Chapter 17: Absorption, Variable, and Throughput Costing

MULTIPLE CHOICE QUESTIONS 1. Under variable costing, fixed manufacturing overhead is: A. expensed immediately when incurred. B. never expensed. C. applied directly to Finished-Goods Inventory. D. applied directly to Work-in-Process Inventory. E. treated in the same manner as variable manufacturing overhead. Answer: A LO: 1 Type: RC 2. All of the following are inventoried under variable costing except: A. direct materials. B. direct labor. C. variable manufacturing overhead. D. fixed manufacturing overhead. E. items "C" and "D" above. Answer: D LO: 1 Type: RC 3. All of the following are expensed under variable costing except: A. variable manufacturing overhead. B. fixed manufacturing overhead. C. variable selling and administrative costs. D. fixed selling and administrative costs. E. items "C" and "D" above. Answer: A LO: 1 Type: RC 4. All of the following costs are inventoried under absorption costing except: A. direct materials. B. direct labor. C. variable manufacturing overhead. D. fixed manufacturing overhead. E. fixed administrative salaries. Answer: E LO: 1 Type: RC 5. All of the following are inventoried under absorption costing except: A. direct labor. B. raw materials used in production. C. utilities cost consumed in manufacturing. D. sales commissions.

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Hilton, Managerial Accounting, Seventh Edition

E. machine lubricant used in production. Answer: D LO: 1 Type: N

Chapter 17

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No Yes No D. direct labor.6. Answer: C LO: 1 Type: RC 7. $65. The underlying difference between absorption costing and variable costing lies in the treatment of: A. $84. D. E. $55. fixed selling and administrative expenses. fixed manufacturing overhead. D. Lone Star has computed the following unit costs for the year just ended: Direct material used Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative cost Fixed selling and administrative cost $12 18 25 29 10 17 Under variable costing. Yes No Yes B. Yes Yes Yes C. B. $35. E. C. Seventh Edition . Which of the following costs would be treated differently under absorption costing and variable costing? Variable Fixed Direct Manufacturing Administrative Labor Overhead Expenses A. C. each unit of the company's inventory would be carried at: A. variable manufacturing overhead. B. No No Yes E. some other amount. Answer: B LO: 1 Type: A 530 Hilton. No No No Answer: E LO: 1 Type: RC 8. variable selling and administrative expenses. Managerial Accounting.

$107. each unit of the company's inventory would be carried at: A. $133. $75. C. Prescott Corporation has computed the following unit costs for the year just ended: Direct material used Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative cost Fixed selling and administrative cost $18 27 30 32 9 17 Under absorption costing. $96 $119 D.9. some other amount. $79 $151 C. D. Answer: B LO: 1 Type: A 10. E. $116. $79 $119 B. Answer: A LO: 1 Type: A Chapter 17 531 . $96 $151 E. Santa Fe Corporation has computed the following unit costs for the year just ended: Direct material used Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative cost Fixed selling and administrative cost $25 19 35 40 17 32 Which of the following choices correctly depicts the per-unit cost of inventory under variable costing and absorption costing? Variable Absorption Costing Costing A. B. Some other combination of figures not listed above.

$620. E. E. $105.50. $33. D. C. absorption. $40. Variable. Answer: D LO: 1 Type: A 532 Hilton.000. D. The per-unit inventoriable cost under absorption costing is: A. B. D. C.000 12. $85. B.000 units: Direct materials used Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative costs Fixed selling and administrative costs $280. Seventh Edition . Variable.000. E. Delaware has computed the following unit costs for the year just ended: Variable manufacturing cost Fixed manufacturing cost Variable selling and administrative cost Fixed selling and administrative cost $85 20 18 11 Which of the following choices correctly depicts the per-unit cost of inventory under variable costing and absorption costing? A. Answer: C LO: 1 Type: A 13.000 90. $103.000 60. If Indiana uses variable costing. $660. $85. $460.11. $560. C. the total inventoriable costs for the year would be: A. $116. Some other combination of figures not listed above. $105.000 100. $25.50. absorption. B. $28. Variable. $116.000.000 160. absorption.000 120.000.00. absorption.00.000. $400. Managerial Accounting. $9. $103. Answer: A LO: 1 Type: A Use the following to answer questions 12-13: Indiana Company incurred the following costs during the past year when planned production and actual production each totaled 20.00. Variable.

