CHAPTER6

ABSORPTI
ONANDVARI
ABLECOSTI
NG
a
93. Only directmat eri
als,di
rectl
abor
,and v
ari
abl
e manuf
act
uri
ng ov
erhead cost
s ar
e
consideredpr oductcostswhenusi
ng
a.f ullcosti
ng.
b.absor pti
oncost i
ng.
c. variablecosting.
d.pr oductcost ing.
a
94. Whenacompanyassi gnsthecost
sofdirectmat er
ial
s,di
rectl
abor
,andbot
hvar
iabl
eand
fi
xedmanuf actur
ingov er
headtoproduct
s,thatcompanyisusing
a.oper ati
onscosting.
b.absor pti
oncosting.
c. vari
ablecosti
ng.
d.pr oductcosti
ng.
a
95. Compani esr ecogni
zefi
xedmanuf
act
uri
ngov
erheadcost
sasper
iodcost
s(expenses)
wheni ncurredwhenusing
a.f ul
l costing.
b.absor pti
oncost i
ng.
c. productcost i
ng.
d.v ariablecost i
ng.
a
96. Underabsor
pti
oncost
ingandv
ari
abl
ecost
ing,
howar
efi
xedmanuf
act
uri
ngcost
str
eat
ed?
Absorpti
on Vari
able
a. ProductCost ProductCost
b. ProductCost Peri
odCost
c. Peri
odCost ProductCost
d. Peri
odCost Peri
odCost
a
97. Underabsor
pti
oncost
ingandv
ari
abl
ecost
ing,how ar
evar
iabl
emanuf
act
uri
ngcost
s
tr
eated?
Absorpti
on Vari
able
a. ProductCost ProductCost
b. ProductCost Peri
odCost
c. Peri
odCost ProductCost
d. Peri
odCost Peri
odCost
a
98. Underabsor
pti
oncost
ingandv
ari
abl
ecost
ing,
howar
edi
rectl
aborcost
str
eat
ed?
Absorpti
on Vari
able
a. ProductCost ProductCost
b. ProductCost Peri
odCost
c. Peri
odCost ProductCost
d. Peri
odCost Peri
odCost
a
99. Fi
xedselli
ngexpensesareperiodcost s
a.underbot habsorpt
ionandv ar
iablecosti
ng.
b.underneitherabsorpt
ionnorvariablecosti
ng.
c. underabsorpt
ioncosti
ng,butnotunderv ari
abl
ecost
ing.
6-2 TestBankf
orI
SVManager
ial
Account
ing,
Four
thEdi
ti
on

d.underv
ari
abl
ecost
ing,
butnotunderabsor
pti
oncost
ing.
a
100. Whi snotchar
chcosti gedtotheproductunderv
ari
abl
ecost
ing?
a.Directmater
ial
s
b.Directl
abor
c. Vari
abl
emanufacturi
ngoverhead
d.Fixedmanufactur
ingover
head
a
101. Whichcosti
schargedtothepr oductunderv
ari
abl
ecost
ing?
a.Variabl
emanufacturi
ngov erhead
b.Fixedmanufactur
ingoverhead
c. Var
iabl
eadminist
rati
veexpenses
d.Fixedadmini
strat
iveexpenses
a
102. Var
iabl
ecost i
ng
a.isusedf orext
ernalreport
ingpurposes.
b.isrequi
redunderGAAP.
c. t
reatsf
ixedmanuf actur
ingoverheadasaper
iodcost
.
d.isalsoknownasf ullcosti
ng.

Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions103–107.

