate to enture .ompany) a new corporation) during a period when the firm produced and sold 1&&)&&& units and %&)&&& units) respecti!ely: Direct materials used Direct labor #i$ed manufacturing o!erhead ariable manufacturing o!erhead #i$ed selling and administrati!e e$penses ariable selling and administrati!e e$penses
,

$0&&)&& & 2&&)&& & 2"&)&& & 12&)&& & ,&&)&& & 0")&&&

5he company met its original planned production target of 1&&)&&& units. 5here were no !ariances during the period) and the firm*s selling price is $1" per unit. @e7uired: +. Bhat is the cost of enture*s end6of6period finished6goods in!entory under the !ariable6costing methodC -. .alculate the company*s !ariable6costing net income. .. .alculate the company*s absorption6costing net income.

;Con ersion o! Absorption-Cost "ata to Variable-Cost "ata# $or%ing &ac%'ards< ,. Dawthorne) =nc.) began business at the start of the current year and maintains its accounting records on an absorption6cost basis. 5he following selected information appeared on the company*s income statement and end6of6year balance sheet: =ncome6statement data: Sales re!enues ;,")&&& units $ $22< $''&)&&& 2ross margin 21&)&&& 5otal sales and administrati!e e$penses 1/&)&&& -alance6sheet data: 1nding finished6goods in!entory ;12)&&& units< 1%2)&&& Dawthorne achie!ed its planned production le!el for the year. 5he company*s fi$ed manufacturing o!erhead totaled $101)&&&) and the firm paid a 1&E commission based on gross sales dollars to its sales force. @e7uired: +. Dow many units did Dawthorne plan to produce during the year. -. Dow much fi$ed manufacturing o!erhead did the company apply to each unit manufacturedC .. .ompute Dawthorne*s cost of goods sold. D. Dow much !ariable cost did the company attach to each unit manufacturedC
0

1. +ssuming the use of !ariable costing) compute ;1< the cost of ending finished6goods in!entory) ;2< the contribution margin for the year) and ;,< net income.

((econciliation o! Absorption- and Variable-Costing Income) 0. Southfor> .ompany has per6unit fi$ed and !ariable manufacturing costs of $0& and $1") respecti!ely. ariable selling and administrati!e costs are $% per unit. +ssume that during the past two years) Southfor> reported the following income) sales) and production information: 2&$1: ariable6costing income) $11&)&&&9 sales) /)&&& units9 production) /)&&& units 2&$2: ariable6costing income) $%0)&&&9 sales) ')"&& units9 production) ')1&& units @e7uired: +. #rom a product6costing perspecti!e) what is the basic difference between absorption costing and !ariable costingC -. .ompute Southfor>*s absorption6costing income in 2&$1. .. .ompute Southfor>*s absorption6costing income in 2&$2.

"