Chapt

er7Var
iabl
eCost
ing:
ATool
forManagement

Tr
ue/
Fal
seQuest
ions

1.Underv
ari
abl
ecost
ing,
onl
yvar
iabl
epr
oduct
ioncost
sar
etr
eat
edaspr
oduct
cost
s.

Ans:
  
True AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Level
: 
 Easy

2.Underv
ari
ablecost
ing,
var
iabl
esel
l
ingandadmi
nist
rat
ivecost
sar
eincl
udedi
n
pr
oductcost
s.

Ans:
  
Fal
se AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
  
Easy

3.Absor
pti
oncost
ingt
reat
sal
lmanuf
act
uri
ngcost
saspr
oductcost
s.

Ans:
  
True AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Level
: 
 Easy

4.I
ntheprepar
ati
onoffi
nanci
alst
atement
susi
ngvar
iabl
ecost
ing,
fixed
manuf
acturi
ngover
headist
reat
edasaperi
odcost
.

Ans:
  
True AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Level
: 
 Easy

5.Absor
pti
oncost
ingt
reat
sfi
xedmanuf
act
uri
ngov
erheadasaper
iodcost
.

Ans:
  
Fal
se AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
  
Easy

6.Whent henumberofunitsinworkinprocessandfi
nishedgoodsi
nventor
ies
i
ncrease,absorpt
ioncosti
ngnetoperat
ingincomewillt
ypi
cal
lybegreat
erthan
var
iabl
ecost i
ngnetoperati
ngincome.

Ans:
  Tr
ue AACSB:
  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2,
3 Level
:
  
Easy

7.Netoper
ati
ngincomecomput
edusi
ngabsorpt
ioncost
ingwil
lal
waysbe
gr
eatert
hannetoper
ati
ngi
ncomecomputedusingvar
iabl
ecost
ing.

Ans:
  
Fal
se AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
5
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

8.Whenr econci
li
ngvari
ablecosti
ngandabsor pt
ioncosti
ngnetoperatingi
ncome,
fi
xedmanuf act
uri
ngov erheadcostsr
eleasedfrom i
nventoryunderabsorpt
ion
costi
ngshouldbeaddedt ovar
iabl
ecostingnetoperat
ingincomet oarr
iveat
theabsorpti
oncosti
ngnetoper ati
ngi
ncome.

Ans:
  
Fal
se AACSB:
 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
  
Medi
um

9.Whenpr
oducti
onexceedssal
esfort
heperi
od,absor
pti
oncost
ingnetoper
ati
ng
i
ncomewil
lexceedvar
iabl
ecost
ingnetoper
ati
ngincome.

Ans:
  
True AACSB:
 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Level
:
  
Medi
um

10.Undervar
iabl
ecosti
ngitmaybepossi
blet
orepor
tapr
ofi
tev
eni
fthecompany
sel
lsl
essthanthebreak-
evenv
olumeofsal
es.

Ans:
  
Fal
se AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

11.Absor
ptioncosti
ngnetoper
ati
ngincomei scl
osert
othenetcashf
lowofa
per
iodthanisvari
abl
ecosti
ngnetoperat
ingincome.

Ans:
  
Fal
se AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

12.Vari
abl
ecosti
ngisnotpermitt
edf ori
ncomet
axpur
poses,
buti
tiswi
del
y
accept
edforext
ernal
financi
alreport
s.

Ans:
  
Fal
se AACSB:
 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
  
Medi
um

13.Abasicconceptoft
hecont
ri
but
ionapproachandv
ari
abl
ecost
ingi
sthatf
ixed
cost
sarenotimport
anti
nanorgani
zati
on.

Ans:
  
Fal
se AACSB:
 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
  
Medi
um

14.Vari
ablecost
ingisbet
tersui
tedt
ocost
-vol
ume-
prof
itcal
cul
ati
onst
han
absorpt
ioncost
ing.

Ans:
  
True AACSB:
  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Level
:
  
Easy

7-
6 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

15.Whenleanproducti
onisintr
oduced,
thedif
fer
enceinnetoperat
ingincome
computedundertheabsorpti
onandvari
abl
ecosti
ngmet hodsisreduced.

Ans:
  
True AACSB:
  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Level
:
  
Easy

Mul
ti
pleChoi
ceQuest
ions

16.Howwoul dt
hefoll
owingcostsbecl
assi
fi
ed(
productorper
iod)underv
ari
abl
e
cost
ingataret
ail
clot
hingstore?

Costofpurchasingcl
othi
ng Sal
escommi ssi
ons
A) Product Product
B) Product Per
iod
C) Per
iod Product
D) Per
iod Per
iod

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

17.Thepri
nci
pal diff
erencebetweenvar
iabl
ecosti
ngandabsorpt
ioncosti
ng
cent
erson:
A) whet herv ari
ablemanufact
uri
ngcostsshoul
dbeincl
udedasproduct
cost
s.
B) whet herfixedmanuf act
uri
ngcostsshoul
dbeincl
udedasproductcosts.
C) whet herfixedmanuf act
uri
ngcostsandfi
xedsel
li
ngandadministr
ati
ve
cost
sshoul dbei ncl
udedasproductcost
s.
D) noneoft hese.

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

18.Whichofthefol
lowingcostsatamanuf act
uri
ngcompanywoul
dbet
reat
edasa
pr
oductcostundert hevari
ablecost
ingmethod?
A) directmaterialcost
B) pr opert
ytaxesont hefactor
ybuil
ding
C) sal esmanager '
ssalar
y
D) all oft
heabov e

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
7
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

19.Assumingt hatdi rectlabori sav ariablecost ,thepr imar ydifferencebet weent he

absor
ptionandv ariablecost ingi st hat:
A) v ariabl ecost ingt r
eatsonl ydi r
ectmat er i
alsanddi rectlaboraspr oduct
costwhi l
eabsor pti
oncost ingt reatsdi r ectmat eri
als,directl abor ,
andt he
variabl epor tionofmanuf actur i
ngov er headaspr oductcost s.
B) v ariabl ecost i
ngt reatsdi rectmat eri
al s, dir
ectl abor ,t
hev ar iabl epor ti
onof
manuf acturingov erhead, andanal l
ocat edpor ti
onoff i
xedmanuf acturi
ng
over headaspr oductcost swhi l
eabsor ptioncost i
ngt reatsonl ydirect
mat er ial
s, directlabor ,
andt hev ar i
ablepor t i
onofmanuf act ur ingov erhead
aspr oductcost s.
C) v ariabl ecost ingt r
eatsonl ydi r
ectmat er i
als,directlabor ,thev ariable
portionofmanuf acturi
ngov erhead, andt hev ar i
abl eportionofsel lingand
admi nistr
at iveexpensesaspr oductcostwhi leabsor pti
oncost i
ngt r
eat
s
dir
ectmat er ials,dir
ectl abor ,thev ariabl epor ti
onofmanuf act uring
over head, andanal locat edpor t
ionoff ixedmanuf acturi
ngov er headas
productcost s.
D) v ariabl ecost ingt r
eatsonl ydi r
ectmat er i
als,directlabor ,andt hev ari
able
portionofmanuf acturingov erheadaspr oductcost swhi l
eabsor pt i
on
cost i
ngt r
eat sdirectmat erials,directl abor ,thev ariablepor tionof
manuf acturingov erhead, andanal l
ocat edpor ti
onoff i
xedmanuf acturi
ng
over headaspr oductcost s.

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

20.Thecosti
ngmet hodthattreat
sal
lfi
xedcost
sasper
iodcost
sis:
A) absor pti
oncosting.
B) job-ordercosti
ng.
C) v ari
ablecosti
ng.
D) pr ocesscosti
ng.

Ans:
  
C AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

7-
8 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

21.Init
sfirstyearofoper ati
ons,Bronfr
enCor por
ati
onproduced800,000setsand
sold780,000set sofar t
if
icial
tanli
nes.Whatwoul dhavehappenedt onet
operat
ingincomei nt hisfi
rstyearunderthefoll
owingcosti
ngmet hodsif
Bronfr
enhadpr oduced20, 000fewersets?(Assumet hatBr
onfr
enhasbot h
vari
ableandf i
xedpr oductioncosts.
)

Var
iabl
ecost i
ng Absorpti
oncosti
ng
A) I
ncrease Incr
ease
B) Decrease Incr
ease
C) Decrease Decrease
D) Noef fect Decrease

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

22.Whensal
esareconst ant,buttheproduct i
onlevelfl
uctuates,
netoper
ati
ng
i
ncomedeter
mi nedbyt hev ar
iablecostingmethodwi ll
:
A) fl
uctuat
eindi rectpr
opor ti
ontochangesi npr oducti
on.
B) remainconst ant.
C) fl
uctuat
einv ersel
ywi t
hchangesi nproducti
on.
D) begreaterthannetoper ati
ngi ncomeunderabsor pt
ioncost
ing.

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

23.Undert
hev ari
ablecostingmethod,whichofthefol
l
owi
ngi
sal
way
sexpensedi
n
i
tsenti
retyint heperiodinwhichitisi
ncurred?
A) f i
xedmanuf act
uringoverheadcost
B) f i
xedsel l
ingandadmi ni
strati
veexpense
C) v ariableselli
ngandadmi nistr
ati
veexpense
D) al loft heabov e

Ans:
  
D AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Hard

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
9
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

24.Whichoft
hefol
lowingwi
l
l usual
l
ybef oundonani
ncomest
atementpr
epar
ed
usi
ngtheabsor
pti
oncost
ingmet hod?

Cont
ri
buti
onMar
gin Gr
ossMargi
n
A) Yes Yes
B) Yes No
C) No Yes
D) No No

Ans:
  
C AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Easy

25.Netoperat
ingi
ncomeundervar
iabl
eandabsorpt
ioncost
ingwi
l
lgener
all
y:
A) al waysbeequal
.
B) nev erbeequal
.
C) beequal onl
ywhenproducti
onandsalesar
eequal.
D) beequal onl
ywhenproducti
onexceedssal
es.

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

26.Whenpr oducti
onexceedssal es,netoperati
ngincomer epor
tedundervar
iabl
e
cost
inggenerallywi
llbe:
A) gr eaterthannetoperati
ngi ncomerepor t
edunderabsorpti
oncosti
ng.
B) l essthannetoper at
ingincomer eportedunderabsorpt
ioncost
ing
C) equal t
onetoper ati
ngincomer eportedunderabsorpti
oncosti
ng.
D) hi gherorlowerbecausenogener al
izati
oncanbemade.

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

7-
10 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

27.Netoperati
ngincomeunderabsor pti
oncosti
ngmaydi fferfrom netoperati
ng
i
ncomedet erminedunderv ar
iabl
ecosti
ng.Howi sthi
sdi f
ferencecalcul
ated?
A) changei nthequanti
tyofunit
sininvent
oryti
mest hef i
xedmanuf acturi
ng
overheadr at
eperunit.
B) numberofuni tspr
oduceddur i
ngtheperi
odtimesthef i
xedmanuf acturi
ng
overheadr at
eperunit.
C) changei nthequanti
tyofunit
sininvent
oryti
mest hev ari
able
manuf acturi
ngcostperunit
.
D) numberofuni t
sproducedduri
ngtheperiodti
mest hev ari
able
manuf acturi
ngcostperunit
.

Ans:
  
A AACSB:  
Anal
yti
c AICPA BB: 
 Cr
iti
cal
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Har
d Sour ce:
 
 CMA, 
adapted

28.Whensalesareconst ant,butt
heproducti
onl ev
elfl
uct
uates,netoperat
ing
i
ncomedet er
mi nedbyt heabsorpt
ioncostingmethodwill
:
A) t endtofluctuat
einthesamedi recti
onasf l
uct
uati
onsinthelevelof
product
ion.
B) t endtoremai nconstant.
C) t endtofluctuat
einversel
ywithfluct
uati
onsinthelevel
ofproducti
on.
D) noneoft hese

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

29.Ar easonwhyabsor pt
ioncost i
ngincomest atementsaresomet i
mesdi f
fi
cul
t
forthemanagert oint
erpreti sthat
:
A) t heyomi tvari
ableexpensesent i
rel
yincomput ingnetoperat
ingincome.
B) t heyshiftport
ionsoff ixedmanuf acturi
ngov er
headfrom peri
odtoperi
od
accordingtochangi ngl evel
sofinventories.
C) t heyi
ncl udeallf
ixedmanuf actur
ingov erheadontheincomest at
ement
eachy earasaper iodcost .
D) t heyi
gnor einventorylev el
sincomput i
ngi ncomecharges.

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
11
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

30.Undert
hetheor
yofconst
rai
nts(
TOC)
,whi
choft
hef
oll
owi
ngi
str
eat
edasa
per
iodcost
?

Di
rectl
abor Di
rectmater
ial
A) Yes Yes
B) Yes No
C) No Yes
D) No No

Ans:
  
B AACSB: 
 Refl
ect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Medium

31.Fl
eetCor porationpr oducesasi ngl
epr oduct.Thecompanymanuf act
ured700
uni
tslastyear .Theendi nginventor
yconsi stedof100uni
ts.Therewasno
beginni
nginv ent ory.Var
iabl
emanuf actur
ingcostswer
e$6.00peruni tand
fi
xedmanuf act ur i
ngcostswere$2. 00peruni t
.Whatwoul
dbet hechangeinthe
doll
aramountofendi nginventoryi
fv ari
ablecosti
ngwasusedi nst
eadof
absorpt
ioncost ing?
A) $800decr ease
B) $200decr ease
C) $0
D) $200i ncr ease

Ans:
  
B AACSB:  
 Anal
yti
c AI CPA 
BB: 
 Cr
iti
cal
 
Thinki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev el
: 
 Easy Sour ce:
 
 CMA, 
adapted
Sol
ution:
Changeininventory×Fixedmanufact
uri
ngcostsperunit
=100×$2=$200decr ease

7-
12 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

32.ShunCor
por
ati
onmanufact
uresandsel
lsahandhel
dcal
cul
ator
.Thef
oll
owi
ng
i
nfor
mati
onrel
atest
oShun'
soperat
ionsforl
asty
ear
:

$5.
20per
Uni
tproductcostundervariabl
ecosting uni
t
Fi
xedmanuf acturi
ngoverheadcostfortheyear $260,
000
Fi
xedsell
ingandadmi ni
strati
vecostfortheyear $180,
000
Uni
ts(
calculators)pr
oducedandsold 400,
000

Whati
sShun'
suni
tpr
oductcostunderabsor
pti
oncost
ingf
orl
asty
ear
?
A) $4.10
B) $4.55
C) $5.85
D) $6.30

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Uni
tfi
xedmanuf actur
ingov
erhead=Fixedmanufact
uri
ngov
erhead÷Uni
ts
pr
oduced=$260, 000÷400,000uni
ts=$0.65peruni
t
Uni
tproductcost=$5.20+$0.65=$5.85

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
13
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

33.Amanufact
uri
ngcompanythatpr
oducesasingl
eproducthasprov
idedt
he
f
oll
owi
ngdataconcer
ningi
tsmostrecentmonthofoperat
ions:

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 7,
100
Uni
tssold 7,
000
Uni
tsi
nendi ngi
nventor
y 100

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $33
Dir
ectlabor $53
Vari
ablemanuf act
uri
ngover
head $1
Vari
ablesell
ingandadmini
str
ati
ve $7

Fi
xedcost
s:
$170,
40
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $7,
000

Whati
stheuni
tpr
oductcostf
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $118
B) $94
C) $111
D) $87

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitproductcost=Di
rectmat
eri
als+Di
rectl
abor+Var
iabl
emanuf
act
uri
ng
overhead=$33+$53+$1=$87

7-
14 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

34.Amanufact
uri
ngcompanythatpr
oducesasingl
eproducthasprov
idedt
he
f
oll
owi
ngdataconcer
ningi
tsmostrecentmonthofoperat
ions:

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 1,
900
Uni
tssold 1,
700
Uni
tsi
nendi ngi
nventor
y 200

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $33
Dir
ectlabor $32
Vari
ablemanuf act
uri
ngover
head $2
Vari
ablesell
ingandadmini
str
ati
ve $6

Fi
xedcost
s:
$72,
20
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $6,
800

Whati
stheuni
tpr
oductcostf
ort
hemont
hunderabsor
pti
oncost
ing?
A) $67
B) $105
C) $111
D) $73

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitfi
xedmanuf acturi
ngover
head=$72,200÷1,900=$38
Unitproductcost=Di r
ectmater
ial
s+Di
rectlabor+Var
iabl
emanuf
act
uri
ng
overheadcost+Fi xedmanufact
uri
ngoverheadcost
=$33+$32+$2+$38=$105

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
15
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

35.Amanufact
uri
ngcompanythatpr
oducesasingl
eproducthasprov
idedt
he
f
oll
owi
ngdataconcer
ningi
tsmostrecentmonthofoperat
ions:

Sel
l
ingpr
ice $79

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 6,
600
Uni
tssold 6,
300
Uni
tsi
nendi ngi
nventor
y 300

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $14
Dir
ectlabor $30
Vari
ablemanuf act
uri
ngover
head $4
Vari
ablesell
ingandadmini
str
ati
ve $8

Fi
xedcost
s:
$46,
20
Fi
xedmanuf
act
uri
ngov
erhead 0
$88,
20
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

Whati
sthetot
alper
iodcostf
ort
hemont
hundert
hev
ari
abl
ecost
ingappr
oach?
A) $138,600
B) $134,400
C) $46,200
D) $184,800

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Tot
alvari
abl
esel
lingandadmi ni
str
ati
vecost=$8×6, 300=$50,400
Per
iodcost=Totalvar
iabl
eselli
ngandadminist
rat
ivecost+Fixed
manufact
uri
ngoverhead+Fixedsell
ingandadmini
strati
vecost
=$50,
400+$46,200+$88, 200=$184,800

7-
16 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

36.Amanufact
uri
ngcompanythatpr
oducesasingl
eproducthasprov
idedt
he
f
oll
owi
ngdataconcer
ningi
tsmostrecentmonthofoperat
ions:

Sel
l
ingpr
ice $97

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 2,
200
Uni
tssold 2,
100
Uni
tsi
nendi ngi
nventor
y 100

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $32
Dir
ectlabor $25
Vari
ablemanuf act
uri
ngover
head $2
Vari
ablesell
ingandadmini
str
ati
ve $9

Fi
xedcosts:
Fixedmanufact
uri
ngov
erhead $8,
800
$37,
80
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

Whatist
hetotal
per
iodcostf
ort
hemont
hundert
heabsor
pti
oncost
ing
appr
oach?
A) $56,700
B) $65,500
C) $8,800
D) $37,800

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Tot
al v
ari
abl
esell
ingandadmini
str
ati
vecost=$9×2, 100=$18,900
Per
iodcost=Vari
ablesel
l
ingandadmini
strat
ivecost+Fixedsel
li
ngand
admini
str
ati
vecost=$18,
900+$37,800=$56,700

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
17
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

37.Mull
eeCorpor
ati
onpr
oducesasi
ngl
epr
oductandhast
hef
oll
owi
ngcost
st
ruct
ure:

Numberofuni t
spr oducedeachy ear 7,
000
Var
iabl
ecost sperunit:
Dir
ectmat eri
als $51
Dir
ectlabor $12
Vari
ablemanuf acturi
ngoverhead $2
Vari
ablesell
ingandadmi nist
rati
veexpense $5
Fi
xedcostspery ear:
$441,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$112,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpense 0

Theuni
tpr
oductcostunderabsor
pti
oncost
ingi
s:
A) $149
B) $65
C) $63
D) $128

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Uni
tfi
xedmanuf act
uri
ngov
erhead=$441,
000÷7,
000=$63
Uni
tproductcost=$63+$51+$12+$2=$128

7-
18 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

38.St
onebergerCor
por
ati
onpr
oducesasi
ngl
epr
oductandhast
hef
oll
owi
ngcost
st
ruct
ure:

Numberofuni t
spr oducedeachy ear 4,
000
Var
iabl
ecost sperunit:
Dir
ectmat eri
als $50
Dir
ectlabor $72
Vari
ablemanuf acturi
ngoverhead $6
Vari
ablesell
ingandadmi nist
rati
veexpense $3
Fi
xedcostspery ear:
$296,
00
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
veexpense $76,
000

Theuni
tpr
oductcostunderv
ari
abl
ecost
ingi
s:
A) $128
B) $125
C) $202
D) $131

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Uni
tpr
oductcost=$50+$72+$6=$128

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
19
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

39.BeamishI
nc.
,whichpr
oducesasinglepr
oduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
fori
tsmostr
ecentmonthofoper
ations:

Numberofuni t
spr oduced 8,
000
Var
iabl
ecost sperunit:
Dir
ectmat eri
als $37
Dir
ectlabor $56
Vari
ablemanuf acturi
ngover
head $4
Vari
ablesell
ingandadmi ni
str
ati
veexpense $2
Fi
xedcosts:
$312,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$448,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpense 0

Therewerenobeginni
ngorendi
ngi
nvent
ori
es.Theuni
tpr
oductcostunder
absorpt
ioncost
ingwas:
A) $93
B) $97
C) $136
D) $194

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Uni
tfi
xedmanuf act
uri
ngov
erhead=$312,
000÷8,
000=$39
Uni
tproductcost=$37+$56+$4+$39=$136

7-
20 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

40.KrayI
nc.
,whichpr
oducesasi
ngl
eproduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
afor
i
tsmostrecentmont
hofoper
ati
ons:

Numberofuni t
spr oduced 3,
000
Var
iabl
ecost sperunit:
Dir
ectmat eri
als $91
Dir
ectlabor $13
Vari
ablemanuf acturi
ngover
head $7
Vari
ablesell
ingandadmi ni
str
ati
veexpense $6
Fi
xedcosts:
$237,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$165,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpense 0

Therewer
enobeginni
ngorendi
ngi
nvent
ori
es.Theuni
tpr
oductcostunder
var
iabl
ecost
ingwas:
A) $111
B) $190
C) $117
D) $110

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitproductcost=Di
rectmat
eri
als+Di
rectl
abor+Var
iabl
emanuf
act
uri
ng
overhead=$91+$13+$7=$111

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
21
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

41.Thefol
l
owingdatapert
aint
olasty
ear
'soper
ati
onsatCl
arkson,
Incor
por
ated,
a
companyt
hatproducesasi
nglepr
oduct
:

Uni
tsi
nbegi nni
ngi
nvent
ory 0
Uni
tsproduced 100,
000
Uni
tssold 98,
000

Sel
l
ingpr
iceperuni
t $10.
00

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $1.
50
Dir
ectlabor $2.
50
Vari
ablemanuf act
uri
ngover
head $1.
00
Vari
ablesell
ingandadmini
str
ati
ve $2.
00

Fi
xedcost
spery
ear
:
$200,
00
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $50,
000

Whatwastheabsor
pti
oncost
ingnetoper
ati
ngi
ncomel
asty
ear
?
A) $44,000
B) $48,000
C) $50,000
D) $49,000

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Uni
tfixedmanuf acturingoverhead=$200,000÷100,000=$2
Uni
tpr oductcost=$1. 50+$2. 50+$1+$2=$7
Absor pti
oncost ingincomest atement
Sal es($10×98, 000) $980,000
Costofgoodssol d($7×98, 000)  
686,000
Grossmar gin 294,000
Sel l
ingandadmi ni
strat
iveexpenses
expenses:
$196,00
Var i
ablesell
i
ngandadmi ni
strati
ve 0
Fixedselli
ngandadmi nistr
ati
v e    
50,000  246,000
Netoper atingincome $  
 48,000

7-
22 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
23
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

42.Amanufact
uri
ngcompanythatpr
oducesasingl
eproducthasprov
idedt
he
f
oll
owi
ngdataconcer
ningi
tsmostrecentmonthofoperat
ions:

Sel
l
ingpr
ice $135

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 6,
400
Uni
tssold 6,
200
Uni
tsi
nendi ngi
nventor
y 200

Vari
abl
ecostsperunit
:
Di
rectmater
ial
s $49
Di
rectl
abor $38
Vari
abl
emanuf act
uri
ngover
head $6
Vari
abl
esell
ingandadmini
str
ati
ve $11

Fi
xedcost
s:
$108,
80
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $74,
400

Thet
otal
contr
ibut
ionmar
ginf
ort
hemont
hundert
hev
ari
abl
ecost
ingappr
oach
i
s:
A) $155,000
B) $260,400
C) $192,200
D) $83,400

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Easy

Sol
uti
on:

$837,
00
Sal
esrevenue(
$135×6,
200) 0
Var
iabl
ecost:
$303,
80
Directmat er
ial
s( $49×6,200) 0
Directlabor($38×6, 200) 235,
000
Var i
ablemanuf actur
ingoverhead($6×
6,200) 37,
200
Var i
ablesell
ingandadmi nist
rati
ve($11×
6,200) 68,
200 644,800
Contri
butionmar gi
n $192,200

7-
24 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
25
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

43.Amanufact
uri
ngcompanythatpr
oducesasingl
eproducthasprov
idedt
he
f
oll
owi
ngdataconcer
ningi
tsmostrecentmonthofoperat
ions:

Sel
l
ingpr
ice $123

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 1,
000
Uni
tssold 900
Uni
tsi
nendi ngi
nventor
y 100

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $41
Dir
ectlabor $26
Vari
ablemanuf act
uri
ngover
head $4
Vari
ablesell
ingandadmini
str
ati
ve $6

Fi
xedcost
s:
$17,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$11,
70
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $12,700
B) $5,600
C) $1,700
D) $14,400

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Sales( $123×900) $110,

700
Variablecostofgoodssol
d($71×900) 63,
900
Lessv ariabl
esel
li
ngandadmini
str
ati
ve(
$6×
900)  
  
  
5,400
Cont r
ibutionmar
gin 41,400
Fi
xedcost :
$17,
00
Fixedmanufact
uri
ngover
head 0
Fixedsel
li
ngandadmini
str
ati
ve  
11,
700   
 28,700
Netoperat
ingi
ncome $ 
  12,700

7-
26 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
27
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

44.Swift
onCompanypr oducesasingleproduct.Lastyear,thecompanyhadnet
operati
ngi ncomeof$40,000usingvari
ablecosting.Beginni
ngandending
i
nventorieswere22,000and27,000units,r
espect i
vel
y.Ifthefi
xed
manuf acturi
ngover
headcostwas$3. 00peruni t
, whatwast heincomeusi
ng
absorpti
oncost i
ng?
A) $15, 000
B) $25, 000
C) $40, 000
D) $55, 000

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

Sol
uti
on:

Di
ff
erencebetweenabsorpt
ioncost
ingnetincomeandvariabl
ecosti
ng
neti
ncome=Changei ninv
entoryi
nunit
s×Uni tf
ixedmanufact
uringover
head
=(27,000−22,000)×$3=5, 000×$3=$15,000
Netincomeunderabsorpti
oncosti
ng=$40, 000+$15,000=$55,000

45.BlakeCompanypr oducesasinglepr oduct.Lastyear

,Blake'snetoperati
ng
i
ncomeunderabsor ptioncosti
ngwas$3, 600lowerthanunderv ari
ablecost
ing.
Thecompanysol d10,000unitsduringthey ear,andit
sv ar
iablecostswere$9
perunit,
ofwhich$1wasv ari
ableselli
ngexpense.Ifproductioncostwas$11
perunitunderabsorptioncosti
ng,thenhowmanyuni tsdidthecompany
produceduringthey ear?
A) 8, 200units
B) 8, 800units
C) 11, 200units
D) 11, 800units

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Hard

Sol
uti
on:

Di
rectmat eri
al+Directl
abor+Vari
abl
emanufactur
ingover
head
=Var i
ableunitpr
oductcost=$9–$1=$8
Unitfi
xedmanuf actur
ingover
head=$11–$8=$3
Di
fferenceinnetincomebetweenmethods÷Unitfi
xedmanufact
uri
ng
overhead=( $3,
600)÷$3perunit=(1,
200)uni
ts
Unitsproduced=Uni t
ssold+Changeininv
ent
ory=10,000+(1,
200)=8,
800

7-
28 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

46.PungentCorporat
ionmanuf
actur
esandsel
lsaspicer
ack.Shownbel
owar
ethe
act
ualoperati
ngresul
tsf
orthefi
rstt
woyearsofoper
ati
ons:

Year1 Year2
Uni
ts(
spi
cer
acks)produced 40,
000 40,
000
Uni
ts(
spi
cer
acks)sold 37,
000 41,
000
$44,
00 $52,
00
Absor
pti
oncost
ingnetoper
ati
ngi
ncome 0 0
$38,
00
Var
iabl
ecost
ingnetoper
ati
ngi
ncome 0 ?
??

Pungent
'scostst
ruct
ureandsel
l
ingpriceweret
hesamef orbot
hyear
s.Whati
s
Pungent
'svari
abl
ecosti
ngnetoperat
ingincomeforYear2?
A) $48, 000
B) $50, 000
C) $54, 000
D) $56, 000

Ans:
  
C AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Har
d

Sol
uti
on:

Uni
tfixedmanuf actur
ingoverhead=Dif
fer
enceinneti
ncome÷Changein
i
nventory=($44,000–$38, 000)÷(40,
000–37,000)=$6,
000÷3,000=$2
Var
iablecostingnetoperati
ngincome=Absorpti
oncosti
ngneti
ncome−
Di
ffer
enceinnetoper ati
ngincome
=$52,000−[(40,000−41, 000)×$2)]
=$52,000−( $2,000)=$54,000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
29
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

47.SiphoCorporat
ionmanufacturesav ari
etyofpr
oducts.Lasty
ear
,thecompany'
s
vari
ablecost
ingnetoperati
ngi ncomewas$90, 900.Fi
xedmanuf actur
ing
overheadcostsrel
easedfrom inventor
yunderabsorpti
oncosti
ngamount edt
o
$21,900.Whatwast heabsorptioncosti
ngnetoperati
ngincomel asty
ear?
A) $69, 000
B) $90, 900
C) $21, 900
D) $112, 800

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Absor
ptioncosti
ngneti
ncome=Var iabl
ecost
ingnetincome–f
ixed
manufactur
ingover
headcostsrel
easedfr
om i
nventor
y
=$90,
900–$21, 900=$69,000

48.Lastyear,Kirst
enCorporat
ion'
svar
iabl
ecosti
ngnetoperati
ngincomewas
$63,
400.Fi xedmanufactur
ingover
headcostsrel
easedfrom i
nventor
yunder
absorpti
oncost i
ngamount edt
o$10,700.Whatwast heabsor
ptioncost
ingnet
operati
ngincomel astyear
?
A) $10, 700
B) $74, 100
C) $63, 400
D) $52, 700

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Absor
ptioncosti
ngneti
ncome=Var iabl
ecost
ingnetincome–f
ixed
manufactur
ingover
headcostsrel
easedfr
om i
nventor
y
=$63,
400–$10, 700=$52,700

7-
30 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

49.Bell
ueInc.manufacturesavari
etyofproduct
s.Vari
abl
ecost i
ngnetoper
ati
ng
i
ncomewas$96, 300lastyearandendinginv
entor
ydecreasedby2,600uni
ts.
Fi
xedmanuf act
ur i
ngov er
headcostwas$1peruni t
.Whatwast heabsorpt
ion
costi
ngnetoperatingi
ncomel astyear
?
A) $2, 600
B) $93, 700
C) $96, 300
D) $98, 900

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

Sol
uti
on:

Absor
ptioncostingneti
ncome=Variabl
ecostingnetincome−f
ixed
manufactur
ingov er
headcost
srel
easedfrom i
nventor
y
=$96,
300−[ 2,
600×$1]=$96,300−$2,600=$93,700

50.Lastyear,
TinklenbergCorpor
ation'
sv ar
iablecost
ingnetoperati
ngincomewas
$52,
400andi tsendinginv
entorydecreasedby1,400units.
Fixedmanuf act
uri
ng
overheadcostwas$8peruni t.Whatwast heabsorpt
ioncostingnetoperat
ing
i
ncomel astyear?
A) $41, 200
B) $11, 200
C) $63, 600
D) $52, 400

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

Sol
uti
on:

Absor
ptioncostingneti
ncome=Variabl
ecostingnetincome−f
ixed
manufactur
ingov er
headcost
srel
easedfrom i
nventor
y
=$52,
400−[ 1,
400×$8]=$52,400−$11,200=$41,200

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
31
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions51-
53:

Hurl
exCompanypr
oducesasi
ngleproduct
.Lasty
ear
,Hurlexmanufactur
ed15,
000
uni
tsandsol
d12,
000unit
s.Pr
oduct
ioncostsfort
heyearwereasfoll
ows:

$150,
00
Di
rectmat
eri
als 0
$180,
00
Di
rectl
abor 0
$135,
00
Var
iabl
emanuf
act
uri
ngov
erhead 0
$210,
00
Fi
xedmanuf
act
uri
ngov
erhead 0

Salestot
aled$840,
000fortheyear,var
iabl
esell
ingexpensestot
aled$60,
000,
and
fi
xedsell
ingandadmini
strat
iveexpensestotal
ed$180,000.Ther
ewerenounit
sinthe
beginni
nginvent
ory
.Assumet hatdir
ectlabori
sav ar
iabl
ecost.

51.Thecont
ri
but
ionmar
ginperuni
twoul
dbe:
A) $25
B) $39
C) $34
D) $35

Ans:
  
C AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Har
d

Sol
uti
on:

Unitsellingprice( $840,000÷12, 000) $70

Lessdi rectmat erial
s( $150,000÷15, 000) $10
Lessdi rectlabor( $180,000÷15, 000) 12
Lessv ariablemanuf acturi
ngov erhead
(
$135, 000÷15, 000) 9
Lessv ariablesellingandadmi ni
strati
ve
(
$60, 000÷12, 000) 5 36
Contri
but i
onmar gin $34

7-
32 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

52.Underabsorpt
ioncost
ing,
thecarr
yingv
alueont
hebal
ancesheetoft
heendi
ng
i
nventor
yf ort
heyearwouldbe:
A) $135, 000
B) $93, 000
C) $105, 000
D) $0

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Sol
uti
on:

Unitfi
xedmanuf act
uri
ngov er
head=$210,000÷15, 000=$14
Unitproductcost=Dir
ectmat er
ial
s+Directlabor+Vari
abl
emanuf
act
uri
ng
overhead+Fi xedmanufact
uri
ngov er
head
=$10+$12+$9+$14=$45
Carryi
ngv al
ue=Unitproductcost×Endinginventor
yinuni
ts
=$45×( 15,
000−12,000)=$45×3, 000=$135, 000

53.Underv
ari
abl
ecosti
ng,thecompany'snetoperatingi
ncomef
ort
hey
earwoul
d
be:
A) $42,000hi
gherthanunderabsorpt
ioncosting
B) $30,000hi
gherthanunderabsorpt
ioncosting
C) $30,000l
owerthanunderabsorpti
oncosting
D) $42,000l
owerthanunderabsorpti
oncosting

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Unitfi
xedmanufacturi
ngover
head×Changei ninvent
oryi
nuni t
s
=$14×( 15,000−12,000)=$14×3,000=$42,000
Sincetheunit
sproducedaregreat
erthantheunit
ssold(i
nventoryi
ncr
eased)
,
netincomeunderabsorpti
oncosti
ngwi l
lbehi
gherthannetincomeunder
vari
ablecosti
ng.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
33
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions54-
61:

AbdiCompany,
whichhasonlyonepr
oduct
,hasprov
idedt
hef
oll
owi
ngdat
a
concer
ningi
tsmostrecentmont
hofoper
ati
ons:

Sel
l
ingpr
ice $81

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 7,
300
Uni
tssold 7,
000
Uni
tsi
nendi ngi
nventor
y 300

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $20
Dir
ectlabor $30
Vari
ablemanuf act
uri
ngover
head $7
Vari
ablesell
ingandadmini
str
ati
ve $11

Fi
xedcost
s:
$65,
70
Fi
xedmanuf
act
uri
ngov
erhead 0
$21,
00
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

54.Whati
stheuni
tpr
oductcostf
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $77
B) $66
C) $68
D) $57

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Di
rectmat
eri
als+Di
rectl
abor+Var
iabl
emanuf
act
uri
ngov
erhead
=$20+$30+$7=$57

7-
34 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

55.Whati
stheuni
tpr
oductcostf
ort
hemont
hunderabsor
pti
oncost
ing?
A) $66
B) $77
C) $57
D) $68

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitfi
xedmanuf act
uri
ngov er
head=$65,700÷7,300=$9
Unitproductcost=Dir
ectmat er
ial
s+Directl
abor+Var
iabl
emanuf
act
uri
ng
overhead+Fi xedmanufact
uri
ngov er
head=$20+$30+$7+$9=$66

56.Thet
otal
contr
ibut
ionmar
ginf
ort
hemont
hundert
hev
ari
abl
ecost
ingappr
oach
i
s:
A) $91,000
B) $168,000
C) $105,000
D) $25,300

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Unitselli
ngprice $81
Lessuni tvar
iablecost
s:
Dir
ectmat eri
als $20
Dir
ectlabor 30
Vari
ablemanuf actur
ingover
head 7
Vari
ableselli
ngandadmi ni
str
ative 11 68
Contributi
onmar gin $13
Totalcontri
buti
onmar gin=$13×7, 000=$91,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
35
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

57.Thet
otalgr
ossmar
ginf
ort
hemont
hundert
heabsor
pti
oncost
ingappr
oachi
s:
A) $105,000
B) $124,800
C) $7,000
D) $91,000

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Uni
tfi
xedmanuf actur
ingoverhead=$9
Uni
tproductcostunderabsorpti
oncost
ing=$20+$30+$7+$9=$66
$567,
00
Salesrevenue($81×7,000) 0
Costofgoodssol d($66×7,000) 462,
000
$105,
00
Grossmar gin 0

58.Whati
sthetot
alper
iodcostf
ort
hemont
hundert
hev
ari
abl
ecost
ingappr
oach?
A) $65,700
B) $163,700
C) $98,000
D) $86,700

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Hard

Sol
uti
on:

Vari
ablesel
l
ingandadmini
str
ati
vecost+Fi
xedcost
s
=($11×7,000)+($65,
700+$21,000)
=$77,000+$86,700=$163,
700

7-
36 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

59.Whatist
hetotal
per
iodcostf
ort
hemont
hundert
heabsor
pti
oncost
ing
appr
oach?
A) $98,000
B) $65,700
C) $21,000
D) $163,700

Ans:
  
A AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Har
d

Sol
uti
on:

Var
iablesell
i
ngandadmi ni
str
ati
vecost+Fi
xedsel
l
ingandadmi
nist
rat
ivecost
=$11×7, 000+$21,000
=$77,000+$21,000=$98,000

60.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $2,700
B) $4,300
C) $7,000
D) $(12,800)

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$567,
00
Sal
esrevenue(
$81×7,
000) 0
Var
iabl
ecosts:
$399,
00
Pr
oductcost(
$57×7,
000) 0

Vari
ablesel
li
ngandadmi
nist
rat
ive(
$11×  
476,
00
7,
000)  
  
77,
000 0
Contr
ibut
ionmargi
n 91,
000
Fi
xedcosts:
$ 
65,70
Fixedmanufact
uri
ngover
head 0
Fixedsell
i
ngandadmini
str
ati
ve  
  
21,000  
  
86,700
Contri
but
ionmargi
n $ 
  
4,300

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
37
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

61.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderabsor
pti
oncost
ing?
A) $7,000
B) $4,300
C) $(12,800)
D) $2,700

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$567,
00
Sal
esr
evenue(
$81×7,
000) 0
 
462,
00
Costofgoodssol d($66×7, 000) 0
Grossmar gin 105,
000
Sell
ingandadmi nist
rat
iveexpenses:
Var i
ablesell
i
ngandadmi ni
strati
ve(
$11×
7,000) $77,
000
Fixedselli
ngandadmi nistr
ati
v e  
21,
000  
  
98,000
Netoperatingincome $ 
  
7,000

Uset
hef
oll
owi
ngt
oanswerquest
ions62-
65:

Hopki
nsCompanymanufact
uresasi
ngl
epr
oduct
.Thef
oll
owi
ngdat
aper
tai
ntot
he
company
'soper
ati
onsl
astyear
:

Sel
li
ngpriceperunit $24
Var
iablecost
speruni t
:
Producti
on $8
Sell
ingandadmi ni
str
ati
on $2
Fi
xedcostsintotal:
$48,
00
Pr
oduct
ion 0
$36,
00
Sel
l
ingandadmi
nist
rat
ion 0

Att
hebeginni
ngoftheyeart
herewer
enounit
sini
nvent
ory.At
otal
of12,
000uni
ts
wer
eproduceddur
ingtheyear
,and10,
000uni
tswer
esold.

7-
38 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

62.Underv
ari
abl
ecost
ing,
theuni
tpr
oductcosti
s:
A) $8.00
B) $10.00
C) $12.00
D) $14.00

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Pr
oduct
ioncost=$8

63.Underabsorpt
ioncost
ing,
theuni
tpr
oductcosti
s:
A) $8. 00
B) $10. 00
C) $12. 00
D) $15. 00

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Uni
tfi
xedmanuf act
uri
ngov
erhead=$48,
000÷12,
000=$4
Uni
tproductcost=$8+$4=$12

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
39
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

64.Thenetoper
ati
ngi
ncomeunderv
ari
abl
ecost
ingwoul
dbe:
A) $64,000
B) $60,000
C) $56,000
D) $52,000

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$240,
00
Sal
esrevenue($24×10,000) 0
Var
iabl
ecosts:
Vari
ablecostofgoodssold($8×10,
000) $80,
000

Variablesell
i
ngandadmini
str
ati
ve(
$2×  
100,
00
10,000)  
20,
000 0
Contri
butionmargi
n 140,
000
Fi
xedcost s:
Fixedmanuf act
uri
ngover
head $48,
000
Fixedsel l
i
ngandadmini
str
ati
ve  
36,
000  
  
84,000
$ 
56,00
Netoper
ati
ngi
ncome 0

65.Thenetoperati
ngi ncomeunderabsorpt
ioncosti
ngwoul dbe:
A) t hesameast heincomeundervari
ablecosti
ng.
B) $8, 000greaterthantheincomeundervari
ablecosti
ng.
C) $12, 000greaterthantheincomeundervari
ablecosti
ng.
D) $8, 000lessthant hei
ncomeunderv ar
iabl
ecosting.

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Uni
tfixedmanufactur
ingoverhead×Changei nnumberofunit
sinendi
ng
i
nventory=$4×( 12,
000−10, 000)=$4×2,000
=$8,000great
erthantheincomeundervariablecost
ingsi
nceinv
entor
y
i
ncreased

7-
40 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions66-
68:

Phear
sum Cor
por
ati
onmanuf
act
uresapar
achut
e.Shownbel
owi
sPhear
sum'
scost
st
ruct
ure:

Vari
ablecost Total
fixedcost
perparachut
e f
orthey ear
Manufact
uri
ngcost $160 $342,000
Sel
l
ingandadminist
rat
ive $10 $171,000

I
nitsf
irstyearofoperat
ions,
Phear
sum pr
oducedandsol
d4,
000par
achut
es.The
par
achutessoldfor$310each.

66.IfPhear
sum wouldhavesol
donly3,
800par
achutesi
nit
sfir
styear
,whattot
al
amountofcostwouldhavebeenassi
gnedt
othe200parachut
esinfi
nished
goodsinvent
oryundert
hevari
abl
ecosti
ngmethod?
A) $28, 000
B) $32, 000
C) $34, 000
D) $49, 100

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Uni
tproductcost=$160
Tot
alcostofendingf
ini
shedgoodsi
nvent
ory=$160×200=$32,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
41
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

67.Referbacktot heori
ginal
data.Howwoul dPhearsum'sabsor
pti
oncosti
ngnet
operati
ngincomebeenaf fectedini
tsfi
rsty
earifonly3,
800parachut
eswere
sol
di nst
eadof4, 000?
A) netoper ati
ngincomewoul dhavebeen$2,350lower
B) netoper ati
ngincomewoul dhavebeen$10,900lower
C) netoper ati
ngincomewoul dhavebeen$12,900lower
D) netoper ati
ngincomewoul dhavebeen$28,000lower

Ans:
  B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1,
2 Level
:
  
Har d

Sol
uti
on:

Uni
tfi
xedmanuf actur
ingoverhead=$342,000÷4,000=$85.50
Uni
tproductcostunderabsor pti
oncosting=$160+$85.50=$245.
50
Uni
tgrossmar gin=$310−$245. 50=$64. 50
Costsavings( $10×200) $ 2,000
Less:decreaseingr ossmargin($64.
50×
200) 12,
900
($10,
900
Netoperatingincomei ncr
ease(decrease) )

68.Referbacktot heor
igi
nal
data.Howwoul dPhearsum'sv ari
ablecosti
ngnet
operati
ngincomebeenaffectedini
tsfi
rsty
earif4,500par achut
eswer e
producedinsteadof4,
000andPhearsum sti
ll
sold4,000par achutes?
A) netoper ati
ngi
ncomewoul dnothavebeenaffected
B) netoper ati
ngi
ncomewoul dhavebeen$38,000hi gher
C) netoper ati
ngi
ncomewoul dhavebeen$57,000hi gher
D) netoper ati
ngi
ncomewoul dhavebeen$75,000lower

Ans:
  A AACSB: 
 Analy
tic AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1,
2 Level
:
  
Medi um

7-
42 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions69-
72:

FeeryCompany
,whichhasonlyoneproduct,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concerni
ngi
tsmostrecentmonthofoperat
ions:

Sel
l
ingpr
ice $110

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 3,
800
Uni
tssold 3,
700
Uni
tsi
nendi ngi
nventor
y 100

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $32
Dir
ectlabor $34
Vari
ablemanuf act
uri
ngover
head $6
Vari
ablesell
ingandadmini
str
ati
ve $11

Fi
xedcost
s:
$68,
40
Fi
xedmanuf
act
uri
ngov
erhead 0
$14,
80
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

69.Whati
stheuni
tpr
oductcostf
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $72
B) $90
C) $83
D) $101

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Di
rectmat
eri
als+Di
rectl
abor+Var
iabl
emanuf
act
uri
ngov
erhead
=$32+$34+$6=$72

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
43
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

70.Whati
stheuni
tpr
oductcostf
ort
hemont
hunderabsor
pti
oncost
ing?
A) $83
B) $90
C) $72
D) $101

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitfi
xedmanuf act
uri
ngov er
head=$68,400÷3,800=$18
Unitproductcost=Dir
ectmat er
ial
s+Directl
abor+Var
iabl
emanuf
act
uri
ng
overhead+Fi xedmanufact
uri
ngov er
head=$32+$34+$6+$18=$90

71.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $1,800
B) $16,700
C) $9,500
D) $18,500

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$407,
00
Sal
esrevenue(
$110×3,
700) 0
Var
iabl
ecosts:
$266,
40
Var
iabl
ecostofgoodssol
d($72×3,
700) 0

Vari
ablesel
li
ngandadmi
nist
rat
ive(
$11×  
307,
10
3,
700)  
  
40,
700 0
Contr
ibut
ionmargi
n 99,
900
Fi
xedcosts:
$ 
68,40
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve  
  
14,800  
  
83,200
$ 
16,70
Netoper
ati
ngi
ncome 0

7-
44 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

72.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderabsor
pti
oncost
ing?
A) $18,500
B) $1,800
C) $9,500
D) $16,700

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$407,
00
Sal
esr
evenue(
$110×3,
700) 0
 
333,
00
Costofgoodssol d($90×3, 700) 0
Grossmar gin 74,
000
Sell
ingandadmi ni
strat
iveexpensescost
s:
Var i
ablesell
i
ngandadmi ni
strati
ve(
$11×
3,700) $40,
700
Fixedselli
ngandadmi nistr
ati
v e  
14,
800  
  
55,500
$ 
18,50
Netoper
ati
ngi
ncome 0

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
45
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions73-
76:

JarboCompany,
whichhasonlyonepr
oduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concer
ningi
tsmostrecentmont
hofoper
ati
ons:

Sel
l
ingpr
ice $129

Uni
tsi
nbegi nni
nginv
entor
y 500
Uni
tsproduced 3,
600
Uni
tssold 3,
800
Uni
tsi
nendi ngi
nventor
y 300

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $13
Dir
ectlabor $59
Vari
ablemanuf act
uri
ngover
head $4
Vari
ablesell
ingandadmini
str
ati
ve $8

Fi
xedcost
s:
$97,
20
Fi
xedmanuf
act
uri
ngov
erhead 0
$64,
60
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

Thecompanyproducesthesamenumberofunit
severymont
h,al
thoughthesalesi
n
uni
tsvar
yfr
om mont htomonth.Thecompany
'svar
iabl
ecost
sperunitandtot
alfi
xed
cost
shavebeenconstantfr
om monthtomonth.

73.Whati
stheuni
tpr
oductcostf
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $76
B) $103
C) $84
D) $111

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Sol
uti
on:

Unitproductcost=Di
rectmat
eri
als+Di
rectl
abor+Var
iabl
emanuf
act
uri
ng
overhead=$13+$59+$4=$76

7-
46 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

74.Whati
stheuni
tpr
oductcostf
ort
hemont
hunderabsor
pti
oncost
ing?
A) $84
B) $76
C) $103
D) $111

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Sol
uti
on:

Unitfi
xedmanuf act
uri
ngov er
head=$97,200÷3,600=$27
Unitproductcost=Dir
ectmat er
ial
s+Directl
abor+Var
iabl
emanuf
act
uri
ng
overhead+Fi xedmanufact
uri
ngov er
head=$13+$59+$4+$27=$103

75.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $3,800
B) $24,400
C) $9,200
D) $8,100

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$490,
20
Sal
esrevenue(
$129×3,
800) 0
Var
iabl
ecosts:
$288,
80
Var
iabl
ecostofgoodssol
d($76×3,
800) 0

Vari
ablesel
li
ngandadmi
nist
rat
ive(
$8×  
319,
20
3,
800)  
  
30,
400 0
Contr
ibut
ionmargi
n 171,
000
Fi
xedcosts:
$ 
97,
20
Fi
xedmanuf
act
uri
ngov
erhead 0
 
161,80
Fixedsel
li
ngandadmi
nist
rat
ive  
  
64,
600 0
Netoperat
ingi
ncome $ 
  
9,200

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
47
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

76.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderabsor
pti
oncost
ing?
A) $8,100
B) $9,200
C) $3,800
D) $24,400

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$490,
20
Sal
esr
evenue(
$129×3,
800) 0
 
391,
40
Costofgoodssol d($103×3, 800) 0
Grossmar gin 98,
800
Sell
ingandadmi nist
rat
iveexpensescost
s:
Var i
ablesell
i
ngandadmi ni
strati
ve(
$8×
3,800) $30,
400
Fixedselli
ngandadmi nistr
ati
v e  
64,
600  
  
95,000
Netoperatingincome $ 
  
3,800

Uset
hef
oll
owi
ngt
oanswerquest
ions77-
79:

BeachCorpor
ati
on,whichproducesasi
ngl
eproduct
,budget
edthefol
lowi
ngcostsf
or
i
tsfir
sty
earofoperat
ions.Thesecost
sarebasedonabudgetedvol
umeof30,000
towel
sproducedandsold:

$96,
00
Di
rectmat
eri
als 0
$48,
00
Di
rectl
abor 0
$72,
00
Var
iabl
emanuf
act
uri
ngov
erhead 0
$60,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$12,
00
Var
iabl
esel
l
ingandadmi
nist
rat
ive 0
$36,
00
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

7-
48 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Duringthefi
rstyearofoperat
ions,BeachTowel actual
l
yproduced30, 000t
owelsbut
onlysol
d24,000t owel
s.Actualcostsdidnotf
luctuatef
romt hecostbehavi
orpatt
erns
descri
bedabov e.The24,000towelswer esol
dfor$16pert owel.Assumethatdi
rect
l
aborisav ari
ablecost.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
49
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

77.Whatisthetotal
costt
hatwouldbeassignedtoBeachTowel
'sf
ini
shedgoods
i
nventor
yattheendofthefi
rstyearofoperat
ionsundert
hev
ari
abl
ecosti
ng
method?
A) $43, 200
B) $45, 600
C) $55, 200
D) $64, 800

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Sol
uti
on:

Unitproductcost=(Dir
ectmaterial
s+Di r
ectlabor+Var i
abl
emanuf act
ur i
ng
overhead)÷30,000units=($96,
000+$48, 000+$72, 000)÷30,000=$7. 20
Totalcostofendingfi
nishedgoodsinventor
y=Uni tproductcost×Ending
i
nventory=$7.20×( 30,
000−24, 000)=$7.20×6, 000=$43,200

78.Undert
heabsorpt
ioncost
ingmet
hod,
whati
sBeachTowel
'
sact
ual
net
oper
ati
ngincomefori
tsfi
rsty
ear
?
A) $60,000
B) $115,200
C) $117,600
D) $124,800

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Unitproductcost=( Dir
ectmat eri
als+Directl
abor+Var i
abl
emanuf actur
ing
overhead+Fi xedmanuf acturingov er
head)÷30,000units
=($96,000+$48, 000+$72, 000+$60, 000)÷30,000=$9. 20
Unitvariablesell
ingandadmi nistr
ativ
ecost=$12, 000÷30,000=$0. 40
$384,
00
Salesr evenue( $16×24, 000) 0
 
220,
80
Costofgoodssol d($9.20×24, 000) 0
Grossmar gin 163,
200
Sell
ingandadmi ni
strat
iveexpenses:
Variablesell
ingandadmi nistr
ati
ve($0.40×
24,000) $ 9,
600
Fi
xedsel li
ngandadmi nistrat
ive  36,
000    
45,
600
Netoper atingincome $117,
60

7-
50 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
51
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

79.Assumingnochangeincostst r
ucture,
whichofthefol
lowingwoul dhave
i
ncreasedBeachTowel'snetoperati
ngincomeunderthev ar
iablecosti
ng
methodinit
sfir
styearofoperati
ons?
A) ani ncr
easeinsalesvolumewi thnoincr
easeinproducti
onv olume
B) ani ncr
easeinproducti
onv olumewithnoincr
easeinsal esvolume
C) bot hAandBabov e
D) noneoft heabove

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Uset
hef
oll
owi
ngt
oanswerquest
ions80-
83:

BlakeCorpor
ati
on,whichpr
oducesasi
ngl
epr
oduct
,hasprov
idedt
hef
oll
owi
ng
absorpt
ioncost
ingincomestat
ementf
ort
hemonthofJune:

Bl
akeCorporat
ion
I
ncomeStatement
Fort
hemonthendedJune30

$285,
00
Sal
es(9,500uni
ts) 0
Costofgoodssold:
$ 
16,00
Begi
nningi
nventory 0
Addcostofgoodsmanuf act
ured 160,000
Goodsavai
labl
ef orsal
e 176,000
Lessendi
ngInventory   
24,000
 
152,
00
Costofgoodssol
d 0
Grossmargi
n 133,
000
Sell
i
ngandadminist
rat
iveexpenses:
$ 75,
00
Fi
xed 0
Var
iabl
e  
 19,
000  
  
94,000
$ 
39,00
Netoper
ati
ngi
ncome 0

Duri
ngJune,thecompany'sv ari
abl
epr oduct
ioncostswere$10peruni
tandi t
sfi
xed
manufact
uri
ngov er
headtotaled$60,000.Atotalof10,
000uni
tswereproducedduri
ng
Juneandthecompanyhad1, 000unitsinthebeginni
nginv
entor
y.Thecompanyuses
theLI
FOmet hodtovaluei
nv entori
es.

7-
52 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

80.Thecont
ri
but
ionmar
ginperuni
tdur
ingJunewas:
A) $20
B) $18
C) $16
D) $14

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Sell
ingpr i
ce($285, 000÷9,500) $30
Lessv ari
ablepr oductcost 10
Lessuni tvari
ablesel l
ingandadmi
nist
rat
ive
(
$19, 000÷9, 500) 2
Unitcont r
ibut
ionmar gin $18

81.Thecarr
yingvalueonthebal
ancesheetofthecompany
'si
nvent
oryonJune30
undert
hev ar
iablecost
ingmethodwouldbe:
A) $10,000
B) $12,000
C) $15,000
D) $24, 000

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Sol
uti
on:

Endinginv
ent or
y=Beginni
nginventor
y+Unit
sproduced−Unitssol
d
=1,000+10, 000−9,
500=1, 500
Carryi
ngvalue=Endinginv
entor
yi nunit
s×Vari
abl
eproduct
ioncost
=1,500×$10=$15, 000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
53
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

82.Netoper
ati
ngincomeundert
hev
ari
abl
ecost
ingmet
hodf
orJunewoul
dbe:
A) $36,000
B) $40,000
C) $53,000
D) $60,000

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$285,
00
Sal
esrevenue(9,
500unit
s) 0
Var
iabl
ecosts:
Vari
ablecostofgoodssol
d($10×9,
500) $95,
000
 
114,
00
Variabl
esel
li
ngandadmini
str
ati
ve  
19,
000 0
Contri
but
ionmargi
n 171,
000
Fi
xedcosts:
Fixedmanufact
uri
ngov
erhead $60,
000
 
135,
00
Fi
xedsel
l
ingandadmi
nist
rat
ive  
75,
000 0
$ 
36,
00
Netoper
ati
ngi
ncome 0

83.Thebr
eak-
evenpoi
nti
nuni
tsf
ort
hemont
hunderv
ari
abl
ecost
ingwoul
dbe:
A) 6,000uni
ts
B) 6,750uni
ts
C) 7,500uni
ts
D) 9,000uni
ts

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Sol
uti
on:

$285,
00
Sal
esrevenue(9,
500unit
s) 0
Var
iabl
ecosts:
Vari
ablecostofgoodssold($10×9,500) $95,000
Vari
ablesel
li
ngandadmi ni
strat
ive 19,000 114,000
$171,00
Contr
ibut
ionmargi
n 0
Fi
xedcosts÷Uni
tcontr
ibut
ionmar
gin=(
Fixedmanufactur
ingoverhead+Fi
xed

7-
54 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

sell
ingandadmini
str
ati
ve)÷Unitcont
ri
but
ionmargi
n=($60,
000+$75,
000)÷
($171,000÷9,
500)=$135,000÷$18perunit=7,
500uni
ts

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
55
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions84-
87:

HaaikonCompany
,whichhasonl
yoneproduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concerni
ngi
tsmostr
ecentmonthofoper
ati
ons:

Sel
l
ingpr
ice $86

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 3,
400
Uni
tssold 3,
300
Uni
tsi
nendi ngi
nventor
y 100

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $17
Dir
ectlabor $39
Vari
ablemanuf act
uri
ngover
head $1
Vari
ablesell
ingandadmini
str
ati
ve $8

Fi
xedcost
s:
$40,
80
Fi
xedmanuf
act
uri
ngov
erhead 0
$23,
10
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

84.Whati
stheuni
tpr
oductcostf
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $77
B) $57
C) $69
D) $65

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitproductcost=Di
rectmat
eri
als+Di
rectLabor+Var
iabl
emanuf
act
uri
ng
overhead=$17+$39+$1=$57

7-
56 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

85.Thet
otal
contr
ibut
ionmar
ginf
ort
hemont
hundert
hev
ari
abl
ecost
ingappr
oach
i
s:
A) $56,100
B) $28,500
C) $95,700
D) $69,300

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$283,
80
Sal
esrevenue(
$86×3,
300) 0
Var
iabl
ecosts:
$188,
10
Vari
ablecostofgoodssold($57×3,300) 0
Vari
ablesel
li
ngandadmi ni
strat
ive(
$8×
3,
300) 26,
400 214,
500
Contr
ibut
ionmargi
n $69,300

86.Whati
sthetot
alper
iodcostf
ort
hemont
hundert
hev
ari
abl
ecost
ingappr
oach?
A) $40,800
B) $90,300
C) $49,500
D) $63,900

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Hard

Sol
uti
on:

Peri
odcost=Vari
abl
esell
ingandadmini
strat
ivecost+Fi
xedmanuf
act
uri
ng
over
head+Fixedsel
li
ngandadminist
rat
ivecost
=($8×3,300)+$40,
800+$23,100
=$26,400+$40,
800+$23,100=$90,300

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
57
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

87.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $6,600
B) $(300)
C) $5,400
D) $1,200

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$283,
80
Sal
esrevenue(
$86×3,
300) 0
Var
iabl
ecosts:
$188,
10
Var
iabl
ecostofgoodssol
d($57×3,
300) 0

Vari
ablesel
li
ngandadmi
nist
rat
ive(
$8×  
214,
50
3,
300)  
  
26,
400 0
Contr
ibut
ionmargi
n 69,
300
Fi
xedcosts:
$ 
40,80
Fixedmanufact
uri
ngover
head 0
Fixedsel
li
ngandadmini
str
ati
ve  
  
23,100  
  
63,900
Netoperat
ingi
ncome $ 
  
5,400

7-
58 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions88-
89:

Ibar
raCompany,
whichhasonlyonepr
oduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concer
ningi
tsmostrecentmont
hofoper
ati
ons:

Sel
l
ingpr
ice $81

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 6,
900
Uni
tssold 6,
600
Uni
tsi
nendi ngi
nventor
y 300

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $22
Dir
ectlabor $28
Vari
ablemanuf act
uri
ngover
head $6
Vari
ablesell
ingandadmini
str
ati
ve $5

Fi
xedcost
s:
$69,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$66,
00
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

88.Whati
stheuni
tpr
oductcostf
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $71
B) $66
C) $56
D) $61

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Pr
oductcost=Di
rectmat
eri
als+Di
rectl
abor+Var
iabl
emanuf
act
uri
ng
ov
erhead
=$22+$28+$6=$56

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
59
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

89.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $0
B) $(19,800)
C) $(3,000)
D) $3,000

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$534,
60
Sal
esrevenue(
$81×6,
600) 0
Var
iabl
ecosts:
$369,
60
Var
iabl
ecostofgoodssol
d($56×6,
600) 0

Vari
ablesel
li
ngandadmi
nist
rat
ive(
$5×  
402,
60
6,
600)  
  
33,
000 0
Contr
ibut
ionmargi
n 132,
000
Fi
xedcosts:
$ 
69,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
 
135,
00
Fi
xedsel
l
ingandadmi
nist
rat
ive  
  
66,
000 0
$ 
(3,
000
Netoper
ati
ngi
ncome )

Uset
hef
oll
owi
ngt
oanswerquest
ions90-
92:

YankeeCompanymanuf
act
uresasi
ngl
epr
oduct
.Thecompanyhast
hef
oll
owi
ngcost
st
ructur
e:

Var
iablecost
sperunit
:
Producti
on $4
Sell
ingandadmini
str
ati
ve $1
Fi
xedcostsintot
al:
$12,
00
Producti
on 0
Sell
ingandadmi
nist
rat
ive $8,
000

Lastyear,
4,000uni
tswer
epr
oducedand3,
500uni
tswer
esol
d.Ther
ewer
eno
beginni
nginvent
ori
es.

7-
60 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

90.Underv
ari
abl
ecost
ing,
theuni
tpr
oductcostwoul
dbe:
A) $4
B) $5
C) $7
D) $8

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Pr
oduct
ioncost=$4

91.Thecarryi
ngvalueont hebal
ancesheetoftheendingf
ini
shedgoodsi
nvent
ory
undervari
abl
ecost i
ngwouldbe:
A) t hesameasunderabsor pt
ioncosti
ng
B) $1, 500l
esst hanunderabsorpt
ioncosti
ng
C) $2, 000higherthanunderabsorpt
ioncost
ing
D) $2, 000l
esst hanunderabsorpt
ioncosti
ng

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Sol
uti
on:

Uni
tfi
xedmanuf acturi
ngover
head=$12,000÷4,000=$3
Di
ff
erenceincarryi
ngv al
ueofendi
ngfi
nishedgoodsinv
ent
ory=Uni
tfi
xed
manufact
uri
ngov erhead×Changeini
nventoryi
nunit
s
=$3×( 4,
000−3,500)
=$1,
500lessthanunderabsorpti
oncosti
ng

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
61
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

92.Underabsorpt
ioncost
ing,
thecostofgoodssol
dfort
hey
earwoul
dbe:
A) $28, 000
B) $24, 500
C) $17, 500
D) $14, 000

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Unitf
ixedmanufact
uri
ngov
erhead=$12,
000÷4,
000=$3
Productcost=$4+$3=$7
Costofgoodssold=$7×3,500=$24,
500

Uset
hef
oll
owi
ngt
oanswerquest
ions93-
94:

Pet
ersonCompanypr
oducesasi
ngl
epr
oduct
.Dat
afr
om t
hecompany
'sr
ecor
dsf
or
l
astyearf
oll
ow:

Uni
tsi
nbegi nni
ngi
nvent
ory 0
Uni
tsproduced 70,
000
Uni
tssold 60,
000

$1,
400,
00
Sal
es 0
Manufact
uri
ngcosts:
Vari
able $630,
000
Fi
xed $315,
000
Sel
l
ingandadministr
ati
veexpenses:
Vari
able $98,
000
Fi
xed $140,
000

7-
62 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

93.Thecarr
yingv al
ueonthebal
ancesheetoft
heendi
ngf
ini
shedgoodsi
nvent
ory
underv
ariablecost
ingwoul
dbe:
A) $90,000
B) $104, 000
C) $105, 000
D) $135, 000

Ans:
  
A AACSB:  
 Anal
yti
c AI CPA 
BB: 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy Sour ce:
 
 CPA,
 adapt
ed

Sol
uti
on:

Uni
tvariabl
eproductcost=$630,
000÷70,
000=$9
Changeininvent
oryinunit
s=70,000−60,
000=10,000
Carr
yingvalueofendi
nginvent
ory=$9×10,000=$90,
000

94.Undert
heabsorpt
ioncost
ingmet
hod,
Pet
erson'
snetoper
ati
ngi
ncomewoul
d
be:
A) $217,000
B) $307,000
C) $352,000
D) $374,500

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA BB:
 
 Cri
ti
cal
 Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um Source:
 
 CPA,
 adapt
ed

Sol
uti
on:

Pr
oductcost=$9+$4.
50=$13.
50
$1,
400,
00
Salesrevenue 0
Costofgoodssol d($13.50×60,000) 810,
000
Grossmar gin 590,
000
Sell
ingandadmi nist
rat
iveexpenses:
Var i
abl
esel l
i
ngandadmi ni
str
ati
ve $98,
000
Fixedselli
ngandadmi nistr
ati
ve 140,
000 238,
000
Netoperatingincome $ 352,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
63
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions95-
97:

McCoyCor porat
ionmanufactur
esacomputermoni
tor
.Shownbel owi
sMcCoy
'scost
st
ruct
ure:
Variabl
ecost Totalfi
xedcost
permonit
or fort
hey ear
Manuf actur
ingcost $75.
20 $912,
000
Sell
ingandadmi nist
rat
ive $14.
60 $456,
000

I
nit
sfir
styearofoperat
ions,McCoyproduced100,
000monit
orsbutonlysold95,
000.
McCoy'
sgrossmar gi
ninthisfi
rsty
earwas$2,629,
600.McCoy'
scontr
ibuti
onmargin
i
nthi
sfir
styearwas$2,109,000.

95.Underthevari
abl
ecost
ingmet
hod,
whati
sMcCoy
'snetoper
ati
ngi
ncomef
ori
ts
fi
rsty
ear?
A) $266, 000
B) $741, 000
C) $1, 261,
600
D) $2, 173,
600

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$2,
109,
00
Cont
ri
buti
onmar
gin 0
Fi
xedcost
s:
$912,
00
Fixedmanufact
uri
ngover
head 0
Fixedsel
li
ngandadmini
str
ati
ve 456,
000 1,368,
000
Netoperat
ingi
ncome $ 741,
000

7-
64 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

96.Undert
heabsorpti
oncost
ingmet
hod,
whati
sMcCoy
'snetoper
ati
ngi
ncome
fori
tsf
ir
styear?
A) $266,000
B) $786,600
C) $1,261,600
D) $2,173,600

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$2,
629,
60
Grossmar gin 0
Sell
ingandadmi nist
rat
iveexpenses:
Var i
abl
esel l
i
ngandadmi ni
str
ati
ve($14.
60 $1,
387,
00
×95,000) 0
Fixedselli
ngandadmi nistr
ati
ve 456,
000 1,843,
000
Netoperatingincome $ 786,
600

97.IfMcCoypr oduces100,000moni torsandsel l

s100,000moni torsinthesecond
yearofoperati
ons,whichoft hefoll
owingst atement swillbetrue?(Assumeno
changei ncoststr
uctur
eorsel l
ingprice.)
A) McCoy '
svari
ablecostingnetoper ati
ngi ncomei nitssecondy earwil
lbe
great
erthanitsabsorpti
oncost i
ngnetoper at
ingincome
B) McCoy '
sabsorpti
oncost i
nguni tproductcostwi ll
decreasei nthesecond
year
C) McCoy '
sgrossmar gi
nwi l
lbeequal toitscontri
butionmar gininit
ssecond
year
D) Bot hAandBabov e
E) noneoft heabov e

Ans:
  
E AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Hard

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
65
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions98-
100:

MediocreManuf
acturi
ngCompanyproducesasingl
eproduct
.Managementbudget
ed
thefol
lowi
ngcostsfori
tsf
ir
styearofoper
ati
ons.Thesecost
sarebasedona
budgetedvol
umeof4,000unit
sproducedandsold:

$28,
00
Di
rectmat
eri
als 0
$14,
00
Di
rectl
abor 0
Manufact
uri
ngov
erhead:
$56,
00
Var
iabl
e 0
$63,
00
Fi
xed 0
Sel
l
ingandadmi
nist
rat
ive:
Vari
abl
e $7,
000
$42,
00
Fi
xed 0

Duri
ngthefi
rstyearofoperati
ons,Mediocreact
uall
yproduced4,000unit
sbutonly
sol
d3,500unit
s.Actualcostsdidnotfl
uctuatefr
om thecostbehavi
orpatter
ns
descr
ibedabove.The3,500unitsweresoldfor$72perunit
.Assumet hatdir
ectl
abor
i
sav ari
abl
ecost.

98.Whatisthetotal
costt
hatwouldbeassignedtoMediocr
e'sfi
nishedgoods
i
nventor
yattheendofthefi
rstyearofoper
ati
onsundertheabsorpti
oncost
ing
method?
A) $12, 250
B) $20, 125
C) $23, 000
D) $26, 250

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Sol
uti
on:

Productcost=Di r
ectmat eri
als+Di rectlabor+Vari
abl
emanuf act
uri
ng
overhead+Fi xedmanufacturi
ngov erhead
=$28,000+$14, 000+$56, 000+$63, 000=$161,000
Unitproductcost=$161,000÷4, 000=$40. 25
Totalcostofendingfi
nishedgoodsi nventory=Uni
tproductcost×Endi
ng
i
nv ent
oryinunits=$40.25×( 4,000−3, 500)=$20,
125

7-
66 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
67
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

99.Undert
hev ari
ablecost
ingmet
hod,
whati
sMedi
ocr
e'sact
ual
netoper
ati
ng
i
ncomef orit
sfir
styear
?
A) $42, 000
B) $54, 250
C) $55, 125
D) $63, 000

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Unitproductcost=(
Directmateri
als+Di
rectl
abor+Variabl
emanufact
uri
ng
overhead)÷4,000uni
ts=( $28,
000+$14,000+$56,000)÷4,000=$24.
50

$252,
00
Sal
esr evenue( $72×3,500) 0
Vari
ablecost s:
Variablecostofgoodssol d($24.50×
3,500) $85,
750
Variableselli
ngandadmi ni
strati
ve($1.
75×
3,500) 6,
125 91,875
Contri
butionmar gin 160,
125
Fi
xedcost s:
Fixedmanuf actur
ingover
head $63,
000
Fixedsel l
i
ngandadmi ni
str
ati
v e 42,
000 105,
000
Netoperat i
ngincome $55,
125

100.Assumingnochangeincostst r
uctur
e,whi
chofthefol
l
owi ngwouldhave
i
ncreasedMediocr
e'snetoperati
ngincomeundert
heabsor pt
ioncost
ing
methodinit
sfi
rstyearofoperati
ons?
A) ani ncr
easeinsalesvol
umewi t
hnoincr
easeinproducti
onvolume
B) ani ncr
easeinproducti
onv ol
umewi t
hnoincr
easeinsalesvolume
C) bot hAandBabov e
D) noneoft heabove

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

7-
68 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions101-
102:

JVCompanyproducesasinglepr
oductthatsel
lsfor$7.
00peruni
t.Lastyear
,100,
000
uni
tswer
eproducedand80,000unitsweresold.Therewer
enobeginninginv
entor
ies.
Thecompanyhasthefol
l
owi ngcostst
ructure:

Fixed
Costs Vari
abl
eCosts
$1.
50peruni
t
Rawmat
eri
als -
- pr
oduced
$1.
00peruni
t
Di
rectl
abor -
- pr
oduced
$0.
50peruni
t
Factor
yov
erhead $150,
000 pr
oduced
Sell
i
ngandadminist
rat
ive $80,
000 $0.
50perunitsol
d

101.Theuni
tpr
oductcostunderabsor
pti
oncost
ingi
s:
A) $2.50
B) $3.00
C) $3.50
D) $4.50

Ans:
  
D AACSB:  
 Anal
yti
c AI CPA 
BB: 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy Sour ce:
 
 CPA,
 adapt
ed

Sol
uti
on:

Unitfi
xedov erhead=$150,000÷100, 000=$1.50
Unitproductcost=Directmat eri
als+Di r
ectl
abor+Var
iabl
emanuf
act
uri
ng
overhead+Fi xedmanufacturingov er
head
=$1.50+$1. 00+$0. 50+$1. 50=$4. 50

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
69
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

102.Thenetoper
ati
ngi
ncomeunderv
ari
abl
ecost
ingi
s:
A) $50,000
B) $80,000
C) $90,000
D) $120,000

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA BB:
 
 Cri
ti
cal
 Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um Source:
 
 CPA,
 adapt
ed

Sol
uti
on:

Pr
oductcost=Di
rectmat
eri
als+Di
rectl
abor+Var
iabl
emanuf
act
uri
ng
ov
erhead
=$1.
50+$1+$0. 50=$3

$560,
00
Sal
esrevenue(
$7×80,
000) 0
Var
iabl
ecosts:
$240,
00
Variablecostofgoodssold($3×80,000) 0
Variablesell
i
ngandadmi ni
strati
ve(
$0.50×
80,000) 40,
000 280,
000
Contri
butionmar gi
n 280,
000
Fi
xedcost s:
Fixedmanuf acturi
ngover
head 150,
000
Fixedsel l
i
ngandadmi ni
str
ati
v e 80,
000 230,
000
Netoperat i
ngincome $50,
000

7-
70 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions103-
106:

Gadepel
liCompany
,whichhasonl
yoneproduct,
haspr
ovi
dedt
hef
oll
owi
ngdat
a
concer
ningit
smostrecentmont
hofoper
ations:

Sel
l
ingpr
ice $106

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 1,
600
Uni
tssold 1,
400
Uni
tsi
nendi ngi
nventor
y 200

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $15
Dir
ectlabor $14
Vari
ablemanuf act
uri
ngover
head $6
Vari
ablesell
ingandadmini
str
ati
ve $4

Fi
xedcost
s:
$51,
20
Fi
xedmanuf
act
uri
ngov
erhead 0
$23,
80
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

103.Thet
otal
contr
ibut
ionmar
ginf
ort
hemont
hundert
hev
ari
abl
ecost
ingappr
oach
i
s:
A) $54,600
B) $99,400
C) $93,800
D) $42,600

Ans:
  C AACSB: 
 Analy
tic AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1,
2 Level
:
  
Medi um

Sol
uti
on:

Uni
tpr
oductcost=$15+$14+$6=$35

$148,
40
Sal
esrevenue($106×1,400) 0
Var
iabl
ecosts:
Vari
ablecostofgoodssold($35×1,400) $49,
000
Vari
ablesel
li
ngandadmi ni
strat
ive(
$4×
1,
400) 5,
600 54,
600

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
71
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Cont
ri
but
ionmar
gin $93,
800

7-
72 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

104.Thet
otal
grossmar
ginf
ort
hemont
hundert
heabsor
pti
oncost
ingappr
oachi
s:
A) $25,200
B) $54,600
C) $68,000
D) $93,800

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Uni
tfi
xedmanuf act
uri
ngov
erhead=$51,
200÷1,
600=$32
Uni
tproductcost=$15+$14+$6+$32=$67

Salesr
evenue($106×1,400) $148,
400
Costofgoodssold($67×1,400) 93,
800
Grossmargin $54,600

105.Whati
sthetot
alper
iodcostf
ort
hemont
hundert
hev
ari
abl
ecost
ingappr
oach?
A) $75,000
B) $80,600
C) $29,400
D) $51,200

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Hard

Sol
uti
on:

Peri
odcost=Var i
ablesel
l
ingandadmini
strat
ivecost+Fi
xedmanuf
act
uri
ng
over
head+Fixedselli
ngandadminist
rat
ivecost
=$4×1, 400+$51,200+$23,800
=$5,600+$51,200+$23,800=$80,600

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
73
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

106.Whatist
hetotal
per
iodcostf
ort
hemont
hundert
heabsor
pti
oncost
ing
appr
oach?
A) $29,400
B) $80,600
C) $23,800
D) $51,200

Ans:
  
A AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Har
d

Sol
uti
on:

Per
iodcost=Vari
ablesel
l
ingandadmi
nist
rat
ivecost+Fi
xedsel
l
ingand
admini
str
ati
vecost=$4×1,400+$23,
800=$29,400

Uset
hef
oll
owi
ngt
oanswerquest
ions107-
109:

Duri
ngit
sfi
rstyearofoperat
ions,
Car
losManufact
uri
ngCompanyi
ncur
redt
he
fol
l
owingcoststoproduce8,
000unit
sofit
sproduct:

Di
rectmater
ial
s $7peruni
t
Di
rectl
abor $3peruni
t
Vari
abl
emanufacturi
ngover
head $18peruni
t
Fi
xedmanufactur
ingover
head $450,
000intot
al

Thecompanyalsoi
ncur
redt
hef
oll
owi
ngcost
sint
hesal
eof7,
500uni
tsofpr
oduct
dur
ingi
tsfi
rsty
ear:

Var
iabl
esell
i
ngandadmini
str
ati
ve $2peruni
t
Fi
xedsell
i
ngandadmini
str
ati
ve $60,
000intot
al

Assumet
hatdi
rectl
abori
sav
ari
abl
ecost
.

7-
74 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

107.Whatisthetotal
costt
hatwouldbeassignedtoCarl
os'f
ini
shedgoods
i
nventor
yattheendofthefi
rstyearofoper
ati
onsundertheabsor
pti
oncost
ing
method?
A) $15, 000
B) $42, 125
C) $44, 000
D) $47, 125

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitfi
xedmanuf act
uri
ngov erhead=$450, 000÷8,000=$56.25
Unitproductcost=Dir
ectmat eri
als+Di r
ectlabor+Vari
ablemanuf act
uri
ng
overhead+Fi xedmanufactur
ingov erhead=$7+$3+$18+$56. 25=$84.25
Totalcostofendingfi
nishedgoodsi nventory=Unitproductcost×Ending
i
nventoryinunits=$84.25×(8,000−7, 500)=$84.25×500=$42, 125

108.Whatisthetotal
costt
hatwouldbeassignedt oCar
los'f
ini
shedgoods
i
nventor
yattheendofthefi
rstyearofoperat
ionsunderthevar
iabl
ecost
ing
method?
A) $15, 000
B) $42, 125
C) $44, 000
D) $14, 000

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitproductcost=Di
rectmater
ial
s+Directl
abor+Vari
ablemanufact
uri
ng
overhead=$7+$3+$18=$28
Totalcostofendingf
ini
shedgoodsinv
entory=Uni
tproductcost×Endi
ng
i
nventoryinunit
s=$28×( 8,
000−7,500)=$28×500=$14, 000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
75
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

109.I
fCarl
os'absorpti
oncost
ingnetoper
ati
ngincomef ort
hisfi
rstyearis$118,
125,
whatwouldit
sv ari
abl
ecosti
ngnetoperat
ingincomebef orthi
sf i
rstyear
?
A) $86,000
B) $90,000
C) $104,125
D) $146,250

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

Sol
uti
on:

Var
iabl
ecost i
ngneti ncome=Absorpt
ioncosti
ngnetincome–(
Uni
tfi
xed
manufactur
ingov erhead×Changei
ninvent
oryinuni
ts)
=$118,125−( $56.25×500)=$118,
125−$28, 125=$90,000

Uset
hef
oll
owi
ngt
oanswerquest
ions110-
111:

KernCompanyproducesasi
nglepr
oduct
.Sel
ect
edi
nfor
mat
ionconcer
ningt
he
operat
ionsoft
hecompanyfol
low:

Uni
tsi
nbegi nni
ngi
nvent
ory 0
Uni
tsproduced 10,
000
Uni
tssold 9,
000

$40,
00
Di
rectmat
eri
als 0
$20,
00
Di
rectl
abor 0
$12,
00
Vari
abl
efact
oryov er
head 0
$25,
00
Fi
xedfact
oryoverhead 0
Vari
abl
esell
ingandadmi ni
str
ati
veexpenses $4,
500
$30,
00
Fi
xedsell
i
ngandadmi ni
str
ati
veexpenses 0

Assumet
hatdi
rectl
abori
sav
ari
abl
ecost
.

7-
76 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

110.Thecarr
yingval
ueonthebal
ancesheetoft
heendi
ngf
ini
shedgoodsi
nvent
ory
underv
ariabl
ecost
ingwoul
dbe:
A) $7,200
B) $7,650
C) $8,000
D) $9,700

Ans:
  
A AACSB:  
 Anal
yti
c AI CPA 
BB: 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy Sour ce:
 
 CPA,
 adapt
ed

Sol
uti
on:

Unitproductcost=(
$40,000+$20,000+$12,000)÷10,000
=$72,000÷10, 000=$7.20
Endinginventor
y=Unitsproduced−Unit
ssold=10,000−9,000=1, 000
Carryi
ngv al
ueofendi
ngf i
nishedgoodsi
nvent
ory=Unitproductcost×Uni
tsi
n
endinginvent
ory=$7.20×1, 000=$7,
200

111.Whichcost i
ngmethod,absorpti
onorv ari
abl
ecost
ing,wouldshowahigher
operati
ngincomefortheyearandbywhatamount ?
A) Absor pti
oncosti
ngnetoperati
ngi ncomewouldbehigherthanv
ariabl
e
cost
ingnetoperat
ingincomeby$2, 500.
B) Var i
ablecost
ingnetoperati
ngincomewouldbehi ghert
hanabsorpti
on
cost
ingnetoperat
ingincomeby$2, 500.
C) Absor pti
oncosti
ngnetoperati
ngi ncomewouldbehigherthanv
ariabl
e
cost
ingnetoperat
ingincomeby$5, 500.
D) Var i
ablecost
ingnetoperati
ngincomewouldbehi ghert
hanabsorpti
on
cost
ingnetoperat
ingincomeby$5, 500.

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA BB:
 
 Cri
ti
cal
 Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um Source:
 
 CPA,
 adapt
ed

Sol
uti
on:

Unitfi
xedmanuf act
uri
ngov erhead=$25, 000÷10,000=$2.50
Diff
erencebetweenabsorpt ioncostingnetincomeandv ar
iabl
ecost i
ngnet
i
ncome=Uni tfi
xedmanuf act uri
ngov er
head×Changei nendinginventor
yin
units=$2.50×(10,000−9, 000)=$2, 500
Sinceinvent
oryhasincr
eased( producti
onexceedssales),
absorpti
oncost i
ng
netincomewoul dbehighert hanv ar
iablecosti
ngnetincome.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
77
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions112-
113:

Li
naCo.produced100,
000uni
tsofi
tssi
ngl
epr
oductdur
ingt
hemont
hofJune.Cost
s
i
ncur
redduri
ngJunewer easf
oll
ows:

$100,
00
Di
rectmater
ial
s 0
Di
rectl
abor $80,
000
Vari
abl
emanuf act
uri
ngoverhead $40,
000
Fi
xedmanufacturi
ngover
head $50,
000
Vari
abl
esell
ingandadmini
strati
veexpenses $12,
000
Fi
xedsell
i
ngandadmi ni
str
ativeexpenses $45,
000

Assumet
hatdi
rectl
abori
sav
ari
abl
ecost
.

112.Theuni
tpr
oductcostunderabsor
pti
oncost
ingwoul
dbe:
A) $3.27
B) $2.70
C) $2.20
D) $1.80

Ans:
  
B AACSB:  
Anal
yti
c AI CPA 
BB: 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy Source:
 
 CPA,
 adapt
ed

Sol
uti
on:

Unitproductcost=Directmateri
als+Directl
abor+Var
iabl
emanuf
act
uri
ng
overhead+Fi xedmanufactur
ingov er
head
=($100, 000+$80,000+$40,000+$50, 000)÷100,
000
=$270, 000÷100,000=$2.70

7-
78 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

113.Theuni
tpr
oductcostunderv
ari
abl
ecost
ingwoul
dbe:
A) $2.82
B) $2.70
C) $2.32
D) $2.20

Ans:
  
D AACSB:  
 Anal
yti
c AI CPA 
BB: 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy Sour ce:
 
 CPA,
 adapt
ed

Sol
uti
on:

Unitproductcost=( Di
rectmateri
als+Di
rectl
abor+Var
iabl
emanufact
uri
ng
overhead)÷100, 000unit
s=( $100,
000+$80,000+$40,
000)÷100,
000=
$220,000÷100, 000=$2. 20

Uset
hef
oll
owi
ngt
oanswerquest
ions114-
115:

BauxarCompany
,whi
chhasonlyoneproduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concer
ningi
tsmostr
ecentmonthofoper
ati
ons:

Sel
l
ingpr
ice $98

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 2,
200
Uni
tssold 2,
100
Uni
tsi
nendi ngi
nventor
y 100

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $29
Dir
ectlabor $17
Vari
ablemanuf act
uri
ngover
head $5
Vari
ablesell
ingandadmini
str
ati
ve $9

Fi
xedcost
s:
$33,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$29,
40
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
79
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

114.Whati
stheuni
tpr
oductcostf
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $75
B) $66
C) $51
D) $60

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Di
rectmat
eri
als+Di
rectl
abor+Var
iabl
emanuf
act
uri
ngov
erhead
=$29+$17+$5=$51

115.Whati
stheuni
tpr
oductcostf
ort
hemont
hunderabsor
pti
oncost
ing?
A) $66
B) $51
C) $60
D) $75

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitfi
xedmanuf act
uri
ngov er
head=$33,000÷2,200=$15
Unitproductcost=Dir
ectmat er
ial
s+Directl
abor+Var
iabl
emanuf
act
uri
ng
overhead+Fi xedmanufact
uri
ngov er
head=$29+$17+$5+$15=$66

7-
80 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions116-
118:

Cr
ossbowCor
p.pr
oducesasi
ngl
epr
oduct
.Dat
aconcer
ningJune'
soper
ati
onsf
oll
ow:

Uni
tsi
nbegi nni
ngi
nvent
ory 0
Uni
tsproduced 6,
000
Uni
tssold 5,
000

Var
iablecostsperuni
t:
Manuf act
uri
ng $7
Sell
ingandadmi ni
str
ati
ve $3

Fi
xedcost
sint
otal
:
$12,
00
Manufact
uri
ng 0
Sel
l
ingandadmini
str
ati
ve $3,
000

116.Underv
ari
abl
ecost
ing,
endi
ngi
nvent
oryont
hebal
ancesheetwoul
dbev
alued
at
:
A) $10,000
B) $7,000
C) $9,000
D) $12,000

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitproductcost=$7
Endinginvent
ory=Beginni
nginventory+Unitspr
oduced−Unit
ssold
=0+6, 000−5, 000=1,000
Valueofendinginvent
ory=Unitproductcost×Unit
sinendi
nginv
entor
y
=$7×1, 000=$7, 000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
81
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

117.Underabsorpt
ioncost
ing,
endi
ngi
nvent
oryont
hebal
ancesheetwoul
dbe
val
uedat:
A) $10, 000
B) $7, 000
C) $9, 000
D) $12, 000

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Easy

Sol
uti
on:

Uni
tfi
xedmanuf actur
ingov
erhead=$12,000÷6,000=$2
Uni
tproductcost=$7+$2=$9
Val
ueofendinginventor
y=Unitproductcost×Uni
tsi
nendi
ngi
nvent
ory
=$9×1,000=$9, 000

118.Fort
hey earinquesti
on,netoper ati
ngi
ncomeunderv ari
abl
ecost i
ngwi
l
lbe:
A) hi gherthannetoperatingincomeunderabsorptioncosting.
B) lowert hannetoperatingincomeunderabsorptioncosting.
C) t hesameasnetoper atingincomeunderabsorptioncosting.
D) noneoft hese

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

7-
82 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions119-
120:

DearneCompany
,whichhasonl
yoneproduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concerni
ngi
tsmostr
ecentmonthofoper
ati
ons:

Sel
l
ingpr
ice $67

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 5,
200
Uni
tssold 4,
900
Uni
tsi
nendi ngi
nventor
y 300

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $20
Dir
ectlabor $16
Vari
ablemanuf act
uri
ngover
head $3
Vari
ablesell
ingandadmini
str
ati
ve $4

Fi
xedcost
s:
$41,
60
Fi
xedmanuf
act
uri
ngov
erhead 0
$73,
50
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

119.Whati
sthetot
alper
iodcostf
ort
hemont
hundert
hev
ari
abl
ecost
ingappr
oach?
A) $41,600
B) $93,100
C) $115,100
D) $134,700

Ans:
  
D AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Har
d

Sol
uti
on:

Peri
odcost=Var i
ablesel
l
ingandadminist
rat
ivecost+Fi
xedmanuf
act
uri
ng
over
head+Fixedselli
ngandadminist
rat
ivecost
=$4×4, 900+$41,600+$73,500
=$19,600+$41,600+$73,500=$134,700

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
83
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

120.Whatist
hetotal
per
iodcostf
ort
hemont
hundert
heabsor
pti
oncost
ing
appr
oach?
A) $93,100
B) $73,500
C) $134,700
D) $41,600

Ans:
  
A AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Har
d

Sol
uti
on:

Per
iodcost=Vari
ablesel
l
ingandadmi
nist
rat
ivecost+Fi
xedsel
l
ingand
admini
str
ati
vecost=$4×4,900+$73,
500=$93,100

Uset
hef
oll
owi
ngt
oanswerquest
ions121-
122:

TatCor
por
ati
onpr
oducesasi
ngl
epr
oductandhast
hef
oll
owi
ngcostst
ruct
ure:

Numberofuni t
spr oducedeachy ear 7,
000
Var
iablecostsperunit:
Directmateri
als $77
Directl
abor $89
Var i
abl
emanuf acturi
ngoverhead $5
Var i
abl
esell
ingandadmi nist
rativ
e
expenses $3
Fi
xedcostspery ear:
$532,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$574,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpenses 0

7-
84 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

121.Theuni
tpr
oductcostunderabsor
pti
oncost
ingi
s:
A) $247
B) $166
C) $332
D) $171

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitfi
xedmanuf act
uri
ngov er
head=$532,000÷7,000=$76
Unitproductcost=Dir
ectmat er
ial
s+Directl
abor+Var
iabl
emanuf
act
uri
ng
overhead+Fi xedmanufact
uri
ngov er
head=$77+$89+$5+$76=$247

122.Theuni
tpr
oductcostunderv
ari
abl
ecost
ingi
s:
A) $169
B) $171
C) $247
D) $174

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitproductcost=Di
rectmat
eri
als+Di
rectl
abor+Var
iabl
emanuf
act
uri
ng
overhead=$77+$89+$5=$171

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
85
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions123-
124:

Car
usoInc.
,whi
chproducesasingl
epr
oduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
afori
ts
mostr
ecentmonthofoperat
ions:

Numberofuni t
spr oduced 4,
000
Var
iablecostsperunit:
Directmateri
als $39
Directl
abor $71
Var i
abl
emanuf acturi
ngover
head $5
Var i
abl
esell
ingandadmi ni
str
ati
ve
expense $8
Fi
xedcosts:
$220,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$308,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpense 0

Ther
ewer
enobegi
nni
ngorendi
ngi
nvent
ori
es.

123.Theuni
tpr
oductcostunderabsor
pti
oncost
ingwas:
A) $170
B) $115
C) $255
D) $110

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitfi
xedmanuf act
uri
ngov er
head=$220,000÷4,000=$55
Unitproductcost=Dir
ectmat er
ial
s+Directl
abor+Var
iabl
emanuf
act
uri
ng
overhead+Fi xedmanufact
uri
ngov er
head=$39+$71+$5+$55=$170

7-
86 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

124.Theuni
tpr
oductcostunderv
ari
abl
ecost
ingwas:
A) $115
B) $123
C) $118
D) $170

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Unitproductcost=Di
rectmat
eri
als+Di
rectl
abor+Var
iabl
emanuf
act
uri
ng
overhead=$39+$71+$5=$115

Uset
hef
oll
owi
ngt
oanswerquest
ions125-
126:

CloerCompany
,whichhasonlyoneproduct
, haspr
ovi
dedt
hef
oll
owi
ngdat
a
concerni
ngi
tsmostrecentmonthofoperat
ions:

Sel
l
ingpr
ice $95

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 8,
900
Uni
tssold 8,
500
Uni
tsi
nendi ngi
nventor
y 400

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $10
Dir
ectlabor $48
Vari
ablemanuf act
uri
ngover
head $5
Vari
ablesell
ingandadmini
str
ati
ve $11

Fi
xedcost
s:
$106,
80
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $68,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
87
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

125.Thet
otal
contr
ibut
ionmar
ginf
ort
hemont
hundert
hev
ari
abl
ecost
ingappr
oach
i
s:
A) $178,500
B) $71,700
C) $272,000
D) $170,000

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Uni
tpr
oductcost=$10+$48+$5=$63
$807,
50
Sal
esrevenue(
$95×8,
500) 0
Var
iabl
ecosts:
$535,
50
Var
iabl
ecostofgoodssold($63×8,500) 0
Var
iabl
esel
li
ngandadmi ni
strat
ive(
$11×
8,
500) 93,
500 629,
000
$178,
50
Cont
ri
but
ionmar
gin 0

126.Thet
otalgr
ossmar
ginf
ort
hemont
hundert
heabsor
pti
oncost
ingappr
oachi
s:
A) $200,000
B) $170,000
C) $8,500
D) $178,500

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Uni
tfi
xedmanuf act
uri
ngov
erhead=$106,
800÷8,
900=$12
Uni
tproductcost=$10+$48+$5+$12=$75

Salesr
evenue($95×8,
500) $807,
500
Costofgoodssold(
$75×8,500) 637,
500
Grossmargin $170,
000

7-
88 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions127-
128:

Hir
schCompanypr oducesasinglepr
oduct
.Vari
ablemanufact
uri
ngcostsare$6per
unit
,andf
ixedmanuf act
uri
ngcostsare$2peruni
tbasedon50,000uni
tsproduced
eachyear
.Inthecurr
entyear,
50,000uni
tswerepr
oduced,
and40,000uni
tswer esol
d.

127.Underabsorpt
ioncosti
ng,t
heamountofmanufact
uri
ngcost(
var
iabl
eandf
ixed)
deduct
edfrom revenueint
hecur
rentyearwoul
dbe:
A) $320, 000
B) $400, 000
C) $240, 000
D) $300, 000

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Tot
almanuf
act
uri
ngcostdeduct
edfr
omrevenue=Tot
alperuni
tpr
oductcost×
Uni
tssol
d=($6+$2)×40,000=$320,
000

128.Undervar
iablecosti
ng,t
heamountofmanuf
act
uri
ngcost(
var
iabl
eandf
ixed)
deduct
edfrom revenuei
nthecur
renty
earwoul
dbe:
A) $320, 000
B) $240, 000
C) $340, 000
D) $400, 000

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Total
fixedcost=Peruni tfixedcost×Uni
tsproduced
Total
fixedcost=$2×50, 000=$100,000
Total
manuf actur
ingcostdeduct edfr
om r
evenue=( Var
iabl
eperuni
tpr
oduct
cost×Unitssold)+Total fi
xedcost
=($6×40, 000)+$100,000
=$240,000+$100, 000=$340, 000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
89
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions129-
130:

OsawaInc.manufact
ured200,000unit
sofitsonlyproductinit
sfir
styearof
oper
ati
ons.Vari
ablemanufact
uringcostswere$30peruni t
.Fixedmanufactur
ing
cost
swer e$600,
000andselli
ngandadmi ni
strat
ivecoststotal
ed$400,000.Osawa
sol
d120,000unit
satasell
ingpriceof$40perunit.

129.Osawa'
snetoper
ati
ngi
ncomeusi
ngabsor
pti
oncost
ingwoul
dbe:
A) $200,000
B) $440,000
C) $600,000
D) $840,000

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA BB:
 
 Cri
ti
cal 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um Source:
 
 CMA, 
adapted

Sol
uti
on:

Uni
tfi
xedmanuf act
uri
ngcost=$600,
000÷200,
000=$3
Uni
tproductcost=$30+$3=$33

$4,800,
00
Salesrevenue($40×120, 000) 0
Costofgoodssol d($33×120, 000) 3,960,
000
Grossmar gin 840,
000
Sell
ingandadmi nist
rat
iveexpensescost 400,
000
Netoperatingincome $ 440,
000

7-
90 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

130.Osawa'
snetoper
ati
ngi
ncomeusi
ngv
ari
abl
ecost
ingwoul
dbe:
A) $200,000
B) $440,000
C) $800,000
D) $600,000

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA BB:
 
 Cri
ti
cal 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um Source:
 
 CMA, 
adapted

Sol
uti
on:

$4,
800,
00
Sal
esr ev
enue($40×120,000) 0
Vari
ablecostofgoodssol
d($30×120,
000) 3,
600,
000
Contr
ibuti
onmargin 1,
200,
000
Fi
xedcost s:
$600,
00
Fixedmanufact
uri
ngcosts 0
Selli
ngandadmini
str
ati
ve 400,
000 1,000,
000
Netoperat
ingi
ncome $ 200,
000

Uset
hef
oll
owi
ngt
oanswerquest
ions131-
132:

Eldr
ickCompany
,whi
chhasonlyoneproduct,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concerni
ngi
tsmostr
ecentmonthofoperat
ions:

Sel
l
ingpr
ice $85

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 4,
500
Uni
tssold 4,
400
Uni
tsi
nendi ngi
nventor
y 100

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $29
Dir
ectlabor $13
Vari
ablemanuf act
uri
ngover
head $7
Vari
ablesell
ingandadmini
str
ati
ve $5

Fi
xedcost
s:
$117,
00
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $4,
400

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
91
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

7-
92 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

131.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $10,100
B) $2,600
C) $15,000
D) $17,600

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Uni
tpr
oductcost=$29+$13+$7=$49
$374,
00
Sal
esrevenue(
$85×4,
400) 0
Var
iabl
ecosts:
$215,
60
Vari
ablecostofgoodssold($49×4,400) 0
Vari
ablesel
li
ngandadmi ni
strat
ive(
$5×
4,
400) 22,
000 237,
600
Contr
ibut
ionmargi
n 136,
400
Fi
xedcosts:
$117,
00
Fixedmanufact
uri
ngover
head 0
Fixedsel
li
ngandadmini
str
ati
ve 4,
400 121,
400
Netoperat
ingi
ncome $15,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
93
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

132.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderabsor
pti
oncost
ing?
A) $17,600
B) $10,100
C) $15,000
D) $2,600

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Uni
tfi
xedmanuf act
uri
ngov
erhead=$117,
000÷4,
500=$26
Uni
tproductcost=$29+$13+$7+$26=$75

Salesrevenue($85×4,400) $374,
000
Costofgoodssol d($75×4, 400) 330,
000
Grossmar gin 44,
000
Sell
ingandadmi nist
rat
iveexpenses:
Var i
ablesell
i
ngandadmi ni
strati
ve(
$5×
4,
400) $22,
000
Fixedselli
ngandadmi nistr
ati
v e 4,
400 26,
400
Netoperatingincome $17,
600

7-
94 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Uset
hef
oll
owi
ngt
oanswerquest
ions133-
134:

Kief
erCompany,
whichhasonlyonepr
oduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concer
ningi
tsmostrecentmont
hofoper
ati
ons:

Sel
l
ingpr
ice $133

Uni
tsi
nbegi nni
nginv
entor
y 600
Uni
tsproduced 6,
600
Uni
tssold 6,
800
Uni
tsi
nendi ngi
nventor
y 400

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $34
Dir
ectlabor $52
Vari
ablemanuf act
uri
ngover
head $2
Vari
ablesell
ingandadmini
str
ati
ve $11

Fi
xedcost
s:
$158,
40
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $61,
200

Thecompanyproducesthesamenumberofunit
severymont
h,al
thoughthesalesi
n
uni
tsvar
yfr
om mont htomonth.Thecompany
'svar
iabl
ecost
sperunitandtot
alfi
xed
cost
shavebeenconstantfr
om monthtomonth.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
95
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

133.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderv
ari
abl
ecost
ing?
A) $6,800
B) $9,600
C) $29,200
D) $11,600

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

$904,
40
Sal
esrevenue(
$133×6,
800) 0
Var
iabl
ecosts:
$598,
40
Vari
ablecostofgoodssold($88×6,800) 0
Vari
ablesel
li
ngandadmi ni
strat
ive(
$11×
6,
800) 74,
800 673,
200
Contr
ibut
ionmargi
n 231,
200
Fi
xedcosts:
$158,
40
Fixedmanufact
uri
ngover
head 0
Fixedsel
li
ngandadmini
str
ati
ve 61,
200 219,
600
Netoperat
ingi
ncome $11,
600

7-
96 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

134.Whati
sthenetoper
ati
ngi
ncomef
ort
hemont
hunderabsor
pti
oncost
ing?
A) $11,600
B) $6,800
C) $29,200
D) $9,600

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Medi
um

Sol
uti
on:

Uni
tfi
xedmanuf act
uri
ngov
erhead=$24
Uni
tproductcost=$34+$52+$2+$24=$112

Salesrevenue($133×6,800) $904,
400
Costofgoodssol d($112×6, 800) 761,
600
Grossmar gin 142,
800
Sell
ingandadmi nist
rat
iveexpenses:
Var i
ablesell
i
ngandadmi ni
strati
ve(
$11×
6,
800) $74,
800
Fixedselli
ngandadmi nistr
ati
v e 61,
200 136,
000
Netoperatingincome $ 6,
800

Uset
hef
oll
owi
ngt
oanswerquest
ions135-
136:

DanahyCorpor
ati
onmanufactur
esavar
iet
yofproduct
s.Thef
oll
owi
ngdat
aper
tai
nto
thecompany'
soperat
ionsovert
hel
astt
woy ear
s:

$52,
00
Var
iabl
ecost
ingnetoper
ati
ngi
ncome,
lasty
ear 0
$68,
00
Vari
ablecosti
ngnetoperati
ngi
ncome, t
hisyear 0
Fi
xedmanuf actur
ingov
erheadcostsr
eleasedfr
om
inventor
yunderabsorpti
oncost
ing,l
astyear $4,
000
Fi
xedmanuf actur
ingover
headcostsdeferr
edin
inventor
yunderabsorpti
oncost
ing,t
hisyear $6,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
97
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

135.Whatwastheabsor
pti
oncost
ingnetoper
ati
ngi
ncomel
asty
ear
?
A) $50,000
B) $48,000
C) $52,000
D) $56,000

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Absor
ptioncosti
ngneti
ncome=Variabl
ecost
ingnetoper
ati
ngincome–Fi
xed
manufactur
ingover
headrel
eased=$52,
000–$4,000=$48,000

136.Whatwastheabsor
pti
oncost
ingnetoper
ati
ngi
ncomet
hisy
ear
?
A) $62,000
B) $74,000
C) $70,000
D) $66,000

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Absor
ptioncosti
ngneti
ncome=Var
iabl
ecost
ingnetoper
atingi
ncome+Fi
xed
manufactur
ingover
headdef
err
ed=$68,
000+$6,000=$74,000

Uset
hef
oll
owi
ngt
oanswerquest
ions137-
138:

HelmersCor por
ationmanuf actur
esavari
etyofproducts.Vari
ablecosti
ngnet
operati
ngincomel astyearwas$86,000andt hi
syearwas$103, 000.Lastyear,
$32,000infi
xedmanuf acturingover
headcostswerer el
easedfrom inv
entoryunder
absorpti
oncosting.Thisyear,$12,
000infi
xedmanuf actur
ingoverheadcostswere
deferr
edininventoryunderabsorpti
oncosti
ng.

7-
98 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

137.Whatwastheabsor
pti
oncost
ingnetoper
ati
ngi
ncomel
asty
ear
?
A) $106,000
B) $86,000
C) $54,000
D) $118,000

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Absor
ptioncosti
ngneti
ncome=Variabl
ecost
ingnetoper
ati
ngincome–Fi
xed
manufactur
ingover
headrel
eased=$86,
000–$32,000=$54,000

138.Whatwastheabsor
pti
oncost
ingnetoper
ati
ngi
ncomet
hisy
ear
?
A) $81,000
B) $83,000
C) $115,000
D) $123,000

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Absor
ptioncosti
ngneti
ncome=Var
iabl
ecost
ingnetoper
ati
ngi
ncome+Fi
xed
manufactur
ingover
headdef
err
ed=$103,
000+$12,000=$115,
000

Uset
hef
oll
owi
ngt
oanswerquest
ions139-
140:

Nor
enber
gCorporat
ionmanufact
uresavar
iet
yofproduct
s.Thef
oll
owi
ngdat
aper
tai
n
t
othecompany'
soperat
ionsoverthel
astt
woy ear
s:

Var
iablecost
ingnetoper
ati
ngincome, l
asty
ear $88,
600
Var
iablecost
ingnetoper
ati
ngincome, t
hisy
ear $96,
100
I
ncreaseinendi
nginvent
ory
,lastyear 600unit
s
2,
300
Decr
easei
nendinginv
ent
ory,
thi
syear unit
s
Fi
xedmanufact
uri
ngover
headcostperuni
t $7

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
99
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

139.Whatwastheabsor
pti
oncost
ingnetoper
ati
ngi
ncomel
asty
ear
?
A) $92,800
B) $88,600
C) $84,400
D) $76,700

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

Sol
uti
on:

Fi
xedmanuf act
uri
ngoverheaddef
err
ed=600×$7=$4, 200
Absor
ptioncosti
ngneti
ncome=Var i
abl
ecost
ingnetoperat
ingi
ncome+Fi
xed
manufactur
ingover
headdeferr
ed=$88,
600+$4,200=$92,800

140.Whatwastheabsor
pti
oncost
ingnetoper
ati
ngi
ncomet
hisy
ear
?
A) $80,000
B) $100,500
C) $108,000
D) $112,200

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

Sol
uti
on:

Fi
xedmanuf act
uri
ngoverheadr el
eased=2,300×$7=$16,100
Absor
ptioncosti
ngneti
ncome=Var iabl
ecosti
ngnetoper
ati
ngincome−Fi
xed
manufactur
ingover
headreleased=$96,100−$16,100=$80,000

Uset
hef
oll
owi
ngt
oanswerquest
ions141-
142:

RosalCorporat
ionmanuf act
uresav ar
ietyofproducts.Vari
ablecosti
ngnetoperat i
ng
i
ncomewas$74, 700lastyearandwas$82, 300thisy ear
.Lastyear,
endingi
nvent ory
i
ncreasedby2,600units.Thisyear
,endinginventor
ydecr easedby1,400uni
ts.Fixed
manufacturi
ngov er
headcostis$5peruni t.

7-
100 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

141.Whatwastheabsor
pti
oncost
ingnetoper
ati
ngi
ncomel
asty
ear
?
A) $61,700
B) $74,700
C) $80,700
D) $87,700

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

Sol
uti
on:

Fi
xedmanuf act
uri
ngoverheaddef
err
ed=$5×2,600=$13,000
Absor
ptioncosti
ngneti
ncome=Var i
abl
ecost
ingnetoper
ati
ngincome+Fi
xed
manufactur
ingover
headdeferr
ed=$74,
700+$13,000=$87,700

142.Whatwastheabsor
pti
oncost
ingnetoper
ati
ngi
ncomet
hisy
ear
?
A) $75,300
B) $89,300
C) $76,300
D) $68,700

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

Sol
uti
on:

Fi
xedmanuf act
uri
ngoverheadr el
eased=$5×1,400=$7,000
Absor
ptioncosti
ngneti
ncome=Var iabl
ecost
ingnetoper
ati
ngincome−Fi
xed
manufactur
ingover
headreleased=$82,300−$7,000=$75,300

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
101
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

EssayQuest
ions

143.LehneCompany,
whichhasonl
yonepr
oduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concer
ningi
tsmostr
ecentmont
hofoper
ati
ons:

Sel
l
ingpr
ice $112

Uni
tsi
nbegi nni
nginv
entor
y 500
Uni
tsproduced 2,
600
Uni
tssold 3,
000
Uni
tsi
nendi ngi
nventor
y 100

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $13
Dir
ectlabor $49
Vari
ablemanuf act
uri
ngover
head $6
Vari
ablesell
ingandadmini
str
ati
ve $10

Fi
xedcost
s:
$80,
60
Fi
xedmanuf
act
uri
ngov
erhead 0
$15,
00
Fi
xedsel
l
ingandadmi
nist
rat
ive 0

Thecompanyproducesthesamenumberofunit
severymonth,
alt
hought
he
sal
esinuni
tsvaryf
rom monthtomonth.Thecompany
'svar
iabl
ecost
speruni
t
andtot
alfi
xedcost
shavebeenconstantfr
om montht
omont h.

Requi
red:

a.Whatistheunitproductcostf
orthemonthundervar
iablecosting?
b.Whatistheunitproductcostf
orthemonthunderabsorpti
oncost i
ng?
c.Prepar
eani ncomest at
ementforthemont
husingthecontributi
onfor
mat
andthevari
ablecostingmethod.
d.Prepar
eani ncomest at
ementforthemont
husingtheabsor pti
oncosti
ng
method.
e.Reconci
lethev ar
iabl
ecosti
ngandabsorpt
ioncost
ingnetoper ati
ng
i
ncomesf orthemont h.

7-
102 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Ans:

a.&b.Uni
tpr
oductcost
s

Var
iabl
ecost
ing:
$1
Di
rectmater
ial
s 3
Di
rectl
abor 49
Vari
abl
emanufact
uri
ngov
erhead  
  
6
$6
Uni
tpr
oductcost 8

Absor
pti
oncost
ing:
$1
Di
rectmater
ial
s 3
Di
rectl
abor 49
Vari
abl
emanufacturi
ngover
head 6
Fi
xedmanufactur
ingover
head  
31
$9
Uni
tpr
oductcost 9

c.&d.I
ncomest
atement
s

Variabl
ecostingi
ncomestatement
Sales $336,
000
Lessv ar
iabl
eexpenses:
Var i
ablecostofgoodssol
d:
$ 34,00
Begi
nni
ngi
nvent
ory 0
 
176, 80
Addvar
iabl
emanufact
uri
ngcost
s 0
Goodsavai
l
abl
eforsal
e 210,800
  
   
6,80
Lessendi
nginvent
ory 0
Var
iabl
ecostofgoodssol
d 204,000
  
 30,00
Variablesel
li
ngandadmi ni
str
ati
ve 0  
234,
000
Contri
butionmargin 102,
000
Lessfixedexpenses:
Fixedmanuf act
uringov
erhead 80,600
 
  
15,00
Fixedsel
li
ngandadmi
nist
rat
ive 0  
 95,600
Netoperat
ingi
ncome $  
6,400

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
103
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Absorpt
ioncost
ingincomest
atement
Sal
es $336,
000
Costofgoodssold:
$ 49,
50
Begi
nni
ngi
nvent
ory 0
 
257,40
Addcostofgoodsmanuf act
ured 0
Goodsav ai
labl
eforsal
e 306,900
Lessendinginvent
ory    
 9,
900  
297,
000
Gr
ossmar gin 39,
000

7-
104 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Sell
ingandadmi ni
str
ati
veexpenses
expenses:
Var i
ablesel
li
ngandadministr
ati
ve 30,000
 
  
15,00
Fixedsel
li
ngandadmi
nist
rat
ive 0   
 45,
000
Netoperat
ingi
ncome $( 
 6,
000)

e.Reconcil
i
at i
on
Vari
ablecostingnetoper
atingincome $ 
6,400
Deductfixedmanufactur
ingoverheadcosts
rel
easedf rom i
nventor
yunderabsorpti
on
costing (12,
400)
Absorpti
oncost i
ngnetoperati
ngincome $(6,
000)

AACSB: 
 Anal
yti
c AICPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng,
 
Measur
ement
LO:
  
1,2,
3 Lev el
: 
 Har
d

144.Maffei
Company,whi
chhasonlyoneproduct,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concer
ningi
tsmostr
ecentmonthofoperat
ions:

Sel
l
ingpr
ice $138

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 7,
200
Uni
tssold 7,
000
Uni
tsi
nendi ngi
nventor
y 200

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $42
Dir
ectlabor $32
Vari
ablemanuf act
uri
ngover
head $1
Vari
ablesell
ingandadmini
str
ati
ve $8

Fi
xedcost
s:
$280,
80
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $98,
000

Requi
red:

a.Whati
stheuni
tpr
oductcostf
orthemonthundervar
iablecosti
ng?
b.Whati
stheuni
tpr
oductcostf
orthemonthunderabsorpti
oncosting?
c.Pr
epar
eanincomest
atementforthemont
husingthecontribut
ionfor
mat

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
105
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

andthevari
ablecostingmethod.
d.Prepar
eani ncomest at
ementfort
hemonthusi
ngtheabsorpt
ioncost
ing
method.
e.Reconci
lethev ar
iabl
ecost
ingandabsor
pti
oncost
ingnetoperat
ing
i
ncomesf orthemont h.

7-
106 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Ans:

a.&b.Uni
tpr
oductcost
s

Vari
abl
ecosting:
Di
rectmateri
als $42
Di
rectl
abor 32
Vari
abl
emanuf act
uri
ngov
erhead  
  
1
Uni
tproductcost $75

Absorpti
oncosting:
Di
rectmat er
ial
s $ 42
Di
rectlabor 32
Vari
ablemanufacturi
ngover
head 1
Fi
xedmanuf acturi
ngover
head   
 39
$11
Uni
tpr
oductcost 4

c.&d.I
ncomest
atement
s

Var
iabl
ecost
ingi
ncomest
atement
$966,
00
Sales 0
Lessv ari
ableex penses:
Variablecostofgoodssol d:
Beginninginv entory $ 
  
  
  
  
 0
Addv ariabl
emanuf acturingcosts  
540,
000
Goodsav ai
lablef orsale 540,
000
Lessendi ngi nventory  
  
15,
000
Variablecostofgoodssol d 525,
000
Variableselli
ngandadmi nist
rati
ve  
  
56,
000  581,
000
Contri
but i
onmar gin 385,
000
Lessfixedex penses:
Fixedmanuf acturingov erhead 280,
800
Fixedsel l
ingandadmi ni
st r
ative  
  
98,
000  
378,800
Netoper ati
ngincome $ 
  
6,200

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
107
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Absor
pti
oncost
ingi
ncomest
atement
$966,
00
Sales 0
Costofgoodssol d:
Beginninginventory $ 
  
  
  
  
 0
Addcostofgoodsmanuf actured  
820,
800
Goodsav ai
labl
ef orsal
e 820,
800
Lessendi nginventory  
  
22,
800  798,
000
Grossmar gin 168,
000
Sell
ingandadmi nistr
ativ
eexpenses
expenses:
Var i
ablesell
ingandadmi ni
strati
ve 56,
000
Fixedselli
ngandadmi nistr
ative  
  
98,
000  
154,
000
Netoperatingincome $ 
14,
000

e.Reconcil
iati
on
Vari
ablecosti
ngnetoperati
ngi ncome $ 6,
200
Addfixedmanufact
uri
ngov erheadcostsdef
err
ed
ininventor
yunderabsorpti
oncost i
ng   
 7,
800
$14,00
Absorpti
oncosti
ngnetoperatingincome 0

AACSB: 
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yti
c AICPA BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng,
 
Measur
ement
LO:
  
1,2,
3 Lev el
: 
 Medi
um

7-
108 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

145.TheDeanCompanyproducesandsel
l
sasi
ngl
epr
oduct
.Thef
oll
owi
ngdat
a
ref
ert
otheyearj
ustcomplet
ed:

Beginni
nginvent
ory 0
Unit
sproduced 20,
000
Unit
ssold 19,
000

Sel
l
ingpri
ceperuni
t $350
Sel
l
ingandadmini
str
ati
veexpenses:
Vari
abl
eperunit $10
$225,
00
Fi
xed( t
otal) 0
Manufactur
ingcosts:
Di
rectmat eri
alscostperuni
t $190
Di
rectlaborcostperunit $40
Vari
ablemanuf actur
ingover
headcostperuni
t $25
$250,
00
Fi
xedmanuf
act
uri
ngov
erhead(
tot
al) 0

Assumet
hatdi
rectl
abori
sav
ari
abl
ecost
.

Requi
red:

a.Comput ethecostofasingl
eunitofproductunderboththeabsor pt
ion
costi
ngandv ari
abl
ecostingapproaches.
b.Prepareanincomestatementfortheyearusingabsorpti
oncosti
ng.
c.Prepareanincomestatementfortheyearusingvari
ablecost
ing.
d.Reconcil
etheabsorpti
oncosti
ngandv ari
ablecosti
ngnetoper at
ingincome
fi
guresin(b)and(c)above.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
109
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Ans:

a
. Costperuni
tunderabsor
pti
oncost
ing:
$190.
0
Di
rectmateri
als 0
Di
rectl
abor 40.
00
Vari
abl
eov er
head 25.
00
Fi
xedoverhead($250,
000/20,
000)  
  
12.
50
$267.
5
Tot
alcostperuni
t 0

Costperuni
tunderv
ari
abl
ecost
ing:
$190.
0
Di
rectmateri
als 0
Di
rectl
abor 40.
00
Vari
abl
eov er
head  
  
25.
00
$255.
0
Tot
alcostperuni
t 0

b
. Absor
pti
oncost
ingi
ncomest
atement
:
$6,
650,
00
Sal
es 0
Costofgoodssol
d:
Beginni
nginv
entor
y $ 
  
   
  
  
  
 0
Addcostofgoodsmanufact
ured(
20,
000@  
5,350,
00
$267.
50) 0
Costofgoodsavai
labl
e 5,
350,000
 
  
 267,
50   5,
082,
50
Lessendi
ngi
nvent
ory(1,
000@ $267.50) 0 0
Grosspr
ofi
t 1,
567,
500
Sell
i
ngandadmi
nist
rat
iveexpensesexpenses:
  
  
 415,
00
[
($10×19,
000)+$225,
000] 0
$1,152,
50
Netoper
ati
ngi
ncome 0

c
. Var
iabl
ecost
ingi
ncomest
atement
:
$6,
650,
00
Sal
es 0
Costofgoodssol
d:
Beginni
nginv
entor
y $ 
  
  
  
  
  
  
 

7-
110 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

0
 
5,100,
00
Costofgoodsmanufact
ured(
20,
000@ $255) 0
Costofgoodsav
ail
able 5,
100,000
 
  
 255,
00
Lessendi
nginvent
ory(
1,000@ $255) 0
Var
iabl
ecostofgoodssold 4,
845,000
Var
iabl
esel
li
ngandadmi ni
str
ati
veexpenses:
 
  
 190,
00  5,
035,
00
(19,
000@ $10) 0 0
Contr
ibuti
onmar gin 1,
615,
000
Lessfi
xedex penses:
Manuf act
uringoverhead 250,
000
 
  
  
225,
00   
  
 475,
00
Sel
l
ingandadmi
nist
rat
ive 0 0
$1,140,
00
Netoper
ati
ngi
ncome 0

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
111
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

d $1,
140,
00
. Netoperat
ingincomeunderv ari
abl
ecosti
ng 0
Addfixedmanufactur
ingoverheadcost
sdefer
red
ininvent
oryunderabsorpt
ioncosti
ng(1,
000@   
  
  
 12,
50
$12.50) 0
$1,
152,50
Netoper
ati
ngi
ncomeunderabsor
pti
oncost
ing 0

AACSB: 
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yti
c AICPA BB:
 
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it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng,
 
Measur
ement
LO:
  
1,2,
3 Lev el
: 
 Medi
um

146.PachtCompany,
whichhasonlyonepr
oduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concer
ningi
tsmostrecentmont
hofoper
ati
ons:

Sel
l
ingpr
ice $121

Uni
tsi
nbegi nni
nginv
entor
y 400
Uni
tsproduced 6,
800
Uni
tssold 6,
900
Uni
tsi
nendi ngi
nventor
y 300

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $35
Dir
ectlabor $36
Vari
ablemanuf act
uri
ngover
head $3
Vari
ablesell
ingandadmini
str
ati
ve $4

Fi
xedcost
s:
$197,
20
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $96,
600

Thecompanyproducesthesamenumberofunit
severymonth,
alt
hought
he
sal
esinuni
tsvaryf
rom monthtomonth.Thecompany
'svar
iabl
ecost
speruni
t
andtot
alfi
xedcost
shavebeenconstantfr
om montht
omont h.

Requi
red:

a.Whatistheunitproductcostforthemont hunderv ari

abl
ecost i
ng?
b.Prepareanincomestat ementforthemont husingthecontr
ibuti
onformat
andthev ari
abl
ecostingmet hod.
c.Withoutprepar
ingani ncomestatement,deter
mi netheabsorpti
oncosti
ng
netoperati
ngincomef orthemont h.(
Hint:Usethereconci
li
ationmethod.
)

7-
112 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Ans:

a
. Var
iabl
ecost
inguni
tpr
oductcost
$3
Di
rectmater
ial
s 5
Di
rectl
abor 36
  
  
Var
iabl
emanuf
act
uri
ngov
erhead 3
$7
Uni
tpr
oductcost 4

b
. Variablecost ingi ncomest at ement
Sales $834,
900
Lessv ariableexpenses:
Var i
abl ecostofgoodssol d:
Begi nningi nventory $ 
29,
600
Addv ariablemanuf acturing
cost s  
503,
200
Goodsav ailableforsale 532,
800
Lessendi ngi nventory  
  
22,
200
Var i
abl ecostofgoodssol d 510,
600
Var i
abl esellingandadmi nist
rati
ve  
  
27,
600  
538,
200
Cont r
ibut i
onmar gin 296,
700
Lessf i
xedexpenses:
Fixedmanuf act uri
ngov erhead 197,
200
Fixedsel l
ingandadmi ni
st r
ative  
  
96,
600  
293,800
Netoper ati
ngi ncome $ 
  
2,900

c Computati
onofabsor ptioncosti
ngnetoper
ati
ng
. i ncome
Fi
xedmanuf acturi
ngov erheadperuni
t $29.00
Changeininventor
ies(units) (100)

Vari
ablecosti
ngnetoperatingincome $2,
900
Deductfixedmanufactur
ingoverheadcost
srel
eased
from invent
oryunderabsorpti
oncosti
ng (
2,900)
Absorpti
oncostingnetoperati
ngincome $  
  
  
0

AACSB: 
 Anal
yti
c AICPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng,
 
Measur
ement
LO:
  
1,2,
3 Lev el
: 
 Har
d

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
113
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

147.QinCompany,whi
chhasonl
yonepr
oduct
,hasprov
idedt
hef
oll
owi
ngdat
a
concer
ningi
tsmostr
ecentmont
hofoper
ati
ons:

Sel
l
ingpr
ice $77

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 6,
700
Uni
tssold 6,
500
Uni
tsi
nendi ngi
nventor
y 200

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $27
Dir
ectlabor $13
Vari
ablemanuf act
uri
ngover
head $5
Vari
ablesell
ingandadmini
str
ati
ve $7

Fi
xedcost
s:
$100,
50
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $58,
500

Requi
red:

a.Whatistheunitproductcostforthemont hunderv ari

abl
ecost i
ng?
b.Prepareanincomestat ementforthemont husingthecontr
ibuti
onformat
andthev ari
abl
ecostingmet hod.
c.Withoutprepar
ingani ncomestatement,deter
mi netheabsorpti
oncosti
ng
netoperati
ngincomef orthemont h.(
Hint:Usethereconci
li
ationmethod.
)

7-
114 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Ans:

a
. Var
iabl
ecost
inguni
tpr
oductcost
$2
Di
rectmater
ial
s 7
Di
rectl
abor 13
Vari
abl
emanufact
uri
ngov
erhead  
  
5
$4
Uni
tpr
oductcost 5

b
. Variablecost ingi ncomest at ement
Sales $500,
500
Lessv ariableexpenses:
Var i
abl ecostofgoodssol d:
Begi nningi nventory $ 
  
  
  
  
 0
Addv ariablemanuf acturing
cost s  
301,500
Goodsav ailableforsale 301,500
Lessendi ngi nventory  
  
  
9,000
Var i
abl ecostofgoodssol d 292,500
Var i
abl esellingandadmi nist
rati
ve  
  
45,500  
338,
000
Cont r
ibut i
onmar gin 162,
500
Lessf i
xedexpenses:
Fixedmanuf act uri
ngov erhead 100,
500
Fixedsel l
ingandadmi ni
st r
ative  
  
58,
500  
159,000
Netoper ati
ngi ncome $ 
  
3,500

c Computat
ionofabsor
pti
oncost
ingnetoper
ati
ng
. i ncome
$15.
0
Fi
xedmanufacturi
ngover
headperuni
t 0
Changei
ninventor
ies(
unit
s) 200

$3,50
Vari
ablecost
ingnetoperati
ngincome 0
Addfixedmanufact
uri
ngov erheadcost
sdef
err
edi
n   
3,00
inventor
yunderabsorpti
oncosting 0
$6,50
Absor
pti
oncost
ingnetoper
ati
ngi
ncome 0

AACSB: 
 Anal
yti
c AICPA BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng,
 
Measur
ement
LO:
  
1,2,
3 Lev el
: 
 Medi
um

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
115
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

7-
116 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

148.Ol
guinCorpor
ati
onpr
oducesasi
ngl
epr
oductandhast
hef
oll
owi
ngcost
st
ruct
ure:

Numberofuni t
spr oducedeachy ear 4,
000
Var
iablecostsperunit:
Directmateri
als $15
Directl
abor $13
Var i
abl
emanuf acturi
ngoverhead $7
Var i
abl
esell
ingandadmi nist
rativ
e
expenses $5
Fi
xedcostspery ear:
$328,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$324,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpenses 0

Requi
red:

a.Comput
etheuni
tpr
oductcostunderabsorpti
oncosti
ng.Showyourwor
k!
b.Comput
etheuni
tpr
oductcostundervar
iablecost
ing.Showyourwor
k!

Ans:

a
. Absor
pti
onCost
ing:
$  
1
Directmat er
ial
s 5
Directlabor 13
Var i
ablemanufacturi
ngover
head  
  
  
7
Total v
ariabl
eproducti
oncost 35
Fi
xedmanuf actur
ingover
head($328,
000/
4,000uni
tsof
product)  
  
82
$11
Uni
tpr
oductcost 7

b
. Vari
abl
eCosting:
Di
rectmateri
als $15
Di
rectl
abor 13
Vari
abl
emanuf act
uri
ngov
erhead  
  
7
Uni
tproductcost $35

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 1
Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
117
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

7-
118 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

149.QuatesCor
por
ati
onpr
oducesasi
ngl
epr
oductandhast
hef
oll
owi
ngcost
st
ructur
e:

Numberofuni t
spr oducedeachy ear 3,
000
Var
iabl
ecost sperunit:
Dir
ectmat eri
als $27
Dir
ectlabor $96
Vari
ablemanuf acturi
ngoverhead $1
Vari
ablesell
ingandadmi nist
rativ
eexpenses $4
Fi
xedcostspery ear:
$219,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$153,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpenses 0

Requi
red:

Comput
etheuni
tpr
oductcostunderabsor
pti
oncost
ing.Showy
ourwor
k!

Ans:

$  
2
Di
rectmater
ial
s 7
Di
rectl
abor 96
  
  
  
Vari
ablemanufacturi
ngover
head 1
Totalvari
abl
eproducti
oncost 124
Fi
xedmanuf act
uringover
head($219,
000/
3,000uni
tsof   
  
7
product
) 3
$19
Uni
tpr
oductcost 7

AACSB: 
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yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 1
Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
119
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

150.Davi
ttCorpor
ati
onpr
oducesasi
ngl
epr
oductandhast
hef
oll
owi
ngcost
st
ructur
e:

Numberofuni t
spr oducedeachy ear 1,
000
Var
iabl
ecost sperunit:
Dir
ectmat eri
als $57
Dir
ectlabor $20
Vari
ablemanuf acturi
ngoverhead $2
Vari
ablesell
ingandadmi nist
rativ
eexpenses $3
Fi
xedcostspery ear:
$88,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$24,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpenses 0

Requi
red:

Comput
etheuni
tpr
oductcostunderv
ari
abl
ecost
ing.Showy
ourwor
k!

Ans:

$5
Di
rectmater
ial
s 7
Di
rectl
abor 20
Vari
abl
emanufact
uri
ngov
erhead  
  
2
$7
Uni
tpr
oductcost 9

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 1
Lev
el:
 
 Easy

7-
120 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

151.Mur
phyI
nc.,
whi chpr
oducesasi
ngleproduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
f
ori
tsmostrecentmont
hofoperat
ion:

Numberofuni tsproduced 7,
000
Var
iablecostsperunit:
Directmateri
als $37
Directl
abor $43
Var i
abl
emanuf acturi
ngov er
head $5
Var i
abl
esell
ingandadmi nistr
ati
veexpenses $1
Fi
xedcosts:
Fixedmanuf act
uringoverhead $84,
000
$119,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpenses 0

Thecompanyhadnobegi
nni
ngorendi
ngi
nvent
ori
es.

Requi
red:

a.Comput
etheuni
tpr
oductcostunderabsorpti
oncosti
ng.Showyourwor
k!
b.Comput
etheuni
tpr
oductcostundervar
iablecost
ing.Showyourwor
k!

Ans:

a
. Absor ptioncosting:
Directmat er
ial
s $37
Directlabor 43
Var i
ablemanuf acturi
ngover
head  
  
5
Total variabl
eproducti
oncost 85
Fi
xedmanuf acturi
ngover
head($84,
000/
7,000uni
tsof
product )  
12
Unitpr oductcost $97

b
. Vari
abl
ecosting:
Di
rectmateri
als $37
Di
rectl
abor 43
Vari
abl
emanuf act
uri
ngov
erhead  
  
5
Uni
tproductcost $85

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 1
Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
121
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

152.Vancot
tInc.
,whichpr
oducesasi
ngl
eproduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
fori
tsmostrecentmont
hofoper
ati
on:

Numberofuni t
spr oduced 6,
000
Var
iabl
ecost sperunit:
Dir
ectmat eri
als $93
Dir
ectlabor $58
Vari
ablemanuf acturi
ngover
head $1
Vari
ablesell
ingandadmi ni
str
ati
veexpenses $1
Fi
xedcosts:
$192,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$348,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpenses 0

Thecompanyhadnobegi
nni
ngorendi
ngi
nvent
ori
es.

Requi
red:

Comput
etheuni
tpr
oductcostunderabsor
pti
oncost
ing.Showy
ourwor
k!

Ans:

Directmat er
ial
s $ 
93
Directlabor 58
Var i
ablemanufacturi
ngover
head   
  
 1
Total v
ariabl
eproducti
oncost 152
Fi
xedmanuf actur
ingover
head($192,
000/
6,000uni
tsof
product)  
  
32
$18
Uni
tpr
oductcost 4

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 1
Lev
el:
 
 Easy

7-
122 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

153.Schl
enzI
nc.,
whichpr
oducesasi
ngl
eproduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
fori
tsmostr
ecentmont
hofoper
ati
on:

Numberofuni t
spr oduced 6,
000
Var
iabl
ecost sperunit:
Dir
ectmat eri
als $12
Dir
ectlabor $34
Vari
ablemanuf acturi
ngover
head $4
Vari
ablesell
ingandadmi ni
str
ati
veexpenses $2
Fi
xedcosts:
$486,
00
Fi
xedmanuf
act
uri
ngov
erhead 0
$522,
00
Fi
xedsel
l
ingandadmi
nist
rat
iveexpenses 0

Thecompanyhadnobegi
nni
ngorendi
ngi
nvent
ori
es.

Requi
red:

Comput
etheuni
tpr
oductcostunderv
ari
abl
ecost
ing.Showy
ourwor
k!

Ans:

$1
Di
rectmater
ial
s 2
Di
rectl
abor 34
Vari
abl
emanufact
uri
ngov
erhead  
  
4
$5
Uni
tpr
oductcost 0

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 1
Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
123
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

154.Mil
l
erCompanyproducesasi
ngl
eproduct
.Thecompanyhadt
hef
oll
owi
ng
r
esult
sfori
tsf
ir
sttwoyear
sofoper
ati
on:

Year1 Year2
$1,200,
00 $1,200,
00
Sal
es 0 0
 
  
 800,
00  
  
 680,
00
Costofgoodssol
d 0 0
Grossmargi
n 400,000 520,000
 
  
 300,
00  
  
 300,
00
Sel
l
ingandadmi
nist
rat
iveexpenses 0 0
$  100,
00 $  220,
00
Netoper
ati
ngi
ncome 0 0

InYear1, thecompanypr oducedandsol d40,000uni t

sofit
sonlypr oduct;
in
Year2, t
hecompanyagai nsold40,000uni t
s,butincreasedproducti
ont o
50,000uni t
s.Thecompany '
sv ari
ableproducti
oncosti s$5perunitandi tsf
ixed
manuf acturi
ngov er
headcosti s$600,000ay ear.Fixedmanufacturi
ng
overheadcost sareappli
edtot heproductont hebasi sofeachyear'
suni t
production(i.
e.,
anewf i
xedov erheadr at
eiscomput edeachyear).Variabl
e
sell
ingandadmi ni
str
ati
veexpensesar e$2peruni tsold.

Requi
red:

a.Comput etheunitproductcostforeachyearunderabsorpti
oncostingand
undervari
ablecost i
ng.
b.Prepareanincomest at
ementforeachyear
, usi
ngthecontr
ibut
ionapproach
withvari
ablecosting.
c.Reconcil
ethev ar
iablecosti
ngandabsor pt
ioncostingi
ncomef igur
esfor
eachyear.
d.Explai
nwhyt henetoper ati
ngincomeforYear2underabsor pt
ioncosti
ng
washigherthant henetoperati
ngincomef orYