Chapter 7 Variable Costing: A Tool for Management

True/False Questions
1. Under variable costing, only variable production costs are treated as product costs.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
2. Under variable costing, variable selling and administrative costs are included in
product costs.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
3. Absorption costing treats all manufacturing costs as product costs.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
4. In the preparation of financial statements using variable costing, fixed manufacturing
overhead is treated as a period cost.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
5. Absorption costing treats fixed manufacturing overhead as a period cost.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
6. When the number of units in work in process and finished goods inventories increase,
absorption costing net operating income will typically be greater than variable costing
net operating income.
Ans: True AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,3 Level: Easy
7. Net operating income computed using absorption costing will always be greater than
net operating income computed using variable costing.
Ans: False AACSB: Analytic
AICPA FN: Reporting LO: 2

AICPA BB: Critical Thinking
Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

7-5

Chapter 7 Variable Costing: A Tool for Management
8. When reconciling variable costing and absorption costing net operating income, fixed
manufacturing overhead costs released from inventory under absorption costing
should be added to variable costing net operating income to arrive at the absorption
costing net operating income.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
9. When production exceeds sales for the period, absorption costing net operating
income will exceed variable costing net operating income.
Ans: True AACSB: Analytic
AICPA FN: Reporting LO: 3

AICPA BB: Critical Thinking
Level: Medium

10. Under variable costing it may be possible to report a profit even if the company sells
less than the break-even volume of sales.
Ans: False AACSB: Analytic
AICPA FN: Reporting LO: 4

AICPA BB: Critical Thinking
Level: Medium

11. Absorption costing net operating income is closer to the net cash flow of a period than
is variable costing net operating income.
Ans: False AACSB: Analytic
AICPA FN: Reporting LO: 4

AICPA BB: Critical Thinking
Level: Medium

12. Variable costing is not permitted for income tax purposes, but it is widely accepted for
external financial reports.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
13. A basic concept of the contribution approach and variable costing is that fixed costs
are not important in an organization.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
14. Variable costing is better suited to cost-volume-profit calculations than absorption
costing.
Ans: True AACSB: Analytic
AICPA FN: Reporting LO: 4

7-6

AICPA BB: Critical Thinking
Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 7 Variable Costing: A Tool for Management
15. When lean production is introduced, the difference in net operating income computed
under the absorption and variable costing methods is reduced.
Ans: True AACSB: Analytic
AICPA FN: Reporting LO: 5

AICPA BB: Critical Thinking
Level: Easy

Multiple Choice Questions
16. How would the following costs be classified (product or period) under variable costing
at a retail clothing store?
A)
B)
C)
D)

Cost of purchasing clothing Sales commissions
Product
Product
Product
Period
Period
Product
Period
Period

Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
17. The principal difference between variable costing and absorption costing centers on:
A) whether variable manufacturing costs should be included as product costs.
B) whether fixed manufacturing costs should be included as product costs.
C) whether fixed manufacturing costs and fixed selling and administrative costs
should be included as product costs.
D) none of these.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
18. Which of the following costs at a manufacturing company would be treated as a
product cost under the variable costing method?
A) direct material cost
B) property taxes on the factory building
C) sales manager's salary
D) all of the above
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

7-7

direct labor. direct labor. The costing method that treats all fixed costs as period costs is: A) absorption costing. D) process costing. direct labor. the variable portion of manufacturing overhead. and the variable portion of manufacturing overhead as product costs. direct labor. and the variable portion of manufacturing overhead as product costs. Managerial Accounting. Twelfth Edition . C) variable costing. and an allocated portion of fixed manufacturing overhead as product costs. and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials. B) variable costing treats direct materials. direct labor. the variable portion of manufacturing overhead. direct labor. direct labor. and an allocated portion of fixed manufacturing overhead as product costs. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 7-8 Garrison/Noreen/Brewer. the variable portion of manufacturing overhead. and the variable portion of selling and administrative expenses as product cost while absorption costing treats direct materials. B) job-order costing. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 20. Assuming that direct labor is a variable cost. C) variable costing treats only direct materials. the variable portion of manufacturing overhead. D) variable costing treats only direct materials.Chapter 7 Variable Costing: A Tool for Management 19. and an allocated portion of fixed manufacturing overhead as product costs while absorption costing treats only direct materials. the primary difference between the absorption and variable costing is that: A) variable costing treats only direct materials and direct labor as product cost while absorption costing treats direct materials.

) A) B) C) D) Variable costing Absorption costing Increase Increase Decrease Increase Decrease Decrease No effect Decrease Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 22. C) fluctuate inversely with changes in production. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 23. B) remain constant. Twelfth Edition 7-9 . Managerial Accounting. Bronfren Corporation produced 800. In its first year of operations. net operating income determined by the variable costing method will: A) fluctuate in direct proportion to changes in production. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20. D) be greater than net operating income under absorption costing.000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.000 sets of artificial tan lines. Under the variable costing method.000 sets and sold 780.Chapter 7 Variable Costing: A Tool for Management 21. but the production level fluctuates. which of the following is always expensed in its entirety in the period in which it is incurred? A) fixed manufacturing overhead cost B) fixed selling and administrative expense C) variable selling and administrative expense D) all of the above Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard Garrison/Noreen/Brewer. When sales are constant.

net operating income reported under variable costing generally will be: A) greater than net operating income reported under absorption costing. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium 26. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium 7-10 Garrison/Noreen/Brewer. Net operating income under variable and absorption costing will generally: A) always be equal. D) higher or lower because no generalization can be made. Which of the following will usually be found on an income statement prepared using the absorption costing method? A) B) C) D) Contribution Margin Gross Margin Yes Yes Yes No No Yes No No Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 25. C) be equal only when production and sales are equal.Chapter 7 Variable Costing: A Tool for Management 24. Managerial Accounting. B) less than net operating income reported under absorption costing C) equal to net operating income reported under absorption costing. When production exceeds sales. D) be equal only when production exceeds sales. Twelfth Edition . B) never be equal.

net operating income determined by the absorption costing method will: A) tend to fluctuate in the same direction as fluctuations in the level of production. Net operating income under absorption costing may differ from net operating income determined under variable costing. D) none of these Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium 29. C) they include all fixed manufacturing overhead on the income statement each year as a period cost. but the production level fluctuates. How is this difference calculated? A) change in the quantity of units in inventory times the fixed manufacturing overhead rate per unit. C) change in the quantity of units in inventory times the variable manufacturing cost per unit. D) number of units produced during the period times the variable manufacturing cost per unit. B) tend to remain constant. Managerial Accounting. C) tend to fluctuate inversely with fluctuations in the level of production.Chapter 7 Variable Costing: A Tool for Management 27. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Hard Source: CMA. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium Garrison/Noreen/Brewer. adapted 28. A reason why absorption costing income statements are sometimes difficult for the manager to interpret is that: A) they omit variable expenses entirely in computing net operating income. When sales are constant. B) number of units produced during the period times the fixed manufacturing overhead rate per unit. D) they ignore inventory levels in computing income charges. Twelfth Edition 7-11 . B) they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.

Chapter 7 Variable Costing: A Tool for Management 30. The company manufactured 700 units last year. Variable manufacturing costs were $6. Under the theory of constraints (TOC). The ending inventory consisted of 100 units. What would be the change in the dollar amount of ending inventory if variable costing was used instead of absorption costing? A) $800 decrease B) $200 decrease C) $0 D) $200 increase Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CMA. Twelfth Edition . adapted Solution: Change in inventory × Fixed manufacturing costs per unit = 100 × $2 = $200 decrease 7-12 Garrison/Noreen/Brewer.00 per unit and fixed manufacturing costs were $2. which of the following is treated as a period cost? A) B) C) D) Direct labor Direct material Yes Yes Yes No No Yes No No Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium 31.00 per unit. Fleet Corporation produces a single product. Managerial Accounting. There was no beginning inventory.

65 = $5...20 per unit $260..85 D) $6. Managerial Accounting..000 units = $0. The following information relates to Shun's operations for last year: Unit product cost under variable costing....... $5.............000 What is Shun's unit product cost under absorption costing for last year? A) $4......000 400...10 B) $4.. Fixed manufacturing overhead cost for the year.Chapter 7 Variable Costing: A Tool for Management 32.....30 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit fixed manufacturing overhead = Fixed manufacturing overhead ÷ Units produced = $260..20 + $0....55 C) $5..000 $180... Units (calculators) produced and sold.....000 ÷ 400....... Shun Corporation manufactures and sells a hand held calculator.. Twelfth Edition 7-13 ............65 per unit Unit product cost = $5.....85 Garrison/Noreen/Brewer...... Fixed selling and administrative cost for the year...

000 What is the unit product cost for the month under variable costing? A) $118 B) $94 C) $111 D) $87 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $33 + $53 + $1 = $87 7-14 Garrison/Noreen/Brewer.................. Units sold.................. Units produced..................... 0 7......40 0 $7..................................... Fixed selling and administrative........... $33 $53 $1 $7 Fixed costs: Fixed manufacturing overhead........... Units in ending inventory.... $170........................... Twelfth Edition . Variable manufacturing overhead........................................ Variable selling and administrative.............................. Direct labor...100 7............ Managerial Accounting.........000 100 Variable costs per unit: Direct materials........................... A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Units in beginning inventory.Chapter 7 Variable Costing: A Tool for Management 33..

........... Variable selling and administrative.............. Twelfth Edition 7-15 . Managerial Accounting..800 What is the unit product cost for the month under absorption costing? A) $67 B) $105 C) $111 D) $73 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit fixed manufacturing overhead = $72..... A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Units in beginning inventory......... Variable manufacturing overhead..................200 ÷ 1............ $33 $32 $2 $6 Fixed costs: Fixed manufacturing overhead..............20 0 $6................900 1..............................Chapter 7 Variable Costing: A Tool for Management 34........700 200 Variable costs per unit: Direct materials........900 = $38 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $33 + $32 + $2 + $38 = $105 Garrison/Noreen/Brewer...... Units produced........... 0 1................................ $72........ Direct labor................................................. Units sold... Fixed selling and administrative............. Units in ending inventory..........

............ $79 Units in beginning inventory.... A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price.300 = $50........Chapter 7 Variable Costing: A Tool for Management 35...............400 Period cost = Total variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $50........20 0 $88..... Variable selling and administrative..........300 300 Variable costs per unit: Direct materials...................400 + $46....200 D) $184..................... Units in ending inventory.........600 6.............. Units sold............................ Fixed selling and administrative..800 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Total variable selling and administrative cost = $8 × 6........800 7-16 Garrison/Noreen/Brewer..200 + $88...200 = $184....................... 0 6......400 C) $46... Units produced..600 B) $134...........................20 0 What is the total period cost for the month under the variable costing approach? A) $138............... Variable manufacturing overhead...... $46..... Direct labor.................. Managerial Accounting.................................. $14 $30 $4 $8 Fixed costs: Fixed manufacturing overhead........ Twelfth Edition ...............

.. Twelfth Edition 7-17 ........................... Units in ending inventory......................... $97 Units in beginning inventory.........800 = $56.....800 D) $37...............200 2.. $8.............900 + $37.800 $37........ Units sold...........800 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Total variable selling and administrative cost = $9 × 2.... Units produced........................................................................................ Managerial Accounting.. Variable selling and administrative...700 Garrison/Noreen/Brewer......... Fixed selling and administrative..........500 C) $8......... Direct labor...700 B) $65.900 Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $18................ A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price....... 0 2................................. Variable manufacturing overhead...............100 100 Variable costs per unit: Direct materials.. $32 $25 $2 $9 Fixed costs: Fixed manufacturing overhead..100 = $18.Chapter 7 Variable Costing: A Tool for Management 36..........80 0 What is the total period cost for the month under the absorption costing approach? A) $56.

.................. Managerial Accounting....... Variable selling and administrative expense........................ Mullee Corporation produces a single product and has the following cost structure: Number of units produced each year..000 = $63 Unit product cost = $63 + $51 + $12 + $2 = $128 7-18 Garrison/Noreen/Brewer....................................Chapter 7 Variable Costing: A Tool for Management 37.............. Direct labor..............000 ÷ 7............ Variable manufacturing overhead.......... Fixed costs per year: Fixed manufacturing overhead.. 7...00 0 $112........... Variable costs per unit: Direct materials......... Fixed selling and administrative expense........000 $51 $12 $2 $5 $441......... Twelfth Edition .................00 0 The unit product cost under absorption costing is: A) $149 B) $65 C) $63 D) $128 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit fixed manufacturing overhead = $441.......

..............00 0 $76................................. Variable selling and administrative expense... Stoneberger Corporation produces a single product and has the following cost structure: Number of units produced each year......... Fixed costs per year: Fixed manufacturing overhead....... Variable manufacturing overhead. Twelfth Edition 7-19 ..........000 $50 $72 $6 $3 $296.. Direct labor.................................................. Variable costs per unit: Direct materials......... Managerial Accounting.....................Chapter 7 Variable Costing: A Tool for Management 38............ Fixed selling and administrative expense...000 The unit product cost under variable costing is: A) $128 B) $125 C) $202 D) $131 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit product cost = $50 + $72 + $6 = $128 Garrison/Noreen/Brewer.................... 4.......

................ Managerial Accounting. which produces a single product............000 = $39 Unit product cost = $37 + $56 + $4 + $39 = $136 7-20 Garrison/Noreen/Brewer. Fixed selling and administrative expense....................................................... Beamish Inc..... Direct labor.......................... 8.... Variable costs per unit: Direct materials.. has provided the following data for its most recent month of operations: Number of units produced... Variable selling and administrative expense...............00 0 $448.......Chapter 7 Variable Costing: A Tool for Management 39..00 0 There were no beginning or ending inventories... Variable manufacturing overhead.............. Fixed costs: Fixed manufacturing overhead....000 ÷ 8... Twelfth Edition .000 $37 $56 $4 $2 $312.. The unit product cost under absorption costing was: A) $93 B) $97 C) $136 D) $194 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit fixed manufacturing overhead = $312.................................................

................Chapter 7 Variable Costing: A Tool for Management 40..... 3. Fixed costs: Fixed manufacturing overhead...............000 $91 $13 $7 $6 $237.......00 0 There were no beginning or ending inventories. Twelfth Edition 7-21 ................ Kray Inc........ Variable selling and administrative expense......... has provided the following data for its most recent month of operations: Number of units produced.... which produces a single product............................. The unit product cost under variable costing was: A) $111 B) $190 C) $117 D) $110 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $91 + $13 + $7 = $111 Garrison/Noreen/Brewer..... Managerial Accounting.................................. Variable costs per unit: Direct materials.... Fixed selling and administrative expense................................................................................. Variable manufacturing overhead............................. Direct labor......................00 0 $165.....