B.000 Selling and administrative costs: Variable: $1 per unit Fixed: $32. 3 Type: N 15. I only. C. $97.500.000 The gross margin that the company would disclose on an absorption-costing income statement is: A. I and II. which began business at the start of the current year. E. II only. II. Consider the following comments about absorption. $147. $370.500.000. III. some other amount. Answer: E LO: 2.and variable-costing income statements: I.and variable-costing income statements. Which of the above statements is (are) true? A. II and III. The amount of variable selling and administrative cost is the same on absorption.000 units at $15 per unit Production costs: Variable: $4 per unit Fixed: $260. E. I. D. Answer: C LO: 2 Type: A Chapter 17 533 . Roberts. Cost of goods sold on an absorption-costing income statement includes fixed costs.000 units Sales: 37. A variable-costing income statement discloses a firm's contribution margin. had the following data: Planned and actual production: 40. and III. D. II. B.14.000. $166. C.

000.000 100.000 The contribution margin that the company would disclose on an absorption-costing income statement is: A. $220.000 8 2 If there were no variances. Sales totaled 22. C. McAfee. The company planned to produce 25. $208. B.000. $166.000 units at $30 each. $190. some other amount.000 Selling and administrative costs: Variable: $1 per unit Fixed: $32. $0. Answer: C LO: 2 Type: A 534 Hilton. C. Chicago began business at the start of the current year.16. Managerial Accounting. E.000. and actual production conformed to expectations. E. $147. had the following data: Planned and actual production: 40.000 units at $15 per unit Production costs: Variable: $4 per unit Fixed: $260.000.000 units Sales: 37. $370.000 units.500. the company's absorption-costing net income would be: A.000. some other amount. which began business at the start of the current year. Seventh Edition . Answer: A LO: 2 Type: A 17. $202. D. B.000. Costs incurred were: Fixed manufacturing overhead Fixed selling and administrative cost Variable manufacturing cost per unit Variable selling and administrative cost per unit $150. D.

000 Selling and administrative costs: Variable: $1 per unit Fixed: $32. B.500. which began business at the start of the current year. Answer: B LO: 3 Type: A Chapter 17 535 .000. D.000 units Sales: 37. Madison began business at the start of the current year. $97. Costs incurred were: Fixed manufacturing overhead Fixed selling and administrative cost Variable manufacturing cost per unit Variable selling and administrative cost per unit $150. $532. $370. the company's variable-costing net income would be: A. $147. B.000.000. $270. $308.000.000. The company planned to produce 30. C. Answer: D LO: 3 Type: A 19. and actual production conformed to expectations.000 11 2 If there were no variances. $166. some other amount.000 units at $15 per unit Production costs: Variable: $4 per unit Fixed: $260. Norton. $292.000. had the following data: Planned and actual production: 40.000 units. C.000 The contribution margin that the company would disclose on a variable-costing income statement is: A. Sales totaled 28.000 units at $32 each. some other amount. E.000 90.18. D.500. E.

000.500 21. 3 Type: A Use the following to answer questions 21-22: Franz began business at the start of this year and had the following costs: variable manufacturing cost per unit. $(7. Managerial Accounting. 10.000 10. The following data relate to Lobo Corporation for the year just ended: Sales revenue Cost of goods sold: Variable portion Fixed portion Variable selling and administrative cost Fixed selling and administrative cost $750. $15. D. D. C.000 Which of the following statements is correct? A. $15.000 8. C. $220.000 75.000. $9. Answer: B LO: 3 Type: A 536 Hilton. $9. Seventh Edition .000 370. Answer: D LO: 2 Type: A 22. B.000. $2. $60. D. Lobo¶s absorption costing income statement would reveal a gross margin of $330. B. Lobo¶s absorption-costing income statement would reveal a gross margin of $145. some other amount. The net income (loss) under variable costing is: A.000.000.000. $18.000 110. Planned production in units Actual production in units Number of units sold There were no variances. The net income (loss) under absorption costing is: A. $18. B.20.000. E.000. E. Answer: B LO: 2. and fixed selling and administrative costs. variable selling and administrative costs per unit.000 50. C. $9.500). fixed manufacturing costs.500). The company sells its units for $45 each. Additional data follow.000. some other amount.000.000. Lobo¶s absorption-costing income statement would reveal a contribution margin of $330. E. Lobo¶s variable-costing income statement would reveal a gross margin of $270.000. Lobo¶s variable costing income statement would reveal a contribution margin of $330.000. $(7.

000 and units produced equaled 49. On the basis of this information. income reported under absorption costing: A. B. always the same. will be less than that reported in the previous period. D. E.000. Units sold were less than units produced. C. B. Answer: B LO: 4 Type: N 25. always higher under variable costing. Which of the following conditions would cause absorption-costing net income to be lower than variable-costing net income? A. B. Selling expenses increased. Units sold equaled 39. will differ from that reported under variable costing. Units sold equaled units produced. always higher under absorption costing. Selling expenses increased by 10% during the accounting period. Sales prices decreased by $7 per unit during the accounting period. B.000.000. E. will be higher than that reported under variable costing. Answer: B LO: 4 Type: RC 24. D. always the same or higher under absorption costing. Sales prices decreased. D. Units sold and units produced were both 42. Which of the following situations would cause variable-costing net income to be lower than absorption-costing net income? A. will be the same as that reported under variable costing. Units sold exceeded units produced. Answer: A LO: 4 Type: N 26. Answer: A LO: 4 Type: N Chapter 17 537 . C. E. Units sold equaled 55. Gomez's inventory increased during the year.23. Income reported under absorption costing and variable costing is: A. E. D. will be lower than that reported under variable costing. C. C. typically different.000 and units produced equaled 42. the direction of which cannot be determined from the information given.

Change in inventory units x predetermined variable-overhead rate per unit. planned and actual production of 20. $75. II only.000. Which of the above statements is (are) true? A. Standard variable manufacturing costs were $20 per unit. Answer: B LO: 4 Type: A 538 Hilton. B. III only. total income reported under absorption costing will often be close to that reported under variable costing. $55.000 of net income for the year by using absorption costing. Seventh Edition .000 units. D. Managerial Accounting. Which of the following formulas can often reconcile the difference between absorption. Answer: D LO: 4 Type: RC 28. B. Change in inventory units ÷ predetermined fixed-overhead rate per unit.and variable-costing net income? A. If there were no variances. D. B. III. and sales of 18. Answer: C LO: 4 Type: RC 29.000. net income under variable costing would be: A. II and III.000. C. and total budgeted fixed manufacturing overhead was $100. $115. (Absorption-costing net income . Monex reported $65.and variable-costing net income: I. C. E. Change in inventory units x predetermined fixed-overhead rate per unit. E. I and II.27. Differences in income under absorption and variable costing can often be reconciled by multiplying the change in inventory (in units) by the variable manufacturing overhead cost per unit.000.000.000.variable-costing net income) x fixed-overhead rate per unit. The company had no beginning inventory. Change in inventory units ÷ predetermined variable-overhead rate per unit. $15. Consider the following statements about absorption. C. $65. Long-run. II.000 units. I only. Yearly income reported under absorption costing will differ from income reported under variable costing if production and sales volumes differ. E. D.

000. I only. I. Absorption costing must be used for external financial reporting. Variable costing is consistent with contribution reporting and cost-volume-profit analysis. Consider the following statements about absorption costing and variable costing: I. The company had no beginning inventory.000 of net income for the year by using variable costing. B. A number of companies use both absorption costing and variable costing. B. Variable costing must be used for external financial reporting. Standard variable manufacturing costs were $15 per unit. If there were no variances. C.000. net income under absorption costing would be: A.30. II only.000. E. Canyon reported $106. 6 Type: RC Chapter 17 539 . Answer: E LO: 5. D. $160. I and II. II. III only. Answer: D LO: 4 Type: A 31. and III. A number of companies use both absorption costing and variable costing. B. and total budgeted fixed manufacturing overhead was $150. III. II only. 6 Type: RC 32. III. planned and actual production of 50.000. I only. E.000. III only. $106. II. $52. C. and sales of 47. Consider the following statements about absorption costing and variable costing: I. C. $97. Which of the above statements is (are) true? A.000 units. Variable costing is consistent with contribution reporting and cost-volume-profit analysis. $115. Answer: E LO: 5. II. Which of the above statements is (are) true? A.000. D. I and II. E. I and III.000 units. D.

all of the above. administrative costs. Process costing. D. B. selling and administrative costs. the company's cost of goods sold would include charges for: A. direct costing. Back-flush costing. and manufacturing overhead. Under throughput costing. selling costs. and selling and administrative costs. E. generally accepted accounting principles require that net income be based on: A. direct materials. Managerial Accounting. D. For external-reporting purposes. Seventh Edition . direct materials. semivariable costing. direct labor. B. Orion's management recently committed to incurring direct labor and all manufacturing overhead charges regardless of the number of units produced. Which of the following methods defines product cost as the unit-level cost incurred each time a unit is manufactured? A. manufacturing overhead. E.33. Answer: B LO: 8 Type: N 540 Hilton. Answer: C LO: 7 Type: RC 35. fixed manufacturing overhead. the cost of a unit typically includes: A. B. E. direct labor. Answer: A LO: 7 Type: RC 36. activity-based costing. D. absorption costing. E. Throughput costing. Indirect costing. Under throughput costing. C. direct labor and manufacturing overhead. variable costing. Answer: A LO: 6 Type: RC 34. C. direct materials. C. D. the direct costs incurred whenever a unit is manufactured. B. Absorption costing. C.

000 D. is deducted on the income statement. Answer: A LO: 8 Type: A 38. B. E. Some other combination of figures not listed above.000. Answer: C LO: 9 Type: RC 39. does not exist. $180. The fixed-overhead volume variance under variable costing: A. which of the following choices correctly depicts the company's cost of goods sold and net income? Cost of Net Goods Sold Income A. Answer: B LO: 9 Type: RC Chapter 17 541 . Which of the following differs between absorption costing and variable costing? A.37. E.000 $45.000 C. $180. C. C.000 $45.000 125. $305. D.000 $645. coincides with the fixed manufacturing overhead that was applied to production.000 If Highline uses throughput costing and had sales revenues for the period of $950.000 600. $305. The treatment of variable manufacturing overhead. Income tax rates. The fixed-overhead volume variance. D. Highline Company reported the following costs for the year just ended: Throughput manufacturing costs Non-throughput manufacturing costs Selling and administrative costs $180. The number of units produced. will equal the fixed-overhead budget variance. Sales revenues.000 E.000 $645. must be unfavorable. B.000 B.

C. This method is sometimes called full costing. 3. B. 2. Fixed manufacturing overhead is attached to each unit produced. 8. 1. 4 D. The income statement discloses a company¶s contribution margin. 3. 9 B. 7. Direct labor becomes part of a unit¶s cost. Consider the statements that follow. This method requires the calculation of a fixed manufacturing cost per unit.EXERCISES Characteristics of Absorption Costing and Variable Costing 40. 7 C. Sales revenue minus cost of goods sold equals contribution margin. 4. Relate to neither absorption costing nor variable costing. 6. Fixed selling and administrative expenses are treated in the same manner as fixed manufacturing overhead. Managerial Accounting. 6 Type: RC. Relate only to variable costing. LO: 1. 6. 9. 8. 2. Variable selling costs are expensed when incurred. 2. This method must be used for external financial reporting. Relate only to absorption costing. Seventh Edition . 3. N Answer: A. 542 Hilton. Required: Determine which of the nine statements: A. Relate to both absorption costing and variable costing. D. 5. 5 1.

Direct materials used Direct labor Variable manufacturing overhead Total B. B. Assume that anticipated and actual production totaled 20. 2.000 30. LO: 1. Assume the same data as in requirement "C.000 Fixed manufacturing overhead: ($100.000 80. Compute the month's inventoriable costs by using absorption costing.000 units were sold during May. 3 Type: A Answer: A.000 units = $90.Miscellaneous Calculations: Variable and Absorption Costing 41.000 100.[(18.000 units = $13 Contribution margin: $625.000 ÷ 20.000 ÷ 20.000 + $30.000 $260.000 Variable manufacturing costs per unit: $260.000 Chapter 17 543 .000 C.000 30. and that 18. D.000 80. Direct materials used Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative costs Fixed selling and administrative costs Sales revenues $150.000 51. C." Compute the contribution margin that would be reported on a variable-costing income statement.000 units) x 18.000 + $80.000 30.000 = $260.000 Fixed selling and administrative costs: $60.000 625.000] = $340. Variable manufacturing costs: $150.000 $150.000 . Fixed manufacturing overhead: $100. Direct materials used Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total 1.000 60.000 2.000 x $13) + $51. $150. Assuming the use of variable costing. Determine the amount of fixed manufacturing overhead and fixed selling and administrative costs that would be expensed for the month under (1) variable costing and (2) absorption costing.000 units.000 100. Information taken from Grille Corporation's May accounting records follows.000 $360.000 Fixed selling and administrative costs: $60.000 80. D.000 Required: A. compute the inventoriable costs for the month.

A Answer: A.000 ($300.080.000 ÷ 60.878.000 units).000 The contribution margin is disclosed on a variable-costing income statement.000 $1. The following costs were incurred: Manufacturing: Direct materials used Direct labor Variable manufacturing overhead Fixed manufacturing overhead Selling and administrative: Variable Fixed $300.000 360.000 + $360.000 units) because of the addition of fixed manufacturing overhead. B.000 units remain in inventory [0 + 60. Actual production totaled 60. 544 Hilton. Seventh Edition .000 $972.000).092.000 600. Since 6.(60. Managerial Accounting.000 units x 90% x $55) Less: Variable cost of goods sold (60. The cost of a unit would increase by $10 ($600. None. and the company sold 90% of its manufacturing output at $55 per unit.000 1.000 units x 90% x $28) Gross margin $2. the ending finished goods totals $108.000 Required: A. All fixed selling and administrative cost is treated as a period cost and expensed against revenue.000 x $18).000 ÷ 60.000 units. Compute the company's gross margin.000 (6.512.000 420. Assuming the use of variable costing.000 + $420.000 1.970.000 x 90%)].000 D. Compute the company's contribution margin.000 units. Inc. or $18 per unit ($1.080.458.Miscellaneous Calculations: Variable and Absorption Costing 42.000 units x 90% x $18) Variable selling and administrative Contribution margin $2.000 120.. 2. C.000 $1.970. Variable production costs total $1. compute the cost of Sosa's ending finished-goods inventory. Sales revenue (60. B.000 . Sosa. Would Sosa disclose the contribution margin on a variable-costing income statement or an absorption-costing income statement? C. began operations at the start of the current year. Thus: Sales revenue Cost of goods sold (60.000 630. Assuming the use of absorption costing. 3 Type: RC. having a production target of 60.000 120. how much fixed selling and administrative cost would Sosa include in the ending finished-goods inventory? D. LO: 1.

20 = $72.50 = $9.350.000 120. during a period when the firm produced and sold 100.90. What is the cost of Venture's end-of-period finished-goods inventory under the variablecosting method? B. respectively: Direct materials used Direct labor Fixed manufacturing overhead Variable manufacturing overhead Fixed selling and administrative expenses Variable selling and administrative expenses $400.350. LO: 1.000 units x $7. C. 2.000 Variable cost per unit produced: $720.000 units = $2. The following data relate to Venture Company.000 345.000] Contribution margin Less: Fixed costs ($250.000 300.70) Gross margin Less: Operating costs ($300.000 $ 477. Ending finished-goods inventory (units): 0 + 100.000 units and 90.000 units x $15) Less: Variable costs [(90.000 The company met its original planned production target of 100.20 + $2. Required: A.000 Chapter 17 545 . Calculate the company's variable-costing net income.000 $720. a new corporation.000 + $45.000 units = $7.000 units x $7.000 200.Absorption.000 120.000 200.000 units x $9.000 B.000) Net income $1.000 45.000 ÷ 100.000 550.000 Inventoriable costs under variable costing: Direct materials used Direct labor Variable manufacturing overhead Total $400. Sales revenue (90.000 = 10.000 .000 ÷ 100. Predetermined fixed overhead rate: $250.and Variable-Costing Income Calculations 43.000 $ 657.20 per unit Ending inventory: 10.000 units.000 $ 107. and the firm's selling price is $15 per unit.000 250.000 $ 132.000 873.000 693.70 Sales revenue (90.000 C.50 Absorption cost per unit: $7. 3 Type: A Answer: A. Calculate the company's absorption-costing net income.000 units x $15) Less: Cost of goods sold (90. There were no variances during the period.000 + $300.000) Net income $1.000 units.20) + $45.

000 units x ($18 + $7)] Contribution margin Less: Fixed costs ($840. Determine the company's variable-costing net income. Calculate the cost of the ending finished-goods inventory under (1) variable costing and (2) absorption costing. 30. a new company: Planned and actual production Sales at $48 per unit Manufacturing costs: Variable Fixed Selling and administrative costs: Variable Fixed There were no variances during the period.386.765.20. Required: A.000 C.000 $4. Determine the company's absorption-costing net income.000 200.910.160.000 units = $4.000 4.00 + $4.000 units x $18 = $540.250.and Variable-Costing Inventory/Income Calculations 44.000 $8.000 $2.000] Net income $8. Determine the number of units in the ending finished-goods inventory.271. D.000 3. 2.115. LO: 1. Ending finished-goods inventory: 0 + 200.000 units x $48) Less: Cost of goods sold [170. Seventh Edition .000 $7 per unit $925. 3 Type: A Answer: A.000 units 170.774.000 = 30.. Managerial Accounting.000 units x ($18.000 units B. 546 Hilton.000 ÷ 200.20)] Gross margin Less: Operating costs [(170.000 Sales revenue (170. D.000 $2.160.170.000 + $925. Inc. Variable costing: 30. C. The following data relate to Hunter.000 units $18 per unit $840.000 Absorption costing: Predetermined fixed overhead rate: $840.000 $3.20) = $666.000 2.000 units x ($18.00 + $4.145.000 1. B.000 units x $7) + $925.000 .000) Net income Sales revenue (170.000 units x $48) Less: Variable costs [170.Absorption.

2. B. Working Backwards 45. How many units did Kim plan to produce during the year. D. How much variable cost did the company attach to each unit manufactured? LO: 1. N Chapter 17 547 . and the firm paid a 10% commission based on gross sales dollars to its sales force.000. Kim. How much fixed manufacturing overhead did the company apply to each unit produced? C.000 192. Inc.000 units) $770.000 210. Compute Kim's cost of goods sold. began business at the start of the current year and maintains its accounting records on an absorption-cost basis.Conversion of Absorption-Cost Data to Variable-Cost Data.000 Kim achieved its planned production level for the year.000 160. The company's fixed manufacturing overhead totaled $141.000 units x $22) Gross margin Total sales and administrative expenses Balance-sheet data: Ending finished-goods inventory (12. 3 Type: A.. Required: A. The following selected information appeared on the company's income statement and end-of-year balance sheet: Income-statement data: Sales revenues (35.

Managerial Accounting. B.000 210. Kim attached $13 to each unit. Note: There is no beginning finished-goods inventory.000 units) = production (47.000 units) + ending finished-goods inventory (12.000 $455.000 C. Kim applied $3 to each unit ($141.000 units).000 36.000 ÷ 12.000 $560.000 $156.000 units).000 $560.000 ÷ 35. Seventh Edition .000 105.000 units = $13 $192. Since planned and actual production figures are the same. This figure can be derived by analyzing cost of goods sold: Cost of goods sold Fixed cost in cost of goods sold (35.000 units x $3) Variable cost of goods sold $455.Answer: A.000 units = $13 The same $13 figure can be obtained by studying the ending finished-good inventory: Ending finished-goods inventory Fixed cost (12. D.000 548 Hilton.000 ÷ 47.000 units x $3) Variable cost $156. Sales (35. Sales revenue Gross margin Cost of goods sold $770.

Under absorption costing. A Answer: A. C. 4 Type: RC. Case A: Variable-costing net income. 6.000 ($178. Compute Houston's absorption-costing net income in Case A. variable.000. $178. production. From a product-costing perspective. Houston Company has per-unit fixed and variable manufacturing costs of $40 and $15. Consider the two cases that follow for the firm. Variable selling and administrative costs are $9 per unit. Compute Houston's absorption-costing net income in Case B.and absorption-income figures are the same: $110.000 units Case B: Variable-costing net income. Chapter 17 549 . The difference between absorption costing and variable costing lies in the treatment of fixed manufacturing overhead.500 units and production of 7.000. In contrast. LO: 1.000.Reconciliation of Absorption. it is written off (expensed) as a period cost. what is the basic difference between absorption costing and variable costing? B.100 units. 7. B.000). production.000 . sales.100 units Required: A.and Variable-Costing Income 46. sales. fixed manufacturing overhead is a product cost and attached to each unit produced.000 units. $110. 6.500 units. Since the number of units sold equals the number of units produced. under variable costing.000 (400 units x $40) of prior-period fixed manufacturing overhead. income computed under absorption costing includes $16. With sales of 7.$16. 7. respectively. Absorption income is therefore $162. C.

Case C: Absorption-costing net income and variable-costing net income respectively totaled $220.000 ÷ $12). Case B: Absorption-costing net income totaled $320.500). variable-costing net income will amount to $236. Required: A.and variable costing net income each totaled $240.000 units. how many units were sold during the period? B.000 units. C. Seventh Edition . Managerial Accounting. how much income would Beachcraft report under variable costing? C. Thus.000 in a period when the beginning finished-goods inventory was 14.000 ($320.2. Given that inventories are rising. multiplied by the fixed overhead per unit. The difference between absorption-costing income and variable-costing income is $84.000 .000). In Case A.000 units. how many units were in the ending finished-goods inventory? LO: 4 Type: A Answer: A. sales totaled 18. Absorption.000 units.000 . Beachcraft Corporation has fixed manufacturing cost of $12 per unit.000 difference in income ($250. In Case C. In Case B.500 units ($30.and variable costing income will be the same amount when inventory levels are unchanged.000 in a period when finishedgoods inventory levels rose by 7. inventory levels must have decreased. B.and Variable-Costing Income 47.000 and $250.000) is explained by the change in inventory units. The $30. resulting in an ending inventory level of 11.$84.Reconciliation of Absorption. 550 Hilton. Consider the three independent cases that follow.500 units (14.000 in a period when the firm produced 18. the inventory changed by 2.000 (7. Given that absorption income is less than income computed by the variable-costing method.000 units x $12).000 .$220. Case A: Absorption. Thus.

How much of this cost would be held in year-end inventory under (1) absorption costing. Planned and actual production equaled 20. Compute the year's throughput-costing net income.000 280.570.000 280.000 units.000 340.000 280. $ 360. LO: 1. B.000 Chapter 17 551 .500 units at $95 per unit.000 units) Year-end inventory (2. which uses throughput costing.500) is costed as follows: Absorption Costing $ 360. Coastal Corporation.500 units (20. and (3) throughput costing? C.000 $800.140.000 280.000 430. 3. How much of the company's total cost for the year would appear on the period's income statement under (1) absorption costing. began operations at the start of the current year.000 340. 2.000 430.000 $40 $100.000 The company classifies direct materials as a throughput cost. Compute the company's total cost for the year.000 $1.000 340. N Answer: A.000 The year-end inventory of 2.000 Throughput Costing $360.500 Variable Costing $360.000 $1.17. and sales totaled 17.000 .000 160.000 $57 $142. Absorption Costing.000 $18 $45. (2) variable costing. Required: A.000 160. (2) variable costing.500 units x cost per unit) $360. Variable Costing 48.000 units x $18) Direct labor Variable manufacturing overhead Fixed manufacturing overhead Selling and administrative costs Total B.000 160.Throughput Costing. Cost data for the year were as follows: Direct materials (per unit) Conversion cost: Direct labor Variable manufacturing overhead Fixed manufacturing overhead Selling and administrative costs (total) $ 18 160. and (3) throughput costing? D.000 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total product cost Cost per unit (Total ÷ 20. 7 Type: A. Direct materials (20.

000 units.000 340.000 528. Managerial Accounting. Seventh Edition . 7 Type: RC. Compute the cost of the company's year-end inventory.570.$100.000 D.000 Throughput costing: $1. What is meant by the term "throughput costing"? B.000 = $137.570.000 8 220. Cost data for 20x1 were as follows: Direct materials (per unit) Conversion cost: Direct labor Variable manufacturing overhead Fixed manufacturing overhead Selling and administrative costs: Variable (per unit) Fixed $ 20 215.$142.000 The company classifies direct materials as a throughput cost.525. C.427. A 552 Hilton.$45. LO: 1.C.000 . Prepare Krell's income statement for the year. Planned and actual production equaled 40. Required: A.500 units x $95) .000 = $1. which uses throughput costing.$1.570. began operations at the start of the current year (20x1).500 = $1.500 Variable costing: $1. Throughput income: Sales revenue (17. Thus: Absorption costing: $1.000 units at $80 per unit.000 . Krell Corporation.500 Throughput Costing 49.470.525. The total costs would be allocated between the current period's income statement and the year-end inventory on the balance sheet. and sales totaled 35.000 .000 = $1.

000 $1.000 units.000 C.35. 5. Ending inventory: 0 + 40.000 units x $20 = $100. direct materials is the only item that qualifies as a throughput cost.000 units x $20) Gross margin Less: Operating costs Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative costs (35. Throughput costing is a technique that assigns only the unit-level spending amounts for direct costs as the cost of products or services.000 units . 20x1 Sales revenue (35.000 $2.800.000 units x $8) Fixed selling and administrative costs Total operating costs Net income $2.100.000 Krell Corporation Throughput-Costing Income Statement For the Year Ended December 31.000 $ 517. B.000 units x $80) Less: Cost of goods sold (35.000 528.000 700.Answer: A.000 $ 215.000 units = 5. In this case. Chapter 17 553 .000 220.000 340.000 280.583.

Compute the fixed-overhead volume variance.50 per sleeping bag sold. 9 Type: A Answer: A.50) + $5.50) Var.and Absorption-Costing Income Statements.000 + $5.500 bags.50) Gross margin (at standard) Add: Fixed-overhead volume variance Gross margin (at actual) Less: Operating expenses [(11. of which 11.000 units x $30) Less: Cost of goods sold (11. There were no variances during the year except for the fixed-overhead volume variance.000 $330. cost of goods sold (11.000 z 10.500 $ 5.50) Contribution margin Less: Fixed costs ($100.000 $214.500 5. Managerial Accounting.000 units)].000 324.000.500 25.50.000 $ 5.000 C.fixed overhead applied = $100.(12.50. Outdoors Company manufactures sleeping bags that sell for $30 each.000 sleeping bags. and budgeted production is 10. B.000 $ 30. LO: 2.500 220. Prepare income statements for the year by using absorption costing and variable costing.000F Outdoors Company Absorption-Costing Income Statement For the Year Ended December 31.000 units x $19. 554 Hilton.000 units x $29.000.000 . The absorption cost is $29. B.000 units x $0.500 units x $10) = $(25. Variable selling and administrative costs are $0.000 units x $30) Less: Var.50 [$19. Seventh Edition . 20xx Sales revenue (11. The variable standard costs of production are $19.000) or $25. fixed selling and administrative costs are $5. 20xx Sales revenue (11. Required: A. and the variable cost is $19. Budgeted fixed manufacturing overhead is $100.000 $110.000 were sold.000) Net income $330.50 + ($100.500 $ 20.000] Net income Outdoors Company Variable-Costing Income Statement For the Year Ended December 31.000 units x $0.000 105. Volume variance = budgeted fixed overhead . operating expenses (11. The company actually manufactured 12. C.Variable. Calculate the standard product cost per sleeping bag under absorption costing and variable costing. Volume Variance 50. 3.500 10.

An absorption-costing income statement will report gross profit or gross margin whereas a variable-costing income statement will report contribution margin. B. on the other hand. variable cost of goods sold and variable operating expenses. Contribution margin. thus. changes in inventories will be much less significant.. 6 Type: RC. LO: 1. Absorption and variable costing are two different methods of measuring income and costing inventory. Inc.DISCUSSION QUESTIONS Absorption Costing. will the difference in operating income between variable costing and absorption costing be greater or less than in the past? Explain. What is the difference between these terms? C. 3. Fixed costs are ignored when calculating the contribution margin. is the difference between sales and variable expenses. The sole difference between the two methods is that fixed manufacturing overhead costs are defined as a product cost under absorption costing and as a period cost under variable costing. C. Product costs are defined as costs associated with the manufacturing process. Gross profit (gross margin) is the difference between sales and cost of goods sold. N Answer: A. Required: A. Chapter 17 555 . As a result. How does the operational definition of product cost differ between absorption costing and variable costing? B. the average finished-goods inventory has dropped from six weeks' supply to eight business days' supply. which reduces differences in income. has greatly modified its manufacturing process to reduce non-value-added activities and has also adopted the just-in-time philosophy. namely. Cost of goods sold includes variable and fixed manufacturing costs. In view of these changes. Variable Costing. and Terminology 51. These changes should reduce the differences in operating income between absorption costing and variable costing. Inventories of work-in-process and finished goods are much smaller than previously. BoSan. 2.

The difference in net income between absorption and variable costing can be explained by the change in finished-goods inventory (in units) multiplied by the standard fixed manufacturing overhead rate.e. Because of this situation. a predetermined amount is attached to each unit manufactured. the change in inventory multiplied by the fixed manufacturing overhead per unit corresponds with the difference in reported income between absorption costing and variable costing. This applied overhead moves back and forth between the balance sheet and the income statement depending on what happens to inventory during the period (i. Required: Explain why this calculation accounts for the difference noted..Reconciliation of Absorption. 556 Hilton. LO: 4 Type: RC Answer: The only difference between the two methods is the treatment of fixed manufacturing overhead.and Variable-Costing Income 52. Seventh Edition . Managerial Accounting. Such amounts are expensed under variable costing whereas with absorption costing. increase or decrease).

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