Bri
scoeCompanysell
sitsproductfor$40peruni t.Dur
ing2008,i
tproduced60,000uni t
sand
sol
d50,000unit
s(t
herewasnobegi nninginvent
ory)
.Costsperuni
tare:directmateri
als$10,
di
rectl
abor$6,
andvari
abl
eov erhead$2.Fixedcost
sare:$480,
000manufacturi
ngoverhead,and
$60,
000sell
i
ngandadminist
rati
veexpenses.
a
103. Theperuni
tmanuf
act
uri
ngcostunderabsorpti
oncosti
ngis
a.$16.
b.$18.
c. $26.
d.$27.
a
104. Theperuni
tmanuf
act
uri
ngcostundervar
iablecost
ingis
a.$16.
b.$18.
c. $26.
d.$27.
a
105. Costofgoodssol
dunderabsor
pti
oncost
ingi
s
a.$900,000.
b.$1,080,
000.
c. $1,
300,
000.
d.$1,560,
000.
a
106. Endingi
nvent
oryunderv
ari
abl
ecost
ingi
s
a.$180,000.
b.$260,000.
c. $400,
000.
d.$900,000.
a
107. Underabsor
pti
oncost
ing,
whatamountoff
ixedov
erheadi
sdef
err
edt
oaf
utur
eper
iod?
a.$20,000
 Cost
-Vol
ume-
Prof
itAnal
ysi
s:Addi
ti
onal
Issues 6-3

b.$80,000
c. $100,
000
d.$480,000
a
108. Netincomeunderabsor pt
ioncosti
ngisgrossprof
itl
ess
a.costofgoodssol d.
b.f i
xedmanuf act
uringover
headandf i
xedsell
i
ngandadmi ni
str
ativeexpenses.
c. fi
xedmanuf act
uringover
headandv ari
abl
emanuf act
uringoverhead.
d.v ari
ablesell
ing and admini
str
ati
veexpensesand f ixed sel
li
ng and administ
rat
ive
expenses.
a
109. Netincomeunderv ariabl
ecostingiscontributi
onmarginless
a.costofgoodssol d.
b.f i
xedmanuf act
uringov er
headandf ixedselli
ngandadmi ni
str
ativeexpenses.
c. fi
xedmanuf act
uringov er
headandv ar i
ablemanufacturi
ngoverhead.
d.v ari
ablesell
ing and admi nist
rat
iveexpensesand f i
xed sel
li
ng and administ
rat
ive
expenses.
a
110. Themanufactur
ingcostperuni tforabsorpt
ioncostingis
a.usual
ly,butnotalway
s,highert hanmanufacturi
ngcostperunitforvar
iabl
ecosting.
b.usual
ly,butnotalway
s,lowert hanmanufacturi
ngcostperunitforvari
ablecost
ing.
c. al
wayshigherthanmanuf acturingcostperunitforvar
iabl
ecosting.
d.alwayslowerthanmanuf acturingcostperunitforvari
ablecost
ing.
a
111. Theonepr i
mar ydi f
ferencebet weenv ariableandabsor pti
oncostingist hatunder
a.v ari
ablecost i
ng,compani eschar get hef i
xedmanuf actur
ingov er
headasanexpense
i
nt hecurrentperiod.
b.absor pti
on cost ing,compani es char ge the fixed manuf acturi
ng ov erhead as an
expenseint hecur rentperiod.
c. vari
able costing,compani es char ge t he vari
able manuf acturi
ng ov erhead as an
expenseint hecur rentperiod.
d.absor pti
oncost i
ng,compani eschar get hev ariablemanuf actur
ingov erheadasan
expenseint hecur rentperiod.
a
112. Netincomeunderabsor pti
oncost ingishi gherthanneti ncomeunderv ari
ablecosting
a.whenuni t
spr oducedexceeduni t
ssol d.
b.whenuni t
spr oducedequal unitssold.
c. whenuni t
spr oducedar elesst hanuni tssold.
d.r egar
dlessoft her elat
ionshi pbetweenuni tsproducedanduni tssold.
a
113. Somef ixedmanuf actur
ingov er
headcostsoft
hecur
rentper
iodar
edef
err
edt
ofut
ure
per
iodsunder
a.absor pti
oncosting.
b.v ar
iablecost
ing.
c. bot
habsor pt
ionandv ar
iablecosti
ng.
d.neitherabsorpti
onnorv ariablecost
ing.

Uset
hef
oll
owi
ngi
nfor
mat
ionf
orquest
ions114–118.

JackCompanysellsit
spr
oductfor$11,000peruni
t.Var
iabl
ecost sperunitare:manufacturi
ng,
$6,
000,andsell
i
ngandadmi ni
str
ati
ve,$125.Fi
xedcostsare:$30,000manuf acturi
ngoverhead,
and$40,000sel
li
ngandadminist
rat
ive.Ther
ewasnobegi nni
ngi nvent
oryat1/1/ 07.Pr
oducti
on
was20uni t
speryeari
n2007–2009.Saleswas20unitsi
n2007, 16unitsi
n2008, and24unit
si n
2009.
6-4 TestBankf
orI
SVManager
ial
Account
ing,
Four
thEdi
ti
on

a
114. Incomeunderabsor
pti
oncost
ingf
or2008i
s
a.$8,000.
b.$14,000.
c. $16,
000.
d.$22,000.
a
115. Incomeunderabsor
pti
oncost
ingf
or2009i
s
a.$33,000.
b.$39,000
c. $41,
000
d.$47,000.
a
116. Incomeunderv
ari
abl
ecost
ingf
or2008i
s
a.$8,000.
b.$14,000
c. $16,
000
d.$22,000.
a
117. Incomeunderv
ari
abl
ecost
ingf
or2009i
s
a.$33,000.
b.$39,000.
c. $41,
000.
d.$47,000.
a
118. Fort
het hreeyear
s2007–2009,
a.absor pti
oncosti
ngincomeexceedsv ar iablecostingi
ncomeby$6,
000.
b.absor pti
oncosti
ngincomeequal svariablecost i
ngincome.
c. v
ariablecosti
ngincomeexceedsabsor ptioncostingi
ncomeby$6,
000.
d.absor pti
oncosti
ngi ncomemaybegr eat erthan,equalt
o,orl
esst
hanvar
iabl
ecost
ing
i
ncome, dependi
ngont hesi
tuat
ion.
a
119. Whenpr oductionex ceedssales,
a.somef ixedmanuf actur
ingov erheadcostsar
edefer
redunt
ilaf
utureperi
odunder
absorpti
oncost ing.
b.somef ixedmanuf actur
ingov erheadcostsar
edefer
redunt
ilaf
utureperi
odunder
vari
ablecost i
ng.
c. vari
ableandf i
xedmanuf act
uringov er
headcost
saredef
err
edunti
lafutureper
iod
underabsor pti
oncost i
ng.
b.v ari
ableandf i
xedmanuf act
uringov er
headcost
saredef
err
edunti
lafutureper
iod
undervariablecosting.
a
120. Whenpr oductionex ceedssales,
a.endi nginventoryunderv ari
ablecosti
ngwi l
lexceedendi
nginv
entor
yunderabsorpti
on
costing.
b.endi nginventoryunderabsor pti
oncosti
ngwi l
lexceedendi
nginv
entoryundervar
iabl
e
costing.
c. endinginventoryunderabsor pti
oncostingwi l
lbeequaltoendinginvent
oryunder
vari
ablecosting.
d.endi nginventoryunderabsor ptioncost
ingmayexceed,beequalt o,orbelessthan
endinginventoryundervar i
abl
ecosting.
 Cost
-Vol
ume-
Prof
itAnal
ysi
s:Addi
ti
onal
Issues 6-5
a
121. Managementmaybet emptedtoover producewhenusi ng
a.v ari
ablecost
ing,
inordert
oincreaseneti ncome.
b.v ari
ablecost
ing,
inordert
odecr easeneti ncome.
c. absorpti
oncosti
ng,i
nordertoi
ncr easeneti ncome.
d.absor pti
oncosti
ng,i
nordertodecr easeneti ncome.
a
122. Ifa divi
sion manager’
scompensation isbased upon t hedivi
sion’snetincome,the
managermaydeci detomeetthenetincomet ar
getsbyincr
easi
ngpr oduct
ionwhenusi
ng
a.v ari
ablecost
ing,i
nordert
oincr
easeneti ncome.
b.v ari
ablecost
ing,i
nordert
odecreaseneti ncome.
c. absorpti
oncosti
ng,i
nordert
oincreaseneti ncome.
d.absor pti
oncosti
ng,i
nordert
odecr easeneti ncome.
a
123.Expected salesfornexty earfort heHuxtabl
eDi visi
on is150,000 units.Bi
llCosby
,
manageroft heHuxtabl
eDi v
isi
on,isunderpressuretoimpr ovetheper f
ormanceofthe
Divi
sion.Ashepl ansfornextyear
,hehast odecidewhet hertoproduce150,000unit
sor
180,000units.TheHuxtableDivi
sionwil
lhavehigherneti ncomeifBillCosbydeci
desto
produce
a.180, 000unitsifi
ncomeismeasur edunderabsorpti
oncost i
ng.
b.180, 000unitsifi
ncomeismeasur edundervari
ablecosting.
c. 150,000unitsifi
ncomeismeasur edunderabsorpti
oncost i
ng.
d.150, 000unitsifi
ncomeismeasur edundervari
ablecosting.
a
124. Whichoft hef
oll
owingisapotenti
aladvantageofvar
iablecostingrel
ati
vetoabsor
pti
on
costi
ng?
a.Netincomei saf
fectedbychangesinproduct
ionl
evels.
b.Theuseofv ari
ablecost
ingisconsi
stentwit
hcost-
volume-profi
tanal
ysis.
c. Netincomecomput edundervari
ablecosti
ngisnotcloselyt i
edtochangesinsal
es
l
evel
s.
d.Mor ethanoneoftheabove.
a
125. Companiesthatusejust-
in-
timeprocessi
ngtechni
queswil
l
a.hav egr
eaterdif
ferencesbetweenabsorpti
onandvar
iabl
ecosti
ngnetincome.
b.hav esmall
erdif
ferencesbetweenabsorpti
onandvari
ablecost
ingneti
ncome.
c. notbeabletouseabsor pti
oncosti
ng.
d.notbeabl etousev ari
ablecost
ing.