...........00 Variable costs per unit: Direct materials.......... Twelfth Edition ..............Chapter 7 Variable Costing: A Tool for Management 41. $200....................... $1............ Units produced...................................000 Garrison/Noreen/Brewer..50 + $1 + $2 = $7 Absorption costing income statement Sales ($10 × 98....000).... 7-22 $980... Selling and administrative expenses expenses: Variable selling and administrative............. Direct labor.... Variable manufacturing overhead.......................00 $2.... $196........000 What was the absorption costing net operating income last year? A) $44................000 C) $50..........000 ÷ 100.000 294....... Gross margin.................... a company that produces a single product: Units in beginning inventory...........000 $ 48....50 + $2.......000 Selling price per unit... Variable selling and administrative......................... 0 100.........................................50 $2....000 686................ 50............................. Managerial Accounting.............. Units sold........... Cost of goods sold ($7 × 98.. Incorporated..000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit fixed manufacturing overhead = $200...............000 Fixed selling and administrative......000 = $2 Unit product cost = $1......00 0 $50............50 $1.... $10........ The following data pertain to last year's operations at Clarkson.....000)......000 B) $48................ Fixed selling and administrative...........000 Net operating income......00 Fixed costs per year: Fixed manufacturing overhead.....000 246.000 98................000 D) $49.........

....... Direct labor ($38 × 6.............200).200)....... Garrison/Noreen/Brewer....200 68............................................. Managerial Accounting.......................800 235..................................000 B) $260.....200 644................800 $192...................................... Variable manufacturing overhead ($6 × 6.................................. $135 Units in beginning inventory.............................................200)........400 The total contribution margin for the month under the variable costing approach is: A) $155. $49 $38 $6 $11 Fixed costs: Fixed manufacturing overhead............................ 0 6........200). Fixed selling and administrative..........................400 C) $192....80 0 $74..400 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Sales revenue ($135 × 6....200 D) $83............ Units in ending inventory...........000 $303..................................200 200 Variable costs per unit: Direct materials.................400 6.................... A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price.... Units sold. Variable manufacturing overhead.......... Variable selling and administrative ($11 × 6.....................200 7-23 . Variable selling and administrative................... Direct materials ($49 × 6............. Contribution margin.................... Variable cost:.....................Chapter 7 Variable Costing: A Tool for Management 42..........200)...000 37..................... Twelfth Edition $837.. Units produced.. $108....................... Direct labor.

.................Chapter 7 Variable Costing: A Tool for Management 43..................700 $ 12.............000 11.......................700 28. Variable selling and administrative......... Twelfth Edition .........................700 63........................... Units in ending inventory... $41 $26 $4 $6 Fixed costs: Fixed manufacturing overhead.............. Fixed cost: Fixed manufacturing overhead..........900 5........400 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Sales ($123 × 900)...70 0 What is the net operating income for the month under variable costing? A) $12.. Managerial Accounting................................. Variable cost of goods sold ($71 × 900).........400 $17......................................00 0 $11......................................400 41........... A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price............................000 900 100 Variable costs per unit: Direct materials................... Less variable selling and administrative ($6 × 900) Contribution margin............................. Units sold.................... Fixed selling and administrative..700 B) $5........ $17...... Variable manufacturing overhead............ $123 Units in beginning inventory.................... Direct labor..................................... Units produced...... Fixed selling and administrative...700 Garrison/Noreen/Brewer.......... 7-24 $110.........700 D) $14.. Net operating income...600 C) $1... 0 1..........................

Chapter 7 Variable Costing: A Tool for Management
44. Swifton Company produces a single product. Last year, the company had net
operating income of $40,000 using variable costing. Beginning and ending inventories
were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost
was $3.00 per unit, what was the income using absorption costing?
A) $15,000
B) $25,000
C) $40,000
D) $55,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Difference between absorption costing net income and variable costing net
income = Change in inventory in units × Unit fixed manufacturing overhead
= (27,000 − 22,000) × $3 = 5,000 × $3 = $15,000
Net income under absorption costing = $40,000 + $15,000 = $55,000
45. Blake Company produces a single product. Last year, Blake's net operating income
under absorption costing was $3,600 lower than under variable costing. The company
sold 10,000 units during the year, and its variable costs were $9 per unit, of which $1
was variable selling expense. If production cost was $11 per unit under absorption
costing, then how many units did the company produce during the year?
A) 8,200 units
B) 8,800 units
C) 11,200 units
D) 11,800 units
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Hard
Solution:
Direct material + Direct labor + Variable manufacturing overhead
= Variable unit product cost = $9 – $1 = $8
Unit fixed manufacturing overhead = $11 – $8 = $3
Difference in net income between methods ÷ Unit fixed manufacturing overhead =
($3,600) ÷ $3 per unit = (1,200) units
Units produced = Units sold + Change in inventory = 10,000 + (1,200) = 8,800

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

7-25

Chapter 7 Variable Costing: A Tool for Management
46. Pungent Corporation manufactures and sells a spice rack. Shown below are the actual
operating results for the first two years of operations:
Units (spice racks) produced.................................
Units (spice racks) sold..........................................
Absorption costing net operating income..............
Variable costing net operating income..................

Year 1
40,000
37,000
$44,00
0
$38,00
0

Year 2
40,000
41,000
$52,00
0
???

Pungent's cost structure and selling price were the same for both years. What is
Pungent's variable costing net operating income for Year 2?
A) $48,000
B) $50,000
C) $54,000
D) $56,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Hard
Solution:
Unit fixed manufacturing overhead = Difference in net income ÷ Change in inventory
= ($44,000 – $38,000) ÷ (40,000 – 37,000) = $6,000 ÷ 3,000 = $2
Variable costing net operating income = Absorption costing net income − Difference
in net operating income
= $52,000 − [(40,000 − 41,000) × $2)]
= $52,000 − ($2,000) = $54,000

7-26

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 7 Variable Costing: A Tool for Management
47. Sipho Corporation manufactures a variety of products. Last year, the company's
variable costing net operating income was $90,900. Fixed manufacturing overhead
costs released from inventory under absorption costing amounted to $21,900. What
was the absorption costing net operating income last year?
A) $69,000
B) $90,900
C) $21,900
D) $112,800
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Absorption costing net income = Variable costing net income – fixed manufacturing
overhead costs released from inventory
= $90,900 – $21,900 = $69,000
48. Last year, Kirsten Corporation's variable costing net operating income was $63,400.
Fixed manufacturing overhead costs released from inventory under absorption costing
amounted to $10,700. What was the absorption costing net operating income last year?
A) $10,700
B) $74,100
C) $63,400
D) $52,700
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Absorption costing net income = Variable costing net income – fixed manufacturing
overhead costs released from inventory
= $63,400 – $10,700 = $52,700

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

7-27

200 = $41. Tinklenberg Corporation's variable costing net operating income was $52.400 − [1.300 − [2.600 = $93.700 C) $96. What was the absorption costing net operating income last year? A) $41. Twelfth Edition . What was the absorption costing net operating income last year? A) $2. Fixed manufacturing overhead cost was $1 per unit.400 units.400 and its ending inventory decreased by 1.600 D) $52.400 × $8] = $52.300 − $2. manufactures a variety of products.600 × $1] = $96.200 C) $63.900 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Solution: Absorption costing net income = Variable costing net income − fixed manufacturing overhead costs released from inventory = $96.300 D) $98.200 B) $11. Variable costing net operating income was $96.600 B) $93.600 units.200 7-28 Garrison/Noreen/Brewer.Chapter 7 Variable Costing: A Tool for Management 49. Bellue Inc. Managerial Accounting. Fixed manufacturing overhead cost was $8 per unit. Last year.300 last year and ending inventory decreased by 2.400 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Solution: Absorption costing net income = Variable costing net income − fixed manufacturing overhead costs released from inventory = $52.700 50.400 − $11.

.. Less variable selling and administrative ($60. The contribution margin per unit would be: A) $25 B) $39 C) $34 D) $35 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard Solution: Unit selling price ($840......................................... Last year........................000 for the year...000).......000......................000).......000 ÷ 15....... Variable manufacturing overhead.000 ÷ 12..000 ÷ 15.... $150..000 ÷ 15............... Hurlex manufactured 15......... Less variable manufacturing overhead ($135................................... Managerial Accounting.. Production costs for the year were as follows: Direct materials..000 units and sold 12...00 0 $180....000 ÷ 12. Direct labor.000....... variable selling expenses totaled $60....................... Twelfth Edition $70 $10 12 9 5 36 $34 7-29 .............Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 51-53: Hurlex Company produces a single product....................000)........................ and fixed selling and administrative expenses totaled $180....................................00 0 Sales totaled $840.. Less direct labor ($180.. Contribution margin..00 0 $135.................00 0 $210... Less direct materials ($150..... 51............ Assume that direct labor is a variable cost......000)..... Garrison/Noreen/Brewer...................... Fixed manufacturing overhead......000)... There were no units in the beginning inventory....000 units........

000 lower than under absorption costing D) $42.000 higher than under absorption costing C) $30.000 C) $105.000 higher than under absorption costing B) $30.000 lower than under absorption costing Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit fixed manufacturing overhead × Change in inventory in units = $14 × (15.000 = $14 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $10 + $12 + $9 + $14 = $45 Carrying value = Unit product cost × Ending inventory in units = $45 × (15.000) = $45 × 3. net income under absorption costing will be higher than net income under variable costing.000 − 12.000 ÷ 15.000) = $14 × 3. Under variable costing.000 = $135. Managerial Accounting. Twelfth Edition .Chapter 7 Variable Costing: A Tool for Management 52.000 D) $0 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Unit fixed manufacturing overhead = $210.000 B) $93. Under absorption costing. 7-30 Garrison/Noreen/Brewer.000 = $42.000 53. the carrying value on the balance sheet of the ending inventory for the year would be: A) $135.000 − 12.000 Since the units produced are greater than the units sold (inventory increased). the company's net operating income for the year would be: A) $42.

..... Units produced............ which has only one product....... has provided the following data concerning its most recent month of operations: Selling price........ Managerial Accounting............................................70 0 $21... $81 Units in beginning inventory............... Units in ending inventory............................ Variable manufacturing overhead......300 7...................................................... Variable selling and administrative............ $65....................... Twelfth Edition 7-31 ....00 0 54...................000 300 Variable costs per unit: Direct materials..................... $20 $30 $7 $11 Fixed costs: Fixed manufacturing overhead. Units sold.......... 0 7. What is the unit product cost for the month under variable costing? A) $77 B) $66 C) $68 D) $57 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Direct materials + Direct labor + Variable manufacturing overhead = $20 + $30 + $7 = $57 Garrison/Noreen/Brewer..................... Direct labor......... Fixed selling and administrative.....Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 54-61: Abdi Company...................

...... Variable selling and administrative..................... Variable manufacturing overhead..700 ÷ 7.................................. The total contribution margin for the month under the variable costing approach is: A) $91....000 C) $105.............000 = $91..........300 = $9 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $20 + $30 + $7 + $9 = $66 56.......................... Total contribution margin = $13 × 7........................................000 D) $25............ Direct labor........ What is the unit product cost for the month under absorption costing? A) $66 B) $77 C) $57 D) $68 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit fixed manufacturing overhead = $65.Chapter 7 Variable Costing: A Tool for Management 55..................... Twelfth Edition .. Managerial Accounting........ Less unit variable costs: Direct materials................... Contribution margin.300 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit selling price........000 B) $168..............000 7-32 $81 $20 30 7 11 68 $13 Garrison/Noreen/Brewer.........

...... 0 58... Managerial Accounting..... Twelfth Edition 7-33 ....700 C) $98..700 = $163...... The total gross margin for the month under the absorption costing approach is: A) $105......000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit fixed manufacturing overhead = $9 Unit product cost under absorption costing = $20 + $30 + $7 + $9 = $66 $567........000 D) $86.. What is the total period cost for the month under the variable costing approach? A) $65....Chapter 7 Variable Costing: A Tool for Management 57..... 0 $105..00 Gross margin..000)....000 + $86..000)....... 0 462.......700 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard Solution: Variable selling and administrative cost + Fixed costs = ($11 × 7.700 Garrison/Noreen/Brewer..........00 Sales revenue ($81 × 7.........700 B) $163...............000) = $77.........700 + $21..000 D) $91..00 Cost of goods sold ($66 × 7..000) + ($65............800 C) $7....000 B) $124.

700 C) $21.....000 476.. Fixed costs: Fixed manufacturing overhead................ Variable selling and administrative ($11 × 7............000 B) $65...... 7-34 $399. Contribution margin...000 91......Chapter 7 Variable Costing: A Tool for Management 59....000 = $98........ Twelfth Edition ..................00 0 77....000 + $21........ What is the total period cost for the month under the absorption costing approach? A) $98.....300 C) $7..................... Contribution margin........300 Garrison/Noreen/Brewer..000).000 + $21..000 = $77. What is the net operating income for the month under variable costing? A) $2.000 D) $163....000 $ 65.700 $ 4.700 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard Solution: Variable selling and administrative cost + Fixed selling and administrative cost = $11 × 7.........................................700 21..................000)........ Fixed selling and administrative................ Managerial Accounting..........700 B) $4.......000)..........000 60..............000 86...000 D) $(12.... Variable costs: Product cost ($57 × 7................00 0 Sales revenue ($81 × 7..800) Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: $567..............

.. What is the net operating income for the month under absorption costing? A) $7.................................. A total of 12.................. $567....... Garrison/Noreen/Brewer...800) D) $2...............000 Use the following to answer questions 62-65: Hopkins Company manufactures a single product.................... Gross margin...........................000)........700 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Sales revenue ($81 × 7.....00 0 $36................. Selling and administrative expenses: Variable selling and administrative ($11 × 7..........000 $ 7.... Managerial Accounting... and 10............00 0 At the beginning of the year there were no units in inventory....000 units were produced during the year...000 units were sold................. $24 $8 $2 $48.. Net operating income.......000 $77.................................... Fixed costs in total: Production.......000 98...... Selling and administration....... The following data pertain to the company's operations last year: Selling price per unit........... Cost of goods sold ($66 × 7...............300 C) $(12.................................000)....... Selling and administration........00 0 462.. Twelfth Edition 7-35 ......000 105.........000).......................000 B) $4...............000 21.....................Chapter 7 Variable Costing: A Tool for Management 61........... Variable costs per unit: Production. Fixed selling and administrative............

Chapter 7 Variable Costing: A Tool for Management
62. Under variable costing, the unit product cost is:
A) $8.00
B) $10.00
C) $12.00
D) $14.00
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Production cost = $8
63. Under absorption costing, the unit product cost is:
A) $8.00
B) $10.00
C) $12.00
D) $15.00
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Unit fixed manufacturing overhead = $48,000 ÷ 12,000 = $4
Unit product cost = $8 + $4 = $12

7-36

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 7 Variable Costing: A Tool for Management
64. The net operating income under variable costing would be:
A) $64,000
B) $60,000
C) $56,000
D) $52,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Sales revenue ($24 × 10,000)................................
Variable costs:
Variable cost of goods sold ($8 × 10,000).........
Variable selling and administrative ($2 ×
10,000)............................................................
Contribution margin..............................................
Fixed costs:
Fixed manufacturing overhead...........................
Fixed selling and administrative.........................
Net operating income.............................................

$240,00
0
$80,000
20,000
$48,000
36,000

100,000
140,000
84,000
$ 56,000

65. The net operating income under absorption costing would be:
A) the same as the income under variable costing.
B) $8,000 greater than the income under variable costing.
C) $12,000 greater than the income under variable costing.
D) $8,000 less than the income under variable costing.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Unit fixed manufacturing overhead × Change in number of units in ending inventory =
$4 × (12,000 − 10,000) = $4 × 2,000
= $8,000 greater than the income under variable costing since inventory increased

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

7-37

Chapter 7 Variable Costing: A Tool for Management
Use the following to answer questions 66-68:
Phearsum Corporation manufactures a parachute. Shown below is Phearsum's cost structure:

Manufacturing cost..................
Selling and administrative.......

Variable cost per
parachute
$160
$10

Total fixed cost
for the year
$342,000
$171,000

In its first year of operations, Phearsum produced and sold 4,000 parachutes. The parachutes
sold for $310 each.
66. If Phearsum would have sold only 3,800 parachutes in its first year, what total amount
of cost would have been assigned to the 200 parachutes in finished goods inventory
under the variable costing method?
A) $28,000
B) $32,000
C) $34,000
D) $49,100
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Unit product cost = $160
Total cost of ending finished goods inventory = $160 × 200 = $32,000

7-38

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

.2 Level: Hard Solution: Unit fixed manufacturing overhead = $342.. Managerial Accounting.000 parachutes? A) net operating income would not have been affected B) net operating income would have been $38. Refer back to the original data. ($10.350 lower B) net operating income would have been $10.50 × 200)..50 = $64.900 lower D) net operating income would have been $28.50 Cost savings ($10 × 200)...800 parachutes were sold instead of 4.Chapter 7 Variable Costing: A Tool for Management 67...000 and Phearsum still sold 4.500 parachutes were produced instead of 4..900) 68.000 lower Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1.....900 Net operating income increase (decrease). How would Phearsum's absorption costing net operating income been affected in its first year if only 3. $ 2..000 higher C) net operating income would have been $57.. How would Phearsum's variable costing net operating income been affected in its first year if 4..900 lower C) net operating income would have been $12..... Twelfth Edition 7-39 ... Refer back to the original data.000 ÷ 4.....2 Level: Medium Garrison/Noreen/Brewer..000 lower Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1..50 Unit gross margin = $310 − $245.000 higher D) net operating income would have been $75....000? A) net operating income would have been $2..000 Less: decrease in gross margin ($64.50 = $245.50 Unit product cost under absorption costing = $160 + $85...... 12.000 = $85...........

......................................... Direct labor...... Twelfth Edition ............40 0 $14......................... Fixed selling and administrative...................... What is the unit product cost for the month under variable costing? A) $72 B) $90 C) $83 D) $101 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Direct materials + Direct labor + Variable manufacturing overhead = $32 + $34 + $6 = $72 7-40 Garrison/Noreen/Brewer..........Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 69-72: Feery Company...........................80 0 69. has provided the following data concerning its most recent month of operations: Selling price................... Units sold.. 0 3... Units in ending inventory........................... $32 $34 $6 $11 Fixed costs: Fixed manufacturing overhead..................................... which has only one product................. Variable selling and administrative.......700 100 Variable costs per unit: Direct materials.............. Variable manufacturing overhead........ $68..........800 3.... Units produced......................... $110 Units in beginning inventory..... Managerial Accounting.....

..700)..... Twelfth Edition $266. Garrison/Noreen/Brewer..800 307.......900 83.........200 $ 16. What is the unit product cost for the month under absorption costing? A) $83 B) $90 C) $72 D) $101 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit fixed manufacturing overhead = $68.800 B) $16...........500 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: $407..............Chapter 7 Variable Costing: A Tool for Management 70................. Contribution margin...............700).........700 $ 68....... What is the net operating income for the month under variable costing? A) $1........ Variable costs: Variable cost of goods sold ($72 × 3..............700 7-41 ............. Net operating income..40 0 40..........400 ÷ 3........ Fixed selling and administrative........700)....400 14... Fixed costs: Fixed manufacturing overhead.. Variable selling and administrative ($11 × 3.....100 99........800 = $18 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $32 + $34 + $6 + $18 = $90 71..700 C) $9........................................... Managerial Accounting.....................500 D) $18......00 0 Sales revenue ($110 × 3...........

....... Selling and administrative expenses costs: Variable selling and administrative ($11 × 3....................... 7-42 $407.........................................800 55.000 74.......500 Garrison/Noreen/Brewer.....................................................................00 0 333.......... Managerial Accounting.........700)...800 C) $9..........000 $40......... Gross margin...........500 $ 18.. Fixed selling and administrative. What is the net operating income for the month under absorption costing? A) $18.......Chapter 7 Variable Costing: A Tool for Management 72..500 D) $16....................700 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Sales revenue ($110 × 3...........500 B) $1... Cost of goods sold ($90 × 3..........700 14.. Net operating income..700)...700).. Twelfth Edition .

................... 500 3........600 3............................. Variable selling and administrative.... Twelfth Edition 7-43 ......... $97.............................. $129 Units in beginning inventory..............20 0 $64.... has provided the following data concerning its most recent month of operations: Selling price........................ Fixed selling and administrative............... Variable manufacturing overhead...800 300 Variable costs per unit: Direct materials... which has only one product..................... although the sales in units vary from month to month......... Units in ending inventory... What is the unit product cost for the month under variable costing? A) $76 B) $103 C) $84 D) $111 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $13 + $59 + $4 = $76 Garrison/Noreen/Brewer.......... Units sold.................... Managerial Accounting.. 73.............................. Units produced................ The company's variable costs per unit and total fixed costs have been constant from month to month...............60 0 The company produces the same number of units every month.... Direct labor.. $13 $59 $4 $8 Fixed costs: Fixed manufacturing overhead................Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 73-76: Jarbo Company....................

.... Fixed costs: Fixed manufacturing overhead.200 Garrison/Noreen/Brewer.. Net operating income.......... Variable costs: Variable cost of goods sold ($76 × 3.....800)... What is the unit product cost for the month under absorption costing? A) $84 B) $76 C) $103 D) $111 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Unit fixed manufacturing overhead = $97............800 $ 9..800 B) $24......000 161... Twelfth Edition ....... Variable selling and administrative ($8 × 3..400 C) $9.... What is the net operating income for the month under variable costing? A) $3....200 D) $8.............Chapter 7 Variable Costing: A Tool for Management 74.....200 64..100 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: $490...200 171..................20 0 Sales revenue ($129 × 3..... 7-44 $288. Contribution margin......................................................80 0 30................... Fixed selling and administrative.......400 $ 97.......200 ÷ 3..800)............................... Managerial Accounting.....................600 319..600 = $27 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $13 + $59 + $4 + $27 = $103 75...800)...........

...........400 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Sales revenue ($129 × 3............................ Net operating income.......... These costs are based on a budgeted volume of 30.....800)............ budgeted the following costs for its first year of operations..Chapter 7 Variable Costing: A Tool for Management 76... Fixed manufacturing overhead..800)............. Gross margin...00 0 Garrison/Noreen/Brewer.800 $30.................400 64..... Twelfth Edition 7-45 .....00 0 $12............................000 $ 3. Fixed selling and administrative...... What is the net operating income for the month under absorption costing? A) $8........800 Use the following to answer questions 77-79: Beach Corporation......400 98... Variable manufacturing overhead.. Direct labor....600 95.........800).100 B) $9.................................................. which produces a single product...................................................000 towels produced and sold: Direct materials................................... Managerial Accounting.............. Selling and administrative expenses costs: Variable selling and administrative ($8 × 3.........20 0 391...00 0 $48.......00 0 $72....... Variable selling and administrative..........800 D) $24.00 0 $36........200 C) $3... Fixed selling and administrative............... $96.. Cost of goods sold ($103 × 3...... $490..00 0 $60..............

000 towels. 7-46 Garrison/Noreen/Brewer.000 towels but only sold 24.000 towels were sold for $16 per towel. Twelfth Edition . Actual costs did not fluctuate from the cost behavior patterns described above. Managerial Accounting. Beach Towel actually produced 30.Chapter 7 Variable Costing: A Tool for Management During the first year of operations. Assume that direct labor is a variable cost. The 24.

000 + $72.000 + $48..000 + $72...40 $384...........000) ÷ 30.. 163..........000 units = ($96.. 220..... what is Beach Towel's actual net operating income for its first year? A) $60.........000).....40 × 24.20 Unit variable selling and administrative cost = $12............. 0 Cost of goods sold ($9..600 D) $124............. Managerial Accounting.....000 B) $115............. Under the absorption costing method..200 C) $117..... Twelfth Edition 7-47 .20 × 6...... 0 Garrison/Noreen/Brewer............200 B) $45.....00 Sales revenue ($16 × 24....60 Net operating income........000 + $48..000 = $9....200 Selling and administrative expenses: Variable selling and administrative ($0...................Chapter 7 Variable Costing: A Tool for Management 77.. $ 9... 36......200 78..600 C) $55......000 45...........000) ÷ 30...000).000)..........20 Total cost of ending finished goods inventory = Unit product cost × Ending inventory = $7....000 + $60....600 Fixed selling and administrative.800 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead) ÷ 30.... What is the total cost that would be assigned to Beach Towel's finished goods inventory at the end of the first year of operations under the variable costing method? A) $43.000) = $7.....000 = $7...000 = $0..........000 units = ($96.20 × (30....600 $117....20 × 24.....200 D) $64........000 = $43...800 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead) ÷ 30.000 − 24...000 ÷ 30..........800 Gross margin.........

Twelfth Edition . Managerial Accounting.Chapter 7 Variable Costing: A Tool for Management 7-48 Garrison/Noreen/Brewer.

.......000 19.........000 176............... Net operating income...... $285.000 $ 39.............000 During June.................. Twelfth Edition 7-49 ..........500 units).............................. Selling and administrative expenses: Fixed..................000 units in the beginning inventory........ the company's variable production costs were $10 per unit and its fixed manufacturing overhead totaled $60.......................................... Add cost of goods manufactured..000 160...................... Cost of goods sold.... Goods available for sale.......... Garrison/Noreen/Brewer........ which of the following would have increased Beach Towel's net operating income under the variable costing method in its first year of operations? A) an increase in sales volume with no increase in production volume B) an increase in production volume with no increase in sales volume C) both A and B above D) none of the above Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Use the following to answer questions 80-83: Blake Corporation.. Cost of goods sold: Beginning inventory........... A total of 10.... Gross margin.....00 0 $ 16............ has provided the following absorption costing income statement for the month of June: Blake Corporation Income Statement For the month ended June 30 Sales (9.........000............. The company uses the LIFO method to value inventories........000 133...... Less ending Inventory....000 units were produced during June and the company had 1..... which produces a single product......000 94......... Variable.............000 $ 75...Chapter 7 Variable Costing: A Tool for Management 79..000 24................ Managerial Accounting..........000 152.... Assuming no change in cost structure.

.000 C) $15..500).... The carrying value on the balance sheet of the company's inventory on June 30 under the variable costing method would be: A) $10......000 + 10.000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Ending inventory = Beginning inventory + Units produced − Units sold = 1.. Less unit variable selling and administrative ($19.000 ÷ 9...... Managerial Accounting..000 7-50 Garrison/Noreen/Brewer..500 × $10 = $15..... The contribution margin per unit during June was: A) $20 B) $18 C) $16 D) $14 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Selling price ($285......500 = 1.......... Less variable product cost...000 ÷ 9...000 − 9.Chapter 7 Variable Costing: A Tool for Management 80..............500 Carrying value = Ending inventory in units × Variable production cost = 1.... Twelfth Edition .. Unit contribution margin $30 10 2 $18 81......................500)...........000 B) $12...................000 D) $24...

................... Variable costs: Variable cost of goods sold ($10 × 9.....750 units C) 7.000 units Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Sales revenue (9.... Variable selling and administrative......00 0 $171.............. The break-even point in units for the month under variable costing would be: A) 6.. Variable costs: Variable cost of goods sold ($10 × 9..................................500 units D) 9. Managerial Accounting..000 B) $40.................... Fixed costs: Fixed manufacturing overhead..000 units B) 6... Twelfth Edition $285.....Chapter 7 Variable Costing: A Tool for Management 82....500).......................000 135....000 83........000 D) $60............000 114..500 units). Garrison/Noreen/Brewer.......... Net operating income............... $285.................. Contribution margin..........000 $60............000 $ 36....000 19.... Net operating income under the variable costing method for June would be: A) $36.000 75..... Fixed selling and administrative.......500)....000 C) $53..000 114..................... Contribution margin..000 171..500 units).000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Sales revenue (9..........00 0 $95.00 0 $95....... Variable selling and administrative.......00 0 7-51 ...................000 19................

000 ÷ $18 per unit = 7.500 units 7-52 Garrison/Noreen/Brewer.500) = $135. Twelfth Edition .000 ÷ 9. Managerial Accounting.Chapter 7 Variable Costing: A Tool for Management Fixed costs ÷ Unit contribution margin = (Fixed manufacturing overhead + Fixed selling and administrative) ÷ Unit contribution margin = ($60.000 + $75.000) ÷ ($171.

.... What is the unit product cost for the month under variable costing? A) $77 B) $57 C) $69 D) $65 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit product cost = Direct materials + Direct Labor + Variable manufacturing overhead = $17 + $39 + $1 = $57 Garrison/Noreen/Brewer...............80 0 $23.................. Managerial Accounting............... Units in ending inventory.......... Direct labor.... $17 $39 $1 $8 Fixed costs: Fixed manufacturing overhead.................... Twelfth Edition 7-53 ....... Fixed selling and administrative.. which has only one product.............Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 84-87: Haaikon Company............................................................. $86 Units in beginning inventory.................. Variable manufacturing overhead..........10 0 84.............. $40................. has provided the following data concerning its most recent month of operations: Selling price............................................................400 3.......300 100 Variable costs per unit: Direct materials.... 0 3......... Variable selling and administrative............... Units sold. Units produced...

....100 = $90. Variable costs: Variable cost of goods sold ($57 × 3.......100 = $26... $188........300 7-54 Garrison/Noreen/Brewer......500 C) $95...................300 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: $283.................10 0 Variable selling and administrative ($8 × 3..800 B) $90.40 0 Contribution margin..............400 + $40..800 + $23..............100 B) $28..... Twelfth Edition ...800 + $23..80 0 Sales revenue ($86 × 3.. 214..300)........900 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard Solution: Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = ($8 × 3... 26..50 0 $ 69... What is the total period cost for the month under the variable costing approach? A) $40....300 86..300)...Chapter 7 Variable Costing: A Tool for Management 85....... Managerial Accounting.300 C) $49......300) + $40...700 D) $69.300)................ The total contribution margin for the month under the variable costing approach is: A) $56.......500 D) $63.

.......... Variable costs: Variable cost of goods sold ($57 × 3............ Twelfth Edition $188............ Net operating income.500 69............10 0 26..................................400 D) $1....200 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: $283......Chapter 7 Variable Costing: A Tool for Management 87.80 0 Sales revenue ($86 × 3............900 $ 5... Garrison/Noreen/Brewer.......... Managerial Accounting..........300).....................800 23...... What is the net operating income for the month under variable costing? A) $6... Variable selling and administrative ($8 × 3............100 214...300).........300)..............400 7-55 ..600 B) $(300) C) $5........... Contribution margin.......................................300 63.... Fixed costs: Fixed manufacturing overhead....400 $ 40....... Fixed selling and administrative.....

...................... Variable manufacturing overhead.900 6........... Units in ending inventory........................................... What is the unit product cost for the month under variable costing? A) $71 B) $66 C) $56 D) $61 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Product cost = Direct materials + Direct labor + Variable manufacturing overhead = $22 + $28 + $6 = $56 7-56 Garrison/Noreen/Brewer.....................00 0 $66............................... Direct labor.......... 0 6............. has provided the following data concerning its most recent month of operations: Selling price............ Units sold....... Units produced.......... Fixed selling and administrative.......................00 0 88....... which has only one product..... Twelfth Edition .............Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 88-89: Ibarra Company.................. $22 $28 $6 $5 Fixed costs: Fixed manufacturing overhead.. Variable selling and administrative.............................................. $69. Managerial Accounting. $81 Units in beginning inventory.............................600 300 Variable costs per unit: Direct materials.

..... Variable costs: Variable cost of goods sold ($56 × 6........... Variable selling and administrative ($5 × 6..600).....000 66...........000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: $534......... What is the net operating income for the month under variable costing? A) $0 B) $(19.........000 units were produced and 3.......... 4................. There were no beginning inventories..........500 units were sold.... Contribution margin..000) Use the following to answer questions 90-92: Yankee Company manufactures a single product...... $4 $1 $12.......600 132. Twelfth Edition 7-57 ..... Selling and administrative....... Fixed costs: Fixed manufacturing overhead................00 0 $8..600)..800) C) $(3.000 Last year. The company has the following cost structure: Variable costs per unit: Production........ Garrison/Noreen/Brewer................... Managerial Accounting......Chapter 7 Variable Costing: A Tool for Management 89.. Fixed costs in total: Production............60 0 33....000 402...................000 $ 69.....60 0 Sales revenue ($81 × 6..........................000 135.....000) D) $3......... Net operating income......................................... $369..............................000 $ (3................... Selling and administrative....600)..... Fixed selling and administrative........

Managerial Accounting. Twelfth Edition .000 higher than under absorption costing D) $2.500) = $1.000 less than under absorption costing Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Unit fixed manufacturing overhead = $12.000 = $3 Difference in carrying value of ending finished goods inventory = Unit fixed manufacturing overhead × Change in inventory in units = $3 × (4. Under variable costing. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be: A) the same as under absorption costing B) $1. the unit product cost would be: A) $4 B) $5 C) $7 D) $8 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Production cost = $4 91.500 less than under absorption costing C) $2.500 less than under absorption costing 7-58 Garrison/Noreen/Brewer.000 − 3.Chapter 7 Variable Costing: A Tool for Management 90.000 ÷ 4.

.... Data from the company's records for last year follow: Units in beginning inventory.......500 D) $14.........................000 = $3 Product cost = $4 + $3 = $7 Cost of goods sold = $7 × 3..............500 Use the following to answer questions 93-94: Peterson Company produces a single product......................000 B) $24...................000 60. 0 70.................. Units sold............ Selling and administrative expenses: Variable........ Fixed. Twelfth Edition 7-59 .........000 $140.........000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit fixed manufacturing overhead = $12.....000 $98...000 ÷ 4........................... Fixed..............000 $315................................ Manufacturing costs: Variable................00 0 $630.......................000 Garrison/Noreen/Brewer........ Under absorption costing............ Units produced...400..... Sales......................................000 $1... the cost of goods sold for the year would be: A) $28.........500 C) $17............500 = $24..Chapter 7 Variable Costing: A Tool for Management 92......... Managerial Accounting....................................

....000 238....000 = $9 Change in inventory in units = 70.......... Net operating income....000 Garrison/Noreen/Brewer.000 − 60..000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CPA......50 = $13........ adapted Solution: Product cost = $9 + $4.........50 Sales revenue...Chapter 7 Variable Costing: A Tool for Management 93............ Cost of goods sold ($13..000 94..........000 D) $135.....000 140. Twelfth Edition ......000)...000 C) $352.......... Selling and administrative expenses: Variable selling and administrative....50 × 60.....000 $ 98.....000 590.......................000 B) $307..............000 B) $104.......000 ÷ 70................ adapted Solution: Unit variable product cost = $630. Managerial Accounting..500 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Source: CPA.........400....000 810...........000 = $90..... 7-60 $1.....000 = 10. Under the absorption costing method... Gross margin. Fixed selling and administrative..000 C) $105........000 D) $374... Peterson's net operating income would be: A) $217.000 $ 352... The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be: A) $90....000 Carrying value of ending inventory = $9 × 10.....

........... Garrison/Noreen/Brewer..............000 C) $1.......600 D) $2. $14...........109....... what is McCoy's net operating income for its first year? A) $266..600...261.. Fixed selling and administrative.00 0 456.20 $912...000 In its first year of operations..... Under the variable costing method. Shown below is McCoy's cost structure: Variable cost Total fixed cost per monitor for the year Manufacturing cost....000................Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 95-97: McCoy Corporation manufactures a computer monitor.. Net operating income........000.. 95.000 B) $741...................... McCoy's gross margin in this first year was $2.........00 0 1.000 $ 741... Twelfth Edition $2......000 $912.. McCoy produced 100...... McCoy's contribution margin in this first year was $2..60 $456.....600 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Contribution margin.....000 7-61 ........109....000 monitors but only sold 95...000 Selling and administrative... $75... Managerial Accounting......368........173. Fixed costs: Fixed manufacturing overhead...629...........

....173.600 D) $2.600 97...629.000 B) $786........000).261.......... Under the absorption costing method..........000 monitors and sells 100.......... Twelfth Edition ................600 $1.... Managerial Accounting...................600 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Gross margin. what is McCoy's net operating income for its first year? A) $266......000 456....600 C) $1...........000 1.......387.................................... If McCoy produces 100...... Selling and administrative expenses: Variable selling and administrative ($14.......843. Fixed selling and administrative.... Net operating income.......Chapter 7 Variable Costing: A Tool for Management 96...........) A) McCoy's variable costing net operating income in its second year will be greater than its absorption costing net operating income B) McCoy's absorption costing unit product cost will decrease in the second year C) McCoy's gross margin will be equal to its contribution margin in its second year D) Both A and B above E) none of the above Ans: E AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard 7-62 Garrison/Noreen/Brewer.....000 $ 786..60 × 95... $2. which of the following statements will be true? (Assume no change in cost structure or selling price......000 monitors in the second year of operations.

.. Fixed... Direct labor.00 0 $14..000 units produced and sold: Direct materials....500 units were sold for $72 per unit.. What is the total cost that would be assigned to Mediocre's finished goods inventory at the end of the first year of operations under the absorption costing method? A) $12....... The 3...............25 Total cost of ending finished goods inventory = Unit product cost × Ending inventory in units = $40............ Twelfth Edition 7-63 ............. Actual costs did not fluctuate from the cost behavior patterns described above......000 − 3...... Management budgeted the following costs for its first year of operations........000 + $14...............000 = $40....... Mediocre actually produced 4.. Managerial Accounting...000 ÷ 4........00 0 During the first year of operations... Fixed................250 B) $20....500 units.... Assume that direct labor is a variable cost..........000 units but only sold 3.00 0 $63......000 Unit product cost = $161... These costs are based on a budgeted volume of 4...125 C) $23.000 = $161....250 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $28.. Selling and administrative: Variable..125 Garrison/Noreen/Brewer... 98....00 0 $56..00 0 $7..........000 $42... $28..000 D) $26.....................................25 × (4....000 + $56...... Manufacturing overhead: Variable.000 + $63..500) = $20.........Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 98-100: Mediocre Manufacturing Company produces a single product.......

... Contribution margin..000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead) ÷ 4.............. Variable selling and administrative ($1.... 105...... Under the variable costing method...75 × 3......500)..... which of the following would have increased Mediocre's net operating income under the absorption costing method in its first year of operations? A) an increase in sales volume with no increase in production volume B) an increase in production volume with no increase in sales volume C) both A and B above D) none of the above Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 7-64 Garrison/Noreen/Brewer.000 = $24..........750 6..000 42..............000 + $14.....................125 100...............125 91...Chapter 7 Variable Costing: A Tool for Management 99..000) ÷ 4......125 $63.00 0 $85..................250 C) $55....................125 D) $63.....87 5 160.000 + $56....... Variable costs: Variable cost of goods sold ($24....50 Sales revenue ($72 × 3... Fixed selling and administrative..... Assuming no change in cost structure........50 × 3....00 0 $ 55........ Managerial Accounting........ $252.500).000 Net operating income............ Fixed costs: Fixed manufacturing overhead. what is Mediocre's actual net operating income for its first year? A) $42............................000 units = ($28...500). Twelfth Edition ..000 B) $54................

..000 = $1....50 Garrison/Noreen/Brewer...000 units were sold....00 C) $3......000 ÷ 100.50 + $1..........00 per unit produced $150..50 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $1.. Selling and administrative.....Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 101-102: JV Company produces a single product that sells for $7..... Managerial Accounting....$1..000 units were produced and 80...............00 per unit...... Fixed Costs Variable Costs -.... Last year........$1....000 $0... The unit product cost under absorption costing is: A) $2.....000 $0... Factory overhead......50 per unit produced -.50 per unit sold 101.. Twelfth Edition 7-65 .50 + $1.. adapted Solution: Unit fixed overhead = $150... The company has the following cost structure: Raw materials.... 100. There were no beginning inventories.50 D) $4.00 + $0.........50 per unit produced $80...50 B) $3.50 = $4. Direct labor..50 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CPA....

...............50 + $1 + $0......000 B) $80.......... Fixed selling and administrative..........00 0 $ 50..... Twelfth Edition ...........50 = $3 $560....000).....00 0 280.000 80.. Variable selling and administrative ($0.Chapter 7 Variable Costing: A Tool for Management 102..000 D) $120....................000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Source: CPA.000 Garrison/Noreen/Brewer...50 × 80....00 0 40...........00 0 150......00 0 Sales revenue ($7 × 80.............. Variable costs: Variable cost of goods sold ($3 × 80... 7-66 $240......000 C) $90..........00 0 280.........000)........... Contribution margin................... adapted Solution: Product cost = Direct materials + Direct labor + Variable manufacturing overhead = $1.......................000)........ Fixed costs: Fixed manufacturing overhead.......... The net operating income under variable costing is: A) $50......... Net operating income.......................... Managerial Accounting..000 230...

........600 54.............2 Level: Medium Solution: Unit product cost = $15 + $14 + $6 = $35 Sales revenue ($106 × 1.60 7-67 ...600 1................. Fixed selling and administrative......................................600 B) $99............... The total contribution margin for the month under the variable costing approach is: A) $54.... Units sold...400 200 Variable costs per unit: Direct materials... Variable costs: Variable cost of goods sold ($35 × 1.............................. Units in ending inventory... Managerial Accounting............ $106 Units in beginning inventory..................... Garrison/Noreen/Brewer........... Direct labor............................... $51....................400 C) $93.. Variable selling and administrative.....................400)..400).................................... Variable manufacturing overhead.... $15 $14 $6 $4 Fixed costs: Fixed manufacturing overhead...... Units produced........ Variable selling and administrative ($4 × 1..................40 0 $49..............000 5...Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 103-106: Gadepelli Company........ has provided the following data concerning its most recent month of operations: Selling price... which has only one product.....600 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1.............. Twelfth Edition $148...................................20 0 $23..................400).800 D) $42....80 0 103... 0 1.......

7-68 0 $ 93... Twelfth Edition .... Managerial Accounting...............Chapter 7 Variable Costing: A Tool for Management Contribution margin..................800 Garrison/Noreen/Brewer..........

.800 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit fixed manufacturing overhead = $51...........800 $ 54...600 = $32 Unit product cost = $15 + $14 + $6 + $32 = $67 Sales revenue ($106 × 1..........400).600 105..600 C) $68........800 = $80.Chapter 7 Variable Costing: A Tool for Management 104. Gross margin.400 + $51......200 + $23........600 Garrison/Noreen/Brewer...000 B) $80...200 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard Solution: Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $4 × 1........ The total gross margin for the month under the absorption costing approach is: A) $25.... Cost of goods sold ($67 × 1.800 = $5... What is the total period cost for the month under the variable costing approach? A) $75....000 D) $93....400).......600 C) $29.200 + $23.........600 + $51.....200 ÷ 1......400 D) $51. Twelfth Edition 7-69 .. Managerial Accounting.200 B) $54.........400 93...... $148.........

.... Managerial Accounting... $2 per unit Fixed selling and administrative.........600 C) $23......................800 = $29.. Direct labor.. $60.............Chapter 7 Variable Costing: A Tool for Management 106.......000 in total Assume that direct labor is a variable cost......... Variable manufacturing overhead..400 B) $80....................400 + $23.. $7 per unit $3 per unit $18 per unit $450. Twelfth Edition ... Fixed manufacturing overhead...... Carlos Manufacturing Company incurred the following costs to produce 8..800 D) $51..000 in total The company also incurred the following costs in the sale of 7............ 7-70 Garrison/Noreen/Brewer.............000 units of its product: Direct materials....200 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard Solution: Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $4 × 1.......500 units of product during its first year: Variable selling and administrative....... What is the total period cost for the month under the absorption costing approach? A) $29.400 Use the following to answer questions 107-109: During its first year of operations............

25 × (8.000 B) $42.125 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit fixed manufacturing overhead = $450.000 B) $42.25 Total cost of ending finished goods inventory = Unit product cost × Ending inventory in units = $84.000 = $56. What is the total cost that would be assigned to Carlos' finished goods inventory at the end of the first year of operations under the absorption costing method? A) $15.000 Garrison/Noreen/Brewer.000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $7 + $3 + $18 = $28 Total cost of ending finished goods inventory = Unit product cost × Ending inventory in units = $28 × (8.25 = $84. Managerial Accounting.500) = $84.500) = $28 × 500 = $14.000 ÷ 8.125 C) $44.000 D) $14.25 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $7 + $3 + $18 + $56.Chapter 7 Variable Costing: A Tool for Management 107.125 C) $44.000 D) $47.000 − 7. What is the total cost that would be assigned to Carlos' finished goods inventory at the end of the first year of operations under the variable costing method? A) $15.125 108.000 − 7.25 × 500 = $42. Twelfth Edition 7-71 .

........125 = $90.......................000 Use the following to answer questions 110-111: Kern Company produces a single product........125 − ($56..... If Carlos' absorption costing net operating income for this first year is $118.....................250 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Solution: Variable costing net income = Absorption costing net income – (Unit fixed manufacturing overhead × Change in inventory in units) = $118.....500 $30...........00 0 Assume that direct labor is a variable cost............125 D) $146.............. what would its variable costing net operating income be for this first year? A) $86....00 0 $25....... 0 10............. 7-72 Garrison/Noreen/Brewer. Units produced...... Fixed selling and administrative expenses...25 × 500) = $118........... Direct materials.000 C) $104.....125 − $28.......00 0 $20....125..............000 B) $90.000 9......000 $40....... Twelfth Edition .........00 0 $4............ Direct labor Variable factory overhead.................................................. Fixed factory overhead.......... Managerial Accounting.......................... Variable selling and administrative expenses..Chapter 7 Variable Costing: A Tool for Management 109... Selected information concerning the operations of the company follow: Units in beginning inventory........... Units sold......00 0 $12...

700 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CPA.500.000 − 9.000 ÷ 10.500.000) ÷ 10.000 − 9.650 C) $8.000) = $2.000 ÷ 10. absorption costing net income would be higher than variable costing net income.20 × 1.20 Ending inventory = Units produced − Units sold = 10.500. Twelfth Edition 7-73 . adapted Solution: Unit fixed manufacturing overhead = $25.000 + $20.000 = $72.000 = $2.200 111.500 Since inventory has increased (production exceeds sales).500. adapted Solution: Unit product cost = ($40. B) Variable costing net operating income would be higher than absorption costing net operating income by $2.50 Difference between absorption costing net income and variable costing net income = Unit fixed manufacturing overhead × Change in ending inventory in units = $2. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be: A) $7. Garrison/Noreen/Brewer.000 = 1. absorption or variable costing.000 Carrying value of ending finished goods inventory = Unit product cost × Units in ending inventory = $7. C) Absorption costing net operating income would be higher than variable costing net operating income by $5.000 = $7. D) Variable costing net operating income would be higher than absorption costing net operating income by $5.000 D) $9.000 = $7. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Source: CPA.000 + $12. Which costing method. Managerial Accounting.50 × (10.Chapter 7 Variable Costing: A Tool for Management 110.200 B) $7. would show a higher operating income for the year and by what amount? A) Absorption costing net operating income would be higher than variable costing net operating income by $2.

.. Fixed manufacturing overhead...000 $40.000 + $80........ Fixed selling and administrative expenses.000 = $2.......... Variable manufacturing overhead............ Costs incurred during June were as follows: Direct materials....000 + $50.... The unit product cost under absorption costing would be: A) $3................... $100......70 7-74 Garrison/Noreen/Brewer.......00 0 $80....000 Assume that direct labor is a variable cost.20 D) $1...... produced 100.........000 $50..Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 112-113: Lina Co..... Variable selling and administrative expenses........... adapted Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = ($100......000 ÷ 100......000 $45..... Direct labor.70 C) $2... 112.... Managerial Accounting...................80 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CPA.................................... Twelfth Edition .....000 = $270...000 + $40...000) ÷ 100.000 $12..27 B) $2.....000 units of its single product during the month of June..

....................................Chapter 7 Variable Costing: A Tool for Management 113. Managerial Accounting.. $29 $17 $5 $9 Fixed costs: Fixed manufacturing overhead.. $33. Units in ending inventory.............. 0 2............20 Use the following to answer questions 114-115: Bauxar Company.............. Variable manufacturing overhead............32 D) $2....... $98 Units in beginning inventory.............000) ÷ 100......100 100 Variable costs per unit: Direct materials.200 2..000 units = ($100....... The unit product cost under variable costing would be: A) $2.....000 + $40................000 = $2.... Variable selling and administrative................82 B) $2..........000 = $220................ has provided the following data concerning its most recent month of operations: Selling price.. adapted Solution: Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead) ÷ 100............ Units produced.... Twelfth Edition 7-75 ...000 ÷ 100. which has only one product.......40 0 Garrison/Noreen/Brewer........... Fixed selling and administrative....70 C) $2................. Units sold.....000 + $80................................. Direct labor....................20 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CPA.....00 0 $29...................

Twelfth Edition . What is the unit product cost for the month under variable costing? A) $75 B) $66 C) $51 D) $60 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Direct materials + Direct labor + Variable manufacturing overhead = $29 + $17 + $5 = $51 115. What is the unit product cost for the month under absorption costing? A) $66 B) $51 C) $60 D) $75 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit fixed manufacturing overhead = $33.200 = $15 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $29 + $17 + $5 + $15 = $66 7-76 Garrison/Noreen/Brewer.Chapter 7 Variable Costing: A Tool for Management 114. Managerial Accounting.000 ÷ 2.

....000 Variable costs per unit: Manufacturing...................... $7 $3 Fixed costs in total: Manufacturing.000 D) $12..... Selling and administrative...........Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 116-118: Crossbow Corp.......... $12..... Selling and administrative... Under variable costing...........000 Garrison/Noreen/Brewer... Data concerning June's operations follow: Units in beginning inventory... Units sold..............000 5.000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit product cost = $7 Ending inventory = Beginning inventory + Units produced − Units sold = 0 + 6...000 C) $9........ Twelfth Edition 7-77 .....000 = 1.000 − 5.. ending inventory on the balance sheet would be valued at: A) $10......... Managerial Accounting..........000 116. Units produced.............000 = $7.000 B) $7......... 0 6..000 Value of ending inventory = Unit product cost × Units in ending inventory = $7 × 1...... produces a single product.00 0 $3...........

Twelfth Edition .000 C) $9.000 ÷ 6. ending inventory on the balance sheet would be valued at: A) $10. net operating income under variable costing will be: A) higher than net operating income under absorption costing.000 118.000 = $2 Unit product cost = $7 + $2 = $9 Value of ending inventory = Unit product cost × Units in ending inventory = $9 × 1. Managerial Accounting. D) none of these Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 7-78 Garrison/Noreen/Brewer. For the year in question. Under absorption costing.000 = $9.000 D) $12. C) the same as net operating income under absorption costing.000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Unit fixed manufacturing overhead = $12.000 B) $7.Chapter 7 Variable Costing: A Tool for Management 117. B) lower than net operating income under absorption costing.

........... Fixed selling and administrative. Managerial Accounting................ Twelfth Edition 7-79 ..........500 = $19..900 300 Variable costs per unit: Direct materials..... $41......600 B) $93.............500 = $134..700 Garrison/Noreen/Brewer...600 + $41...600 + $73...............................100 C) $115......................900 + $41..... Units produced.60 0 $73...... What is the total period cost for the month under the variable costing approach? A) $41.. which has only one product.100 D) $134........................600 + $73....50 0 119..................... Units in ending inventory........................... 0 5................. Units sold............200 4...... Variable manufacturing overhead............. has provided the following data concerning its most recent month of operations: Selling price....................... $20 $16 $3 $4 Fixed costs: Fixed manufacturing overhead.. $67 Units in beginning inventory.......... Direct labor.700 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard Solution: Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $4 × 4.........................Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 119-120: Dearne Company....... Variable selling and administrative......

...................... 7-80 7........ Twelfth Edition ........... Direct labor.....100 B) $73........600 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard Solution: Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $4 × 4..... What is the total period cost for the month under the absorption costing approach? A) $93.. Managerial Accounting.00 0 $574............................ Variable costs per unit: Direct materials. Fixed costs per year: Fixed manufacturing overhead...500 = $93......00 0 Garrison/Noreen/Brewer...... Variable selling and administrative expenses.......... Variable manufacturing overhead....500 C) $134......... Fixed selling and administrative expenses.000 $77 $89 $5 $3 $532......700 D) $41...900 + $73...................100 Use the following to answer questions 121-122: Tat Corporation produces a single product and has the following cost structure: Number of units produced each year.....................................Chapter 7 Variable Costing: A Tool for Management 120..........

000 = $76 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $77 + $89 + $5 + $76 = $247 122. The unit product cost under absorption costing is: A) $247 B) $166 C) $332 D) $171 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit fixed manufacturing overhead = $532. Twelfth Edition 7-81 .000 ÷ 7. The unit product cost under variable costing is: A) $169 B) $171 C) $247 D) $174 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $77 + $89 + $5 = $171 Garrison/Noreen/Brewer. Managerial Accounting.Chapter 7 Variable Costing: A Tool for Management 121.

.......... 123....................... The unit product cost under absorption costing was: A) $170 B) $115 C) $255 D) $110 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit fixed manufacturing overhead = $220. has provided the following data for its most recent month of operations: Number of units produced....000 ÷ 4............. which produces a single product.....00 0 $308..... Variable manufacturing overhead................ 4.....000 = $55 Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $39 + $71 + $5 + $55 = $170 7-82 Garrison/Noreen/Brewer................................................. Fixed costs: Fixed manufacturing overhead.................... Variable selling and administrative expense...00 0 There were no beginning or ending inventories.. Variable costs per unit: Direct materials...............000 $39 $71 $5 $8 $220.... Twelfth Edition ....Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 123-124: Caruso Inc............ Fixed selling and administrative expense............. Managerial Accounting........ Direct labor..

......... 0 8.............................500 400 Variable costs per unit: Direct materials............................... Twelfth Edition 7-83 ..................................900 8............Chapter 7 Variable Costing: A Tool for Management 124..... Managerial Accounting.................................................................................... Variable manufacturing overhead....80 0 $68. Units in ending inventory........... Direct labor......... Units sold.. Units produced......... $10 $48 $5 $11 Fixed costs: Fixed manufacturing overhead....... Variable selling and administrative.. has provided the following data concerning its most recent month of operations: Selling price..... $95 Units in beginning inventory............. The unit product cost under variable costing was: A) $115 B) $123 C) $118 D) $170 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $39 + $71 + $5 = $115 Use the following to answer questions 125-126: Cloer Company.........................000 Garrison/Noreen/Brewer.. Fixed selling and administrative..... $106........ which has only one product....................

.....700 C) $272.....000 B) $170........000 C) $8................ 93....................................000 Garrison/Noreen/Brewer......000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit product cost = $10 + $48 + $5 = $63 $807... Managerial Accounting......50 0 Variable selling and administrative ($11 × 8... The total contribution margin for the month under the variable costing approach is: A) $178.50 0 Contribution margin...500).00 0 $178...500 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit fixed manufacturing overhead = $106.50 0 126.......... The total gross margin for the month under the absorption costing approach is: A) $200...500 B) $71...500)... Variable costs: Variable cost of goods sold ($63 × 8... Gross margin.000 D) $170..500 $ 170.......500 637........................50 0 Sales revenue ($95 × 8.......... Cost of goods sold ($75 × 8..........800 ÷ 8.... 7-84 $807.....500)..... $535........ 629........................ Twelfth Edition ........500 D) $178........500).500)......Chapter 7 Variable Costing: A Tool for Management 125.........900 = $12 Unit product cost = $10 + $48 + $5 + $12 = $75 Sales revenue ($95 × 8..........................................

000 C) $240. and fixed manufacturing costs are $2 per unit based on 50. 50.000 units produced each year.000 B) $400.000 = $340. and 40. Under variable costing.000 128.000 = $240.000 B) $240.000) + $100.000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Total fixed cost = Per unit fixed cost × Units produced Total fixed cost = $2 × 50. Twelfth Edition 7-85 .000 D) $400.000 Total manufacturing cost deducted from revenue = (Variable per unit product cost × Units sold) + Total fixed cost = ($6 × 40.000 C) $340.000 units were produced. 127. Variable manufacturing costs are $6 per unit.000 D) $300.Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 127-128: Hirsch Company produces a single product. In the current year. Managerial Accounting.000 Garrison/Noreen/Brewer.000 + $100.000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Total manufacturing cost deducted from revenue = Total per unit product cost × Units sold = ($6 + $2) × 40. the amount of manufacturing cost (variable and fixed) deducted from revenue in the current year would be: A) $320.000 units were sold. the amount of manufacturing cost (variable and fixed) deducted from revenue in the current year would be: A) $320. Under absorption costing.000 = $100.000 = $320.

Chapter 7 Variable Costing: A Tool for Management
Use the following to answer questions 129-130:
Osawa Inc. manufactured 200,000 units of its only product in its first year of operations.
Variable manufacturing costs were $30 per unit. Fixed manufacturing costs were $600,000
and selling and administrative costs totaled $400,000. Osawa sold 120,000 units at a selling
price of $40 per unit.
129. Osawa's net operating income using absorption costing would be:
A) $200,000
B) $440,000
C) $600,000
D) $840,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium Source: CMA, adapted
Solution:
Unit fixed manufacturing cost = $600,000 ÷ 200,000 = $3
Unit product cost = $30 + $3 = $33
Sales revenue ($40 × 120,000)............................. $4,800,000
Cost of goods sold ($33 × 120,000)..................... 3,960,000
Gross margin........................................................
840,000
Selling and administrative expenses cost.............
400,000
Net operating income........................................... $ 440,000

7-86

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 7 Variable Costing: A Tool for Management
130. Osawa's net operating income using variable costing would be:
A) $200,000
B) $440,000
C) $800,000
D) $600,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium Source: CMA, adapted
Solution:
Sales revenue ($40 × 120,000)..............................
Variable cost of goods sold ($30 × 120,000).........
Contribution margin..............................................
Fixed costs:
Fixed manufacturing costs..................................
Selling and administrative..................................
Net operating income.............................................

$4,800,000
3,600,000
1,200,000
$600,000
400,000

1,000,000
$ 200,000

Use the following to answer questions 131-132:
Eldrick Company, which has only one product, has provided the following data concerning its
most recent month of operations:
Selling price...............................................

$85

Units in beginning inventory.....................
Units produced...........................................
Units sold...................................................
Units in ending inventory..........................

0
4,500
4,400
100

Variable costs per unit:
Direct materials......................................
Direct labor.............................................
Variable manufacturing overhead..........
Variable selling and administrative........

$29
$13
$7
$5

Fixed costs:
Fixed manufacturing overhead...............
Fixed selling and administrative.............

$117,00
0
$4,400

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

7-87

Chapter 7 Variable Costing: A Tool for Management
131. What is the net operating income for the month under variable costing?
A) $10,100
B) $2,600
C) $15,000
D) $17,600
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Unit product cost = $29 + $13 + $7 = $49
$374,00
0

Sales revenue ($85 × 4,400)..................................
Variable costs:
Variable cost of goods sold ($49 × 4,400).........
Variable selling and administrative ($5 ×
4,400)..............................................................
Contribution margin..............................................
Fixed costs:
Fixed manufacturing overhead...........................
Fixed selling and administrative.........................
Net operating income.............................................

7-88

$215,60
0
22,00
0
$117,00
0
4,40
0

237,60
0
136,400

121,40
0
$
15,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

..000 D) $2................ Selling and administrative expenses: Variable selling and administrative ($5 × 4..000 4..600 7-89 ............................400)........ Cost of goods sold ($75 × 4..Chapter 7 Variable Costing: A Tool for Management 132............. What is the net operating income for the month under absorption costing? A) $17..........600 B) $10........ Gross margin. Net operating income.........000 $22..........400 26........100 C) $15.................. Managerial Accounting...............................600 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit fixed manufacturing overhead = $117...500 = $26 Unit product cost = $29 + $13 + $7 + $26 = $75 Sales revenue ($85 ×4... Garrison/Noreen/Brewer........ Fixed selling and administrative..400 $ 17.000 330......400)....400)...........................000 44.....................000 ÷ 4...... Twelfth Edition $374.............

......... has provided the following data concerning its most recent month of operations: Selling price....................... which has only one product..........................................600 6....... Units sold.......................... 7-90 Garrison/Noreen/Brewer....................... Twelfth Edition .................... Direct labor.... Managerial Accounting........ Units produced... Units in ending inventory............Chapter 7 Variable Costing: A Tool for Management Use the following to answer questions 133-134: Kiefer Company............. Variable manufacturing overhead.....800 400 Variable costs per unit: Direct materials...... 600 6............. Fixed selling and administrative........... $34 $52 $2 $11 Fixed costs: Fixed manufacturing overhead........ The company's variable costs per unit and total fixed costs have been constant from month to month................ $133 Units in beginning inventory.........................200 The company produces the same number of units every month.............. Variable selling and administrative....... although the sales in units vary from month to month.. $158.............40 0 $61...................

..................... Variable costs: Variable cost of goods sold ($88 × 6..........800).............200 D) $11...........800)...600 C) $29............... Managerial Accounting.600 7-91 .600 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: $904....80 0 $158... Contribution margin.............. What is the net operating income for the month under variable costing? A) $6......................................... Variable selling and administrative ($11 × 6.......... Twelfth Edition $598...200 219... Fixed costs: Fixed manufacturing overhead...40 0 Sales revenue ($133 × 6........20 0 231............................. Net operating income....60 0 $ 11......20 0 673.....40 0 74... Fixed selling and administrative....Chapter 7 Variable Costing: A Tool for Management 133...........40 0 61..800 B) $9...........800)...... Garrison/Noreen/Brewer.....................

.. Variable costing net operating income........200 136........................600 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Unit fixed manufacturing overhead= $24 Unit product cost = $34 + $52 + $2 + $24 = $112 Sales revenue ($133 × 6.600 142... 7-92 $52........... Managerial Accounting.....00 0 $4............800 $74....... this year...............800 C) $29... Gross margin.................000 $6........... Fixed manufacturing overhead costs deferred in inventory under absorption costing....800)..600 B) $6.800 61... Fixed selling and administrative........ last year.................... The following data pertain to the company's operations over the last two years: Variable costing net operating income..............Chapter 7 Variable Costing: A Tool for Management 134......... Twelfth Edition .00 0 $68........ Net operating income.......000 6....800 $ Use the following to answer questions 135-136: Danahy Corporation manufactures a variety of products...................... $904. Fixed manufacturing overhead costs released from inventory under absorption costing......... Cost of goods sold ($112 × 6........... Selling and administrative expenses: Variable selling and administrative ($11 × 6...200 D) $9. last year...... this year..................800)............000 Garrison/Noreen/Brewer.... What is the net operating income for the month under absorption costing? A) $11............800).400 761.................

000 B) $74.000 – $4. Managerial Accounting.000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Absorption costing net income = Variable costing net operating income – Fixed manufacturing overhead released = $52.000 = $48.000 and this year was $103.000. This year. Last year. $12.Chapter 7 Variable Costing: A Tool for Management 135.000 C) $52. Twelfth Edition 7-93 . $32.000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing.000 D) $66.000 = $74. Variable costing net operating income last year was $86.000 Use the following to answer questions 137-138: Helmers Corporation manufactures a variety of products.000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $68.000 D) $56.000 in fixed manufacturing overhead costs were released from inventory under absorption costing. What was the absorption costing net operating income last year? A) $50. What was the absorption costing net operating income this year? A) $62. Garrison/Noreen/Brewer.000 B) $48.000 + $6.000 136.000 C) $70.

. 2......... 600 units Decrease in ending inventory.000 138.000 – $32...000 = $115.....000 D) $118... $88... last year..600 Variable costing net operating income.. $7 7-94 Garrison/Noreen/Brewer.. What was the absorption costing net operating income last year? A) $106.....000 Use the following to answer questions 139-140: Norenberg Corporation manufactures a variety of products..Chapter 7 Variable Costing: A Tool for Management 137....000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $103........ What was the absorption costing net operating income this year? A) $81... The following data pertain to the company's operations over the last two years: Variable costing net operating income......000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Absorption costing net income = Variable costing net operating income – Fixed manufacturing overhead released = $86...000 C) $54.. last year....000 + $12........ Managerial Accounting....000 = $54............ this year. Twelfth Edition .. $96..000 B) $86.000 C) $115...........000 B) $83...100 Increase in ending inventory..300 units Fixed manufacturing overhead cost per unit.......000 D) $123. this year...

800 B) $88.800 140. Twelfth Edition 7-95 .400 units.000 B) $100.100 Absorption costing net income = Variable costing net operating income − Fixed manufacturing overhead released = $96.500 C) $108. Last year. What was the absorption costing net operating income last year? A) $92.200 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Solution: Fixed manufacturing overhead released = 2.000 Use the following to answer questions 141-142: Rosal Corporation manufactures a variety of products.000 D) $112. Garrison/Noreen/Brewer.200 = $92. This year.Chapter 7 Variable Costing: A Tool for Management 139.300 this year.600 C) $84.300 × $7 = $16.600 units.700 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Solution: Fixed manufacturing overhead deferred = 600 × $7 = $4.100 − $16. Variable costing net operating income was $74.100 = $80.200 Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $88. Managerial Accounting.400 D) $76. ending inventory decreased by 1.600 + $4. Fixed manufacturing overhead cost is $5 per unit. ending inventory increased by 2.700 last year and was $82. What was the absorption costing net operating income this year? A) $80.

300 − $7.400 = $7. Managerial Accounting. What was the absorption costing net operating income this year? A) $75.700 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Solution: Fixed manufacturing overhead deferred = $5 × 2.700 B) $74.300 7-96 Garrison/Noreen/Brewer.700 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Solution: Fixed manufacturing overhead released = $5 × 1.000 Absorption costing net income = Variable costing net operating income − Fixed manufacturing overhead released = $82.300 C) $76.300 B) $89.Chapter 7 Variable Costing: A Tool for Management 141. What was the absorption costing net operating income last year? A) $61.700 + $13.700 142.000 Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $74.000 = $87. Twelfth Edition .700 D) $87.300 D) $68.000 = $75.700 C) $80.600 = $13.

. The company's variable costs per unit and total fixed costs have been constant from month to month.......................................... $112 Units in beginning inventory...........000 100 Variable costs per unit: Direct materials................ Prepare an income statement for the month using the absorption costing method... d.. Units sold..... Lehne Company........ e........ Required: a............ 500 2.................00 0 The company produces the same number of units every month....Chapter 7 Variable Costing: A Tool for Management Essay Questions 143.......... $80........60 0 $15.............. What is the unit product cost for the month under variable costing? b....................................... Units in ending inventory.. Units produced.............. Garrison/Noreen/Brewer. $13 $49 $6 $10 Fixed costs: Fixed manufacturing overhead.... What is the unit product cost for the month under absorption costing? c................................. Direct labor..600 3........ which has only one product... Managerial Accounting........ Variable manufacturing overhead...... Reconcile the variable costing and absorption costing net operating incomes for the month....................... Variable selling and administrative....... Fixed selling and administrative............. Twelfth Edition 7-97 .. although the sales in units vary from month to month.. Prepare an income statement for the month using the contribution format and the variable costing method... has provided the following data concerning its most recent month of operations: Selling price.......

............. Absorption costing income statement Sales........................................................................ Less variable expenses: Variable cost of goods sold: Beginning inventory....................... Variable manufacturing overhead......................................... & d....000 $ 34.................. Goods available for sale.... Variable cost of goods sold......000 95...... Variable manufacturing overhead...... Variable selling and administrative................000 80..............000 234.......000 176...... Contribution margin.............800 6....... Less fixed expenses: Fixed manufacturing overhead...................000 102............................400 $336................. Unit product costs Variable costing: Direct materials...... Twelfth Edition ..............................500 Garrison/Noreen/Brewer............... Direct labor.Chapter 7 Variable Costing: A Tool for Management Ans: a......800 204... Direct labor.......... Income statements Variable costing income statement Sales.....800 210........................................... Cost of goods sold: Beginning inventory..... Less ending inventory...000 $ 49....................... Unit product cost............ Add variable manufacturing costs. Fixed manufacturing overhead..600 15........... Fixed selling and administrative...........................600 $ 6....................................................... & b.................................................. $1 3 49 6 $6 8 Absorption costing: Direct materials.. Net operating income............................................................... Managerial Accounting................................................. $1 3 49 6 31 $9 9 c.................................................. Unit product cost....000 30..... 7-98 $336.................................

....900 297..400 306...........000 39... Less ending inventory...................... Managerial Accounting................. Garrison/Noreen/Brewer.. Twelfth Edition 257........Chapter 7 Variable Costing: A Tool for Management Add cost of goods manufactured................................. Goods available for sale........000 7-99 ..................900 9............. Gross margin...........................

....... Units sold....... Maffei Company......................................... Reconciliation Variable costing net operating income....................2............... Fixed selling and administrative. 7-100 Garrison/Noreen/Brewer................. Net operating income.........000) $ 6.......... 0 7..................... 45............ has provided the following data concerning its most recent month of operations: Selling price. Absorption costing net operating income..............3 Level: Hard 144.................................Chapter 7 Variable Costing: A Tool for Management Selling and administrative expenses expenses: Variable selling and administrative...000 $( 6........................................... which has only one product..................... d..............000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting.........200 7..... What is the unit product cost for the month under absorption costing? c.................. What is the unit product cost for the month under variable costing? b.....000 15..................80 0 $98.......... Direct labor..... Prepare an income statement for the month using the absorption costing method................... Twelfth Edition .............000 200 Variable costs per unit: Direct materials.............. $138 Units in beginning inventory. Fixed selling and administrative......... $280. Managerial Accounting........ $42 $32 $1 $8 Fixed costs: Fixed manufacturing overhead. Variable manufacturing overhead......... Measurement LO: 1.......000 e...... Prepare an income statement for the month using the contribution format and the variable costing method.. Deduct fixed manufacturing overhead costs released from inventory under absorption costing......... Units in ending inventory.....400) $(6... 30..... Variable selling and administrative.................400 (12........000 Required: a.... Units produced.......

Garrison/Noreen/Brewer. Reconcile the variable costing and absorption costing net operating incomes for the month. Managerial Accounting. Twelfth Edition 7-101 .Chapter 7 Variable Costing: A Tool for Management e.

.... 7-102 $966..............000 525... Variable selling and administrative................ Variable manufacturing overhead.................... Direct labor..........000 581................................................................000 385............ Variable manufacturing overhead.........800 $ 6......................000 280.................. $42 32 1 $75 $ 42 32 1 39 $11 4 c..800 98......... Net operating income.....................000 378..................... Unit product cost...000 540.............................. Absorption costing: Direct materials........ Unit product cost.................... Twelfth Edition ........................................ Managerial Accounting. Contribution margin.........000 $ 0 540................................................................000 15................. Less fixed expenses: Fixed manufacturing overhead....... Fixed selling and administrative...........Chapter 7 Variable Costing: A Tool for Management Ans: a... & d............ Direct labor.........................000 56.......................... & b............... Less ending inventory................................................................ Fixed manufacturing overhead............................... Unit product costs Variable costing: Direct materials.. Less variable expenses: Variable cost of goods sold: Beginning inventory.......... Variable cost of goods sold......... Goods available for sale........200 Garrison/Noreen/Brewer................... Income statements Variable costing income statement Sales............................... Add variable manufacturing costs.......