Answer
stoMul
ti
pleChoi
ceQuest
ions
I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans. I
tem Ans.
a a
31. a 45. d 59. d 73. c 87. d 101. a 115. c
a a
32. a 46. a 60. a 74. b 88. c 102. c 116. a
a a
33. c 47. c 61. a 75. b 89. b 103. c 117. d
a a
34. c 48. a 62. c 76. c 90. a 104. b 118. b
a a
35. d 49. a 63. a 77. b 91. a 105. c 119. a
a a
36. b 50. a 64. a 78. a 92. c 106. a 120. b
a a a
37. b 51. c 65. a 79. c 93. c 107. b 121. c
a a a
38. d 52. c 66. c 80. a 94. b 108. d 122. c
a a a
39. d 53. a 67. a 81. a 95. d 109. b 123. a
a a a
40. b 54. b 68. d 82. a 96. b 110. c 124. b
6-6 TestBankf
orI
SVManager
ial
Account
ing,
Four
thEdi
ti
on
a a a
41. a 55. b 69. d 83. b 97. a 111. a 125. b
a a
42. a 56. c 70. b 84. d 98. a 112. a
a a
43. d 57. d 71. a 85. d 99. a 113. a
a a
44. c 58. a 72. a 86. b 100. d 114. b

BRI
EFEXERCI
SES

A
BE131
Huski
eCompanypr
oducesf
oot
bal
l
s.I
tincur
redt
hef
oll
owi
ngcost
sthi
syear
:
Dir
ectmater
ial
s $25,
000
Di
rectl
abor 31,
000
Fi
xedmanufactur
ingover
head 22,
000
Vari
abl
emanufacturi
ngoverhead 38,
000
Fi
xedsell
i
ngandadmi ni
str
ativeexpenses 23,
000
Vari
abl
esell
i
ngandadmi ni
strati
veexpenses 14,000

I
nst
ruct
ions
Whatar
et het
otal
productcost
sfort
hecompanyunderv
ari
abl
ecost
ing?
a
Sol
uti
on131 (
3–5mi
n.)
Dir
ectmat eri
als $25,
000
Dir
ectlabor 31,
000
Vari
ablemanuf act
uri
ngoverhead 38,
000
Totalproductcost
sundervari
abl
ecost
ing $94,
000

a
BE132
Huski
eCompanypr
oducesf
oot
bal
l
s.I
tincur
redt
hef
oll
owi
ngcost
sthi
syear
:
Dir
ectmater
ial
s $25,
000
Di
rectl
abor 31,
000
Fi
xedmanufactur
ingover
head 22,
000
Vari
abl
emanufacturi
ngoverhead 38,
000
Fi
xedsell
i
ngandadmi ni
str
ativeexpenses 23,
000
Vari
abl
esell
i
ngandadmi ni
strati
veexpenses 14,000

I
nst
ruct
ions
Whatar
et het
otal
productcost
sfort
hecompanyunderabsor
pti
oncost
ing?

a
Sol
uti
on132 (
3–5mi
n.)
Dir
ectmat eri
als $25,000
Dir
ectlabor 31,
000
Fi
xedmanuf act
uri
ngover
head 22,
000
Vari
ablemanuf act
uri
ngoverhead 38,
000
Totalproductcost
sunderabsorpt
ioncost
ing $116,
000
 Cost
-Vol
ume-
Prof
itAnal
ysi
s:Addi
ti
onal
Issues 6-7
a
BE133
Duri
ng2008, NowakCorporati
onpr
oduced60,000uni
tsandsol
d55,000f
or$10peruni
t.Vari
abl
e
manufactur
ingcostswer e$4peruni
t.Annualfi
xedmanufact
uri
ngover
headwas$120,000($2
perunit
).Variabl
esell
i
ngandadmi ni
str
ati
vecostswere$1perunitsol
d,andfi
xedsell
ingand
admini
strat
ivecostswere$30,
000.

I
nstr
ucti
ons
Pr
epareavari
abl
ecost
ingi
ncomest
atement
.

a
Sol
uti
on133 (
5–7mi
n.)
Sal
es( 55,
000×$10) $550,
000
Vari
ablecostofgoodssold(55,000×$4) $220,
000
Vari
ablesell
i
ngandadmi ni
strati
veexpenses(
55,
000×$1) 55,
000 275,
000
Contri
buti
onmargin 275,
000
Fi
xedmanuf act
uri
ngoverhead 120,
000
Fi
xedsel l
i
ngandadministr
ati
v eexpenses 30,
000 150,
000
Netincome $125,
000

a
BE134
Duri
ng2008, NowakCorporati
onpr
oduced60,000uni
tsandsol
d55,000f
or$10peruni
t.Vari
abl
e
manufactur
ingcostswer e$4peruni
t.Annualfi
xedmanufact
uri
ngover
headwas$120,000($2
perunit
).Variabl
esell
i
ngandadmi ni
str
ati
vecostswere$1perunitsol
d,andfi
xedsell
ingand
admini
strat
ivecostswere$30,
000.

I
nstr
ucti
ons
Pr
epareanabsor
pti
oncost
ingi
ncomest
atement
.

a
Sol
uti
on134 (
5–7mi
n.)
Sales( 55,
000×$10) $550,
000
Costofgoodssol d(
55,000×$6) 330,
000
Grossmar gi
n 220,
000
Variablesell
i
ngandadmi ni
str
ati
veexpenses(
55,
000×$1) $55,
000
Fi
xedsel l
i
ngandadministr
ati
veexpenses 30,
000 85,
000
Neti ncome $135,
000

a
Ex.143
FreshAi
rProduct
sCompanymanufact
uresandsel
lsavar
ietyofcampingproduct
s.Recent
lythe
companyopenedanewplanttomanuf
actur
eadeluxepor
tablecooki
nguni
t.Costandsalesdata
forthef
ir
stmonthofoper
ati
onsar
eshownbelow:
Manufacturi
ngCosts
FixedOv erhead $120,
000
Var i
ableov er
head $3peruni
t
Directlabor $12peruni
t
Directmat eri
al $30peruni
t
6-8 TestBankf
orI
SVManager
ial
Account
ing,
Four
thEdi
ti
on

Begi
nni
ngi nv
entor
y 0unit
s
Unit
sproduced 12,
000
Unit
ssold 11,
000
a
Ex.143 (cont.
)
Sel
l
ingandAdmi
nist
rat
iveCost
s
Fi
xed $200,
000
Var
iabl
e $4peruni
tsol
d

Thepor t
abl
ecookinguni
tsel
lsfor$110.Managementi
sint
erest
edi
ntheopeni
ngmont
h’s
resul
tsandhasaskedf
orani
ncomestat
ement
.

I
nstructi
ons
Assumet hecompanyusesabsorpt
ioncost
ing.Calcul
atet
hepr
oduct
ioncostperuni
tand
pr
epar eanincomest
atementf
ort
hemonthofJune,2008.

a
Sol
uti
on143 (
8–12mi
n.)
PerUnit
Di
rectmateri
als $30
Di
rectl
abor 12
Vari
abl
eov er
head 3
Fi
xedoverhead($120,
000÷12,
000) 10
Totalcost $55

FreshAirProductsCompany
I
ncomeSt at
ement( Absorpt
ionCost
ing)
FortheMont hEndingJune30,2008
Sales( 11,000×$110) $1,
210,
000
Less: Costofgoodssold(11,
000×$55) 605,
000
Grosspr ofi
t 605,
000
Less: Selli
ngandadmini
strat
ivecost
s
Variable(11,
000×$4) $44,
000
Fixed 200,
000 244,
000
Neti ncome $ 361,
000

a
Ex.144
Momentum Bi
kesCompanymanuf
actur
esabasi
croadbicy
cle.Pr
oduct
ionandsal
esdat
afort
he
mostr
ecentyearar
easfol
l
ows(nobegi
nni
nginv
entor
y):
Variabl
epr oducti
oncost
s $90perbike
Fi
xedpr oductioncost
s $500,
000
Variabl
esel l
i
ngandadmi ni
str
ati
vecost
s $22perbike
Fi
xedsel l
ingandadmi ni
str
ati
vecost
s $520,
000
Sell
ingpri
ce $200perbike
Producti
on 20,
000bikes
Sales 18,
000bikes
 Cost
-Vol
ume-
Prof
itAnal
ysi
s:Addi
ti
onal
Issues 6-9

I
nst
ructi
ons
(
a) Prepar
eabr i
efi
ncomest
atementusi
ngabsor
pti
oncost
ing.
(
b) Comput et
heamounttoberepor
tedf
orinv
entor
yint
hey ear
-endabsor
pti
oncost
ingbal
ance
sheet.

a
Sol
uti
on144 (
8–12mi
n.)
(
a) Sales( 18,
000×$200) $3,
600,
000
Less: Costofgoodssol
d( 18,
000×$115*
) 2,
070,
000
Grosspr ofit 1,
530,
000
Less: sell
i
ngandadmini
strati
vecost
s
[
(18,000$22)+$520,000] 916,
000
Netincome $ 614,
000

*
Variabl
eproducti
oncosts $90perbike
Fixedproduct
ioncosts(
$500,000÷20,
000) 25perbi
ke
Tot
alcostofgoodssoldperuni
t $115perbi
ke

(
b) (
20,
000–18,
000)×$115=$230,
000

a
Ex.145
Momentum Bi
kesCompanymanuf
actur
esabasi
croadbicy
cle.Pr
oduct
ionandsal
esdat
afort
he
mostr
ecentyearar
easfol
l
ows(nobegi
nni
nginv
entor
y):
Variabl
epr oducti
oncost
s $90perbike
Fi
xedpr oductioncost
s $500,
000
Variabl
esel l
i
ngandadmi ni
str
ati
vecost
s $22perbike
Fi
xedsel l
ingandadmi ni
str
ati
vecost
s $520,
000
Sell
ingpri
ce $200perbike
Producti
on 20,
000bikes
Sales 18,
000bikes

I
nst
ructi
ons
(
a) Prepar
eabr i
efi
ncomestat
ementusi
ngvar
iablecost
ing.
(
b) Comput et
heamounttoberepor
tedf
ori
nventoryi
ntheyear
-endv
ari
abl
ecost
ingbal
ance
sheet.

a
Sol
uti
on145 (
8–12mi
n.)
(
a) Sales( 18,000×$200) $3,
600,
000
Less: Var iablecosts
Var iablecostofgoodssold(18,
000×$90) $1,
620,
000
Var iableselli
ngandadmin.cost
s(18,
000×$22) 396,
000 2,
016,
000
Cont ributionmar gin 1,
584,
000
Less: Fi xedcost s
Fixedpr oducti
oncost
s 500,
000
Fixedsel l
ingandadmini
str
ati
vecosts 520,
000 1,
020,
000
Neti ncome $ 564,
000

(
b) (
20,
000–18,
000)×$90=$180,
000
6-10 TestBankf
orI
SVManager
ial
Account
ing,
Four
thEdi
ti
on

a
Ex.146
Dolan Companypr oducessport
ing equipment
.In 2008,the f i
rstyearofoper at
ions,Dolan
produced25,000unitsandsold22,000uni t
s.In2009,thepr oducti
onandsal esresult
swer e
exactl
yrever
sed.Ineachyear,
sel
li
ngpr i
cewas$100,vari
ablemanuf actur
ingcostswere$40per
unit
,vari
ablesell
i
ngexpenseswer e$8peruni t
,fi
xedmanuf acturi
ngcostswere$540, 000,and
fi
xedadmi ni
str
ati
veexpenseswer
e$200, 000.
I
nst
ruct
ions
(
a) Comput etheneti
ncomeundervari
ablecosti
ngf oreachyear
.
(
b) Comput etheneti
ncomeunderabsorpti
oncostingforeachyear
.
(
c) Reconcil
et hedif
fer
enceseachy earini ncomef r
om operat
ionsundert
het
wo cost
ing
approaches.

a
Sol
uti
on146 (
20–25mi
n.)
(
a) 2008:[
22,
000×(
$100–$40–$8)
]–(
$540,
000+$200,
000)
]=$404,
000
2009:[
25,
000×(
$100–$40–$8)
]–(
$540,
000+$200,
000)
]=$560,
000

(
b) 2008:[
22,000×( $100–$40–$21.60)
]–(
$200,
000+($22,
000×$8)
]=$468,
800
2009:{[
25,000×$100)–[ 3,
000×(
$40+$21.
60)
]–[22,
000×($40+$24.
55)
]}–[
$200,
000 +
(25,
000×$8) ]=$495,200

(
c) Thev
ari
abl
ecost
ingandt
heabsor
pti
oncost
ingi
ncomecanber
ecor
dedasf
oll
ows:
2008vari
ablecostingincome $404,
000
Fi
xedmanuf actur
ingcostsdefer
redat12/31/
08
underabsorpti
oncost i
ng(3,
000×$21.60) 64,
800
2008absorpti
oncost i
ngincome $468,
800
2009vari
ablecostingincome $560,
000
Fi
xedmanuf actur
ingcostsexpensedi
n2009
underabsorpti
oncost i
ng(3,
000×$21.
60) (64,
800)
2009absorpti
oncost i
ngincome $495,
200
a
Ex.147
McCart
neyPumpsisadivi
sionofUKCont rolsCorpor
ati
on.Thedivi
sionmanufacturesandsel
lsa
pumpthatisusedinawi dev ar
ietyofappl i
cati
ons.Duri
ngthecomi ngyear,itexpectstosell
30,
000uni
tsfor$20perunit
.Geor geHar r
ison,di
visi
onmanager,isconsi
deri
ngpr oducingei
ther
30,
000or50,
000unit
sduri
ngt heperiod.Otherinf
ormati
onispresent
edintheschedul ebel
ow:
Di
vi
sionInfor
mat ion–2008
Beginninginventory 0
Expectedsalesi nunits 30,
000
Sell
i
ngpr iceperunit $20
Vari
ablemanuf act
uringcostperunit $7
Fi
xedmanuf acturi
ngov er
headcost s(t
otal
) $300,
000
Fi
xedmanuf acturi
ngov er
headcost sperunit
Basedon30, 000units($300,
000÷30, 000) $10
Basedon50, 000units($300,
000÷50, 000) $6
Manuf actur
ingcostperunit
Basedon30, 000units($7vari
able+$10f ixed) $17
Basedon50, 000units($7vari
able+$6f i
xed) $13
 Cost
-Vol
ume-
Prof
itAnal
ysi
s:Addi
ti
onal
Issues 6-11

Sel
li
ngandadmini
str
ati
veexpenses(
all
fixed) $25,
000
a
Ex.147 (cont
.)
I
nst
ructions
(
a) Prepareandabsorpti
oncosti
ngincomestatementwithonecolumnshowi ngther esul
tsif
30,000unitsar
eproducedandonecol
umnshowi ngtheresul
tsi
f50,000unit
sareproduced.
(
b) Whyi sincomedif
fer
entfort
hetwoproduct
ionlevel
swhensalesis30,000uni
tsei
therway ?

a
Sol
uti
on147 (
15–20mi
n.)
(
a) McCar
tneyPumpsDivi
sion
I
ncomeStat
ement(Absor
pti
onCost
ing)
Fort
heYearEnded2008
30,
000Produced 50,
000Produced
Sales(30,
000uni
ts×$20) $600,
000 $600,
000
Costofgoodssol
d 510,
000(30,
000×$17) 390,
000(30,000×$13)
Grossprofit 90,
000 210,
000
Fi
xedsel l
i
ngandadmin.expenses 25,
000 25,
000
Netincome $65,000 $185,
000

(
b) Netincomei s$120,
000hi
gherwhen50,000uni
tsarepr
oducedbecauseunderabsorpt
ion
cost
ing,$120,
000offi
xedmanuf
actur
ingcost
s(20,
000×$6)aredef
err
edtothenextyear.

a
Ex.148
McCart
neyPumpsisadivi
sionofUKCont rolsCorpor
ati
on.Thedivi
sionmanufacturesandsel
lsa
pumpthatisusedinawi dev ar
ietyofappl i
cati
ons.Duri
ngthecomi ngyear,itexpectstosell
30,
000uni
tsfor$20perunit
.Geor geHar r
ison,di
visi
onmanager,isconsi
deri
ngpr oducingei
ther
30,
000or50,
000unit
sduri
ngt heperiod.Otherinf
ormati
onispresent
edintheschedul ebel
ow:
Di
visionInformation–2008
Beginninginventory 0
Expectedsalesi nunits 30,
000
Sell
i
ngpr iceperunit $20
Vari
ablemanuf act
uringcostperuni t $7
Fi
xedmanuf acturi
ngov erheadcost s(t
otal) $300,
000
Fi
xedmanuf acturi
ngov erheadcost sperunit
Basedon30, 000units($300,
000÷30, 000) $10
Basedon50, 000units($300,
000÷50, 000) $6
Manuf actur
ingcostperuni t
Basedon30, 000units($7variable+$10f i
xed) $17
Basedon50, 000units($7variable+$6f i
xed) $13
Sell
i
ngandadmi ni
strati
veexpenses( all
fixed) $25,
000

Inst
ructi
ons
Prepareav ar
iabl
ecost
ingi
ncomest
atementwithonecol
umnshowingtheresul
tsi
f30,
000uni
ts
areproducedandonecolumnshowi
ngtheresul
tsi
f50,
000uni
tsar
epr oduced.
6-12 TestBankf
orI
SVManager
ial
Account
ing,
Four
thEdi
ti
on
a
Sol
uti
on148 (
15–20mi
n.)
McCartneyPumpsDivi
sion
I
ncomeStatement(Var
iabl
eCosti
ng)
FortheYearEnded2008
30,
000Produced 50,
000Produced
Sal
es( 30,
000unit
s×$20) $600,
000 $600,
000
Vari
ablecostofgoodssold(30,
000×$7) 210,
000 210,
000
Contri
buti
onmargin 390,
000 390,
000
Fi
xedmanuf act
uri
ngoverhead 300,
000 300,
000
Fi
xedsel l
i
ngandadminist
rati
veexpenses 25,
000 25,
000
Netincome $65,000 $65,000