.........800 $14...... Reconciliation Variable costing net operating income. Measurement LO: 1..800 820................... Add fixed manufacturing overhead costs deferred in inventory under absorption costing..... Net operating income........................... Less ending inventory.... $966................................ Goods available for sale....................000 154................................................000 $ 14..... Add cost of goods manufactured.....00 0 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting............................ Cost of goods sold: Beginning inventory..............................000 98....000 168.... Twelfth Edition 7-103 ...................... e.2..800 22. Fixed selling and administrative................................ Managerial Accounting..................... Sales.......................000 $ 6............3 Level: Medium Garrison/Noreen/Brewer. Absorption costing net operating income............000 798..................... Selling and administrative expenses expenses: Variable selling and administrative..............................................200 7...000 $ 0 820........ Gross margin..............800 56...............Chapter 7 Variable Costing: A Tool for Management Absorption costing income statement...

.. Direct labor cost per unit................................... Twelfth Edition ............................ d.............. Selling and administrative expenses: Variable per unit. Prepare an income statement for the year using absorption costing....................... $10 $225............................................ Fixed manufacturing overhead (total)............. Compute the cost of a single unit of product under both the absorption costing and variable costing approaches.............................000 19.................. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above...Chapter 7 Variable Costing: A Tool for Management 145..... Variable manufacturing overhead cost per unit...................................................00 0 Assume that direct labor is a variable cost..... 0 20........................... Managerial Accounting.... The following data refer to the year just completed: Beginning inventory.................... Manufacturing costs: Direct materials cost per unit.. Units produced.......... c........... b.................... Required: a........................................................................................ $350 Fixed (total)..........00 0 $190 $40 $25 $250.................... Units sold........... 7-104 Garrison/Noreen/Brewer.....000 Selling price per unit...... Prepare an income statement for the year using variable costing........ The Dean Company produces and sells a single product....

.500 415.........................100.. $190.............................................................. Less ending inventory (1............567........ Cost of goods available........... c............100. $190...50 $267......................50 0 [($10 × 19........000]............00 0 $ 0 5............................................................................................................00 0 $1..152...............00 25................50)..... Variable overhead..............................000 / 20...................650.................... Total cost per unit...........500 1.................00 0 Sales..........000 7-105 ..................000 @ $267..... b ................. Cost per unit under absorption costing: Direct materials. Add cost of goods manufactured (20.650..............082... Cost of goods sold: Beginning inventory....00 25..000) + $225.................................... Variable overhead..00 $255...................................0 0 Absorption costing income statement: Sales..500 5.....000 @ $267........ Gross profit.........350... Cost of goods available......... Selling and administrative expenses expenses: $6. Fixed overhead ($250. Net operating income....0 0 40............................................................................ Cost of goods manufactured (20...............................Chapter 7 Variable Costing: A Tool for Management Ans: a...........350...............0 0 40..... Cost of goods sold: $ Beginning inventory...........000 267............................ Variable costing income statement: $6......000 @ $255).. Garrison/Noreen/Brewer........... Direct labor.................................................. Total cost per unit........................000 5.......... Managerial Accounting................................ Twelfth Edition 0 5.50)................................................ Direct labor........000 5..............................5 0 Cost per unit under variable costing: Direct materials...00 12.....000).............

...........00 0 $1........000 225....845.....00 0 5..............035.......... Variable cost of goods sold............ Twelfth Edition ......140... 7-106 255. Variable selling and administrative expenses: (19................... Net operating income............000 @ $10)....... Managerial Accounting........Chapter 7 Variable Costing: A Tool for Management Less ending inventory (1........000 190...00 0 Garrison/Noreen/Brewer........................................................ Selling and administrative.........000 250...000 1.............. Less fixed expenses: Manufacturing overhead............615................ Contribution margin........000 4.............000 475................000 @ $255).......................................................................

..... What is the unit product cost for the month under variable costing? b................................. Units produced............... Units sold..50 0 $1........ has provided the following data concerning its most recent month of operations: Selling price...... c................. Twelfth Edition 7-107 .....152...50 0 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting.................... although the sales in units vary from month to month. 400 6............. Direct labor. $35 $36 $3 $4 Fixed costs: Fixed manufacturing overhead.. Required: a..... Units in ending inventory...... Fixed selling and administrative....140...00 0 12... The company's variable costs per unit and total fixed costs have been constant from month to month. Managerial Accounting...... (Hint: Use the reconciliation method....900 300 Variable costs per unit: Direct materials.......Chapter 7 Variable Costing: A Tool for Management d .......... Prepare an income statement for the month using the contribution format and the variable costing method.... Measurement LO: 1... Variable selling and administrative......... determine the absorption costing net operating income for the month.......... Without preparing an income statement.800 6.............. Pacht Company.................000 @ $12..... Add fixed manufacturing overhead costs deferred in inventory under absorption costing (1.......2.......3 Level: Medium 146...... Net operating income under variable costing....................20 0 $96....... Variable manufacturing overhead............. which has only one product........ $197. $121 Units in beginning inventory..600 The company produces the same number of units every month........ $1....................) Garrison/Noreen/Brewer..............50) Net operating income under absorption costing........................

....900 c............800 22... Variable manufacturing overhead......... Direct labor................................................................... $29...... Managerial Accounting...................... Measurement LO: 1.700 293....... Variable selling and administrative.....200 296.900 (2...... $3 5 36 3 $7 4 $834....900) $ 0 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting...............200 510............ Variable cost of goods sold................. Absorption costing net operating income............ Add variable manufacturing costs.....600 27..... Net operating income...3 Level: Hard 7-108 Garrison/Noreen/Brewer.............................. Variable costing unit product cost Direct materials......................200 532.. b . Contribution margin...... Less ending inventory................... Unit product cost...........200 96.....600 503....................2.......900 $ 29....................... Computation of absorption costing net operating income Fixed manufacturing overhead per unit................ Deduct fixed manufacturing overhead costs released from inventory under absorption costing........................ Twelfth Edition .............. Fixed selling and administrative..........600 538....800 $ 2...................... Change in inventories (units)....................00 (100) $2...........Chapter 7 Variable Costing: A Tool for Management Ans: a...... Variable costing income statement Sales......600 197...................... Goods available for sale............ Less variable expenses: Variable cost of goods sold: Beginning inventory..... Variable costing net operating income............ Less fixed expenses: Fixed manufacturing overhead..........................

................... $77 Units in beginning inventory. which has only one product.) Garrison/Noreen/Brewer....... Direct labor........ Fixed selling and administrative.. What is the unit product cost for the month under variable costing? b.........................Chapter 7 Variable Costing: A Tool for Management 147....... c................ $27 $13 $5 $7 Fixed costs: Fixed manufacturing overhead........... Units in ending inventory................. Twelfth Edition 7-109 .500 200 Variable costs per unit: Direct materials....... has provided the following data concerning its most recent month of operations: Selling price. 0 6..............700 6................... Units produced..... Managerial Accounting.. Variable selling and administrative.......50 0 $58................. Variable manufacturing overhead.500 Required: a....................................... $100..... Units sold..................... Prepare an income statement for the month using the contribution format and the variable costing method..................................... Qin Company................ Without preparing an income statement.............. (Hint: Use the reconciliation method.... determine the absorption costing net operating income for the month..........

........ $2 7 13 5 $4 5 $500.00 0 $6..........................500 $ 0 301..................... Variable cost of goods sold................................ Net operating income.........................500 45........................ Goods available for sale...................3 Level: Medium 7-110 Garrison/Noreen/Brewer................ Variable costing net operating income..... Variable manufacturing overhead...............000 162.................... Less fixed expenses: Fixed manufacturing overhead..........50 0 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting.......500 9................... Twelfth Edition ..... Contribution margin.....500 159........ Unit product cost..500 c....... $15......... Managerial Accounting........................ Variable costing unit product cost Direct materials.............. Variable costing income statement Sales...........0 0 200 $3....... Computation of absorption costing net operating income Fixed manufacturing overhead per unit.. Fixed selling and administrative..50 0 3.. Less ending inventory......................... Add variable manufacturing costs..500 301..Chapter 7 Variable Costing: A Tool for Management Ans: a. b .........000 292... Add fixed manufacturing overhead costs deferred in inventory under absorption costing.. Change in inventories (units)................................. Variable selling and administrative....... Less variable expenses: Variable cost of goods sold: Beginning inventory..............................................500 338..................................500 58...500 100..............2....... Absorption costing net operating income...... Measurement LO: 1.......000 $ 3.............. Direct labor....

.........000 units of product).......................................... AACSB: Analytic AICPA BB: Critical Thinking LO: 1 Level: Easy Garrison/Noreen/Brewer.........000/4........................ Fixed selling and administrative expenses....................................................................................... Direct labor................................................ Fixed manufacturing overhead ($328.................................................................................... $ 1 5 13 7 35 82 $11 7 Variable Costing: Direct materials................................................................................................. Compute the unit product cost under variable costing............................................................... Variable manufacturing overhead.......... Variable selling and administrative expenses............................................Chapter 7 Variable Costing: A Tool for Management 148.. Direct labor....... Unit product cost. Compute the unit product cost under absorption costing.......... Fixed costs per year: Fixed manufacturing overhead......... 4............................... Total variable production cost.... Variable manufacturing overhead........................................................ Twelfth Edition AICPA FN: Reporting 7-111 ..... Managerial Accounting.................................................00 0 $324... Absorption Costing: Unit product cost........ b ............. $15 13 7 $35 Direct materials........ Olguin Corporation produces a single product and has the following cost structure: Number of units produced each year....................... Variable costs per unit: Direct materials........ Show your work! b.............................. Variable manufacturing overhead.........................00 0 Required: a.................................................................. Direct labor......000 $15 $13 $7 $5 $328.......... Show your work! Ans: a......

.... Variable manufacturing overhead........................................... ...Chapter 7 Variable Costing: A Tool for Management 149.....000/3...................... Fixed selling and administrative expenses............. Fixed manufacturing overhead ($219................ Direct labor......................... Fixed costs per year: Fixed manufacturing overhead.......................00 0 $153.................................................................... AACSB: Analytic AICPA BB: Critical Thinking LO: 1 Level: Easy 7-112 $ 2 7 96 1 124 7 3 $19 7 AICPA FN: Reporting Garrison/Noreen/Brewer............................ Twelfth Edition ................ Variable manufacturing overhead..................... 3............................................................000 units of product)..................................00 0 Required: Compute the unit product cost under absorption costing.......................... Variable selling and administrative expenses................................................. Direct labor........................ Unit product cost......... Quates Corporation produces a single product and has the following cost structure: Number of units produced each year..........................000 $27 $96 $1 $4 $219...................... Managerial Accounting............ Variable costs per unit: Direct materials.............. Total variable production cost..... Show your work! Ans: Direct materials.............................................................

...................00 0 $24.................................................................................. Direct labor................... Fixed costs per year: Fixed manufacturing overhead.. 1.......... Variable costs per unit: Direct materials........................... Variable manufacturing overhead....................................................................................... AACSB: Analytic AICPA BB: Critical Thinking LO: 1 Level: Easy Garrison/Noreen/Brewer..... Fixed selling and administrative expenses................ Show your work! Ans: Direct materials................................ Variable manufacturing overhead....... Direct labor................................. Davitt Corporation produces a single product and has the following cost structure: Number of units produced each year.............. Variable selling and administrative expenses.................000 $57 $20 $2 $3 $88.............. Managerial Accounting...00 0 Required: Compute the unit product cost under variable costing................ Twelfth Edition $5 7 20 2 $7 9 AICPA FN: Reporting 7-113 ............................ Unit product cost............................................Chapter 7 Variable Costing: A Tool for Management 150........................

........ Direct labor............ Unit product cost............................................................................................................................ Variable manufacturing overhead................ Managerial Accounting...................... Murphy Inc...000 $119............................ Twelfth Edition ............................................................................ Total variable production cost................................... Variable manufacturing overhead.... Variable selling and administrative expenses.............. AACSB: Analytic AICPA BB: Critical Thinking LO: 1 Level: Easy 7-114 $37 43 5 85 12 $97 $37 43 5 $85 AICPA FN: Reporting Garrison/Noreen/Brewer.......................................000 $37 $43 $5 $1 $84............................ Compute the unit product cost under variable costing..... Direct labor...................... which produces a single product............ Variable costs per unit: Direct materials............................... Unit product cost. Fixed costs: Fixed manufacturing overhead......... b ................................... Fixed selling and administrative expenses............................................................. Absorption costing: Direct materials..................000 units of product)................ Direct labor.................................... Fixed manufacturing overhead ($84...............000/7........... Required: a... 7.00 0 The company had no beginning or ending inventories..................................................... Compute the unit product cost under absorption costing........................ Show your work! b.... Show your work! Ans: a... Variable manufacturing overhead........................................Chapter 7 Variable Costing: A Tool for Management 151.................................................. Variable costing: Direct materials................. has provided the following data for its most recent month of operation: Number of units produced.....................................................

.................................. Variable selling and administrative expenses............................. Variable costs per unit: Direct materials............................................................000 units of product)....... Fixed costs: Fixed manufacturing overhead.......000 $93 $58 $1 $1 $192.......... Show your work! Ans: Direct materials.... Unit product cost............................................ Variable manufacturing overhead................................................................ Direct labor............Chapter 7 Variable Costing: A Tool for Management 152.................. Direct labor..... 6.................. Required: Compute the unit product cost under absorption costing.... Total variable production cost................................................. Fixed selling and administrative expenses.................................. Variable manufacturing overhead.....................................................00 0 The company had no beginning or ending inventories...... Managerial Accounting............................................... AACSB: Analytic AICPA BB: Critical Thinking LO: 1 Level: Easy Garrison/Noreen/Brewer.................. Fixed manufacturing overhead ($192..............000/6.................................. Twelfth Edition $ 93 58 1 152 32 $18 4 AICPA FN: Reporting 7-115 .......... which produces a single product. has provided the following data for its most recent month of operation: Number of units produced.00 0 $348. Vancott Inc............................................................................

.. Variable costs per unit: Direct materials....................................... Variable selling and administrative expenses................................................................. Variable manufacturing overhead........ Variable manufacturing overhead.............. Show your work! Ans: Direct materials........... Unit product cost... Required: Compute the unit product cost under variable costing............................................................ Twelfth Edition .. Fixed selling and administrative expenses...................................000 $12 $34 $4 $2 $486.. Direct labor....... Schlenz Inc...................... Managerial Accounting................................ Direct labor...........00 0 The company had no beginning or ending inventories......................................Chapter 7 Variable Costing: A Tool for Management 153............. 6.......... Fixed costs: Fixed manufacturing overhead........ $1 2 34 4 $5 0 AACSB: Analytic AICPA BB: Critical Thinking LO: 1 Level: Easy 7-116 AICPA FN: Reporting Garrison/Noreen/Brewer.............. which produces a single product.......00 0 $522........ has provided the following data for its most recent month of operation: Number of units produced....................

. Managerial Accounting..... Compute the unit product cost for each year under absorption costing and under variable costing. Miller Company produces a single product......000 Year 2 $1........ Explain why the net operating income for Year 2 under absorption costing was higher than the net operating income for Year 1.e..........000 520...........200...... using the contribution approach with variable costing..00 0 800.......000 In Year 1. Cost of goods sold...000 300..000 units..............200... Net operating income.. the company again sold 40............. a new fixed overhead rate is computed each year)..000 a year.... Reconcile the variable costing and absorption costing income figures for each year.... but increased production to 50.. Selling and administrative expenses...... Twelfth Edition 7-117 . c... d... Garrison/Noreen/Brewer. Required: a...000 $ 100............ in Year 2...000 units.Chapter 7 Variable Costing: A Tool for Management 154.. Variable selling and administrative expenses are $2 per unit sold....000 units of its only product... The company's variable production cost is $5 per unit and its fixed manufacturing overhead cost is $600..........00 0 680.. the company produced and sold 40..... Fixed manufacturing overhead costs are applied to the product on the basis of each year's unit production (i.000 $ 220. Prepare an income statement for each year.. although the same number of units were sold in each year....000 300...... The company had the following results for its first two years of operation: Sales......000 400............... Gross margin................. Year 1 $1.... b....

....................000 of fixed manufacturing overhead.00 0 Year 2 $100.........000 920.............00 0 200... Fixed manufacturing overhead deferred in (released from) inventory: Year 2 (10....... Contribution margin.............................000 220...........200..000 higher than income of Year 1.............................. This is major criticism of the absorption costing approach........... Income statements for each year under variable costing: Sales......... Twelfth Edition .... ($600........ Year 1 $1........ Fixed manufacturing overhead cost: ($600............. in the face of level sales...000 Year 2 $1.....000 600... Year 1 Year 2 $5 $5 15 $20 12 $17 Cost per unit under variable costing: Year 1 Year 2 Variable production cost per unit....000 c.00 0 120.................... $5 $5 b...000 80..00 0 200........... Managerial Accounting...000 920.... Fixed selling and administrative expense................. even though the same number of units was sold each year.........00 0 d.... The increase in production in Year 2. Cost of goods sold ($5 × 40..000/40.............................00 0 $100........000/50............... Unit product cost. Reconciliation of absorption costing and variable costing net operating incomes: Net operating income under variable costing.000 220..................000)....... Variable selling and administrative expense ($2 × 40. caused a buildup of inventory and a deferral of a portion of the overhead costs of Year 2 to the next year.....................000 $ 100...........200......000).. the company was able to increase profits without increasing sales.000)............000 80.......00 0 $220................ 7-118 Garrison/Noreen/Brewer...........000 600..........Chapter 7 Variable Costing: A Tool for Management Ans: a........ Fixed expenses: Fixed manufacturing overhead.. Net operating income under absorption costing. Income for Year 2 was $120.................................... Cost per unit under absorption costing: Variable production cost per unit..... Net operating income.........000)...000 $ 100. By increasing production and building up inventory........... Year 1 $100............. This deferral of cost relieved Year 2 of $120.............000 units × $12 per unit)...

Chapter 7 Variable Costing: A Tool for Management AACSB: Analytic AICPA BB: Critical Thinking LO: 2.3. Twelfth Edition AICPA FN: Reporting 7-119 .4 Level: Medium Garrison/Noreen/Brewer. Managerial Accounting.

. b.. although the sales in units vary from month to month......................................... Managerial Accounting.. Neukirchen Company..........................Chapter 7 Variable Costing: A Tool for Management 155................... Variable manufacturing overhead.......... Units produced.......................... Required: a..... Prepare an income statement for the month using the absorption costing method............................. Units in ending inventory.............................. Twelfth Edition ...... Fixed selling and administrative... $140 Units in beginning inventory......500 100 Variable costs per unit: Direct materials. 7-120 Garrison/Noreen/Brewer.. Direct labor... which has only one product......... 300 4. $25 $51 $7 $6 Fixed costs: Fixed manufacturing overhead......50 0 $72....................... Prepare an income statement for the month using the contribution format and the variable costing method......... Variable selling and administrative... Units sold.....000 The company produces the same number of units every month...................... The company's variable costs per unit and total fixed costs have been constant from month to month........... $150............300 4......... has provided the following data concerning its most recent month of operations: Selling price............

....................... Selling and administrative expenses expenses: Variable selling and administrative.. Variable costing income statement Sales..........000 b...... Add cost of goods manufactured...000 99.......00 0 $ 35............. Variable selling and administrative........ Absorption costing income statement Sales..........000 400..... $630.................................800 531.... Contribution margin..... Variable cost of goods sold........................900 381......... Managerial Accounting.........400 507.. Less variable expenses: Variable cost of goods sold: Beginning inventory..................500 $ 7..... Gross margin............500 27............000 0 AICPA FN: Reporting 7-121 .............000 72...............900 356....500 229........ AACSB: Analytic AICPA BB: Critical Thinking LO: 2 Level: Hard Garrison/Noreen/Brewer........... Less ending inventory..................................000 $ 99........Chapter 7 Variable Costing: A Tool for Management Ans: a... Net operating income.............000 27.. Twelfth Edition $630.... Less fixed expenses: Fixed manufacturing overhead.... Fixed selling and administrative.... Net operating income........... Cost of goods sold: Beginning inventory........000 150............. Fixed selling and administrative.....................800 11............................... Less ending inventory..................................400 542..... Add variable manufacturing costs........... Goods available for sale.....500 72...............00 0 $ 24..........500 222...300 373........800 8................. Goods available for sale..........

....... Managerial Accounting.. 0 7............. Units sold.600 Required: a.... Prepare an income statement for the month using the contribution format and the variable costing method...... b......... Units in ending inventory.......................600 7............ Fixed selling and administrative...............400 200 Variable costs per unit: Direct materials........... which has only one product............................ Variable selling and administrative..............00 0 $66.................. 7-122 Garrison/Noreen/Brewer......... Twelfth Edition .. Variable manufacturing overhead........................... Oates Company................... Prepare an income statement for the month using the absorption costing method. Units produced.......................................... $15 $48 $7 $10 Fixed costs: Fixed manufacturing overhead.................... $228......... Direct labor.......Chapter 7 Variable Costing: A Tool for Management 156...... has provided the following data concerning its most recent month of operations: Selling price........ $120 Units in beginning inventory..................

....000 140...... Net operating income.....600 740....000 532...... Net operating income. Less ending inventory.....................................000 66.................................................... Less fixed expenses: Fixed manufacturing overhead... Twelfth Edition $888.... Contribution margin............ Goods available for sale..............................000 294............................................. Variable selling and administrative......000 74... Variable cost of goods sold... Variable costing income statement Sales...............000 $ 0 532...................000 148.......Chapter 7 Variable Costing: A Tool for Management Ans: a....400 b...........400 AICPA FN: Reporting 7-123 . Absorption costing income statement Sales.. Less ending inventory............. AACSB: Analytic AICPA BB: Critical Thinking LO: 2 Level: Medium Garrison/Noreen/Brewer.............. $888..00 0 $ 0 760................................600 $ 1... Selling and administrative expenses expenses: Variable selling and administrative.... Fixed selling and administrative....000 66........... Cost of goods sold: Beginning inventory......000 296.....................................600 $ 7................................. Add variable manufacturing costs............ Less variable expenses: Variable cost of goods sold: Beginning inventory....................000 518... Goods available for sale............................600 592......... Add cost of goods manufactured....000 74......................................000 14....000 760............................. Managerial Accounting.... Fixed selling and administrative.......000 228...................... Gross margin.....000 20...............................

...................45 + ($63.....................000 $10................... Add cost of goods manufactured (75.....500 Total selling and administrative = $24....................... Goods available for sale.......000 $63...........00 0 $ 0 171...000 = $126................ Cost of goods sold: Beginning inventory...000) ** Total variable cost = $210................ Less ending inventory (5..500 AACSB: Analytic AICPA BB: Critical Thinking LO: 2 Level: Hard 7-124 AICPA FN: Reporting Garrison/Noreen/Brewer.000 .00).....000) = $24..........000 $ 14..... Total fixed selling and administrative expense...750 11.....................000 70.. Managerial Accounting.000 .......... Net operating income.......... Unit product cost under variable costing.......000 $3............. .... Total contribution margin...............................................................700 * $1.......................500 Required: Using the absorption costing method....... Succulent just finished its first year of operations.....................000 × $2.. Succulent Juice Company manufactures and sells premium tomato juice by the gallon..... Twelfth Edition ... Variable selling and administrative = $126. Gross margin...................... 75...........29).750 171....$84..500 + $10....($1...... Selling and administrative expenses**........000 × $2.................... Total fixed manufacturing overhead cost. $210..00 per gallon $1...29*).Chapter 7 Variable Costing: A Tool for Management 157........................................45 per gallon $84.......... prepare Succulent Juice Company's income statement for the year................300 49..... Ans: Sales (70........000/75....... Number of gallons sold......000 × $3..................................700 35. Sales price.......000........450 160..................45 × 70... The following data relates to this first year: Number of gallons produced......................................

.000 This Year $92. Fixed manufacturing overhead costs deferred in inventory under absorption costing..........000 AICPA FN: Reporting 7-125 . Deduct fixed manufacturing overhead costs released from inventory under absorption costing Absorption costing net operating income. AACSB: Analytic AICPA BB: Critical Thinking LO: 3 Level: Easy Garrison/Noreen/Brewer....... Variable costing net operating income... this year... Worrel Corporation manufactures a variety of products.... Managerial Accounting... Variable costing net operating income. last year... Show your work! Ans: a......000 $11..... last year..00 0 $2.........00 0 Required: a............. this year...000 2.00 0 $92............... Determine the absorption costing net operating income this year.... Twelfth Edition Last Year $71.000) $81....000 0 0 $73..... Fixed manufacturing overhead costs released from inventory under absorption costing..Chapter 7 Variable Costing: A Tool for Management 158.. $71. Add fixed manufacturing overhead costs deferred in inventory under absorption costing..000 (11.......... The following data pertain to the company's operations over the last two years: Variable costing net operating income. and b.. Show your work! b. Determine the absorption costing net operating income last year........

..........................000...000.. Absorption costing net operating income...... variable costing net operating income was $72.... Show your work! Ans: Variable costing net operating income.........................000 0 $87..... Rasband Corporation's variable costing net operating income was $57.. AACSB: Analytic AICPA BB: Critical Thinking LO: 3 Level: Easy 7-126 $57.00 0 AICPA FN: Reporting 160..... Required: Determine the absorption costing net operating income last year....Chapter 7 Variable Costing: A Tool for Management 159.........................00 0 30.....00 0 AICPA FN: Reporting Garrison/Noreen/Brewer......... Managerial Accounting... Show your work! Ans: Variable costing net operating income... The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $29.........000 29........ Absorption costing net operating income.... Deduct fixed manufacturing overhead costs released from inventory under absorption costing. Required: Determine the absorption costing net operating income last year... Last year... Twelfth Edition ......... Corbett Corporation manufactures a variety of products......000. Add fixed manufacturing overhead costs deferred in inventory under absorption costing....... AACSB: Analytic AICPA BB: Critical Thinking LO: 3 Level: Easy $72... Add fixed manufacturing overhead costs deferred in inventory under absorption costing. The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $30................000.........000 0 $101........ Last year...... Deduct fixed manufacturing overhead costs released from inventory under absorption costing........

................. last year.....80 0 900 3.. Show your work! b....... Twelfth Edition Last Year $900 $2 This Year ($3...100 $2 Required: a....800 1......800 ($6................ Absorption costing net operating income...600 AICPA FN: Reporting 7-127 ..500 (6..... Variable costing net operating income......... Determine the absorption costing net operating income for last year.... Deduct fixed manufacturing overhead costs released from inventory under absorption costing..200) $82........100) $2 $1. Decrease in ending inventory.......800 0 0 $84............. Fixed manufacturing overhead cost per unit....... Determine the absorption costing net operating income for this year. The following data pertain to the company's operations over the last two years: Variable costing net operating income........... Variable costing net operating income........Chapter 7 Variable Costing: A Tool for Management 161... last year. Fixed manufacturing overhead cost per unit.................. Change in units in ending inventory...... this year.... and b.............70 0 $87.200) $81.. Add fixed manufacturing overhead costs deferred in inventory under absorption costing........................ Phinisee Corporation manufactures a variety of products.700 $87.............. AACSB: Analytic AICPA BB: Critical Thinking LO: 3 Level: Medium Garrison/Noreen/Brewer.. Change in fixed manufacturing overhead in ending inventory......... $82... Managerial Accounting..... Show your work! Ans: a........................... Increase in ending inventory. this year....................................

900 $4 Variable costing net operating income.... $1.............. Denogean Corporation's variable costing net operating income was $64.... Change in fixed manufacturing overhead in ending inventory..... Absorption costing net operating income.......... Fixed manufacturing overhead cost per unit was $4........ $64............. Last year..200 and ending inventory increased by 1.....Chapter 7 Variable Costing: A Tool for Management 162...... Fixed manufacturing overhead cost per unit............. Add fixed manufacturing overhead costs deferred in inventory under absorption costing......... Deduct fixed manufacturing overhead costs released from inventory under absorption costing........... Managerial Accounting.......... Required: Determine the absorption costing net operating income for last year......................... Show your work! Ans: Change in units in ending inventory.................200 AACSB: Analytic AICPA BB: Critical Thinking LO: 3 Level: Medium 7-128 $7..................900 units........................................ Twelfth Edition ......................600 0 $71........................800 AICPA FN: Reporting Garrison/Noreen/Brewer...600 7....................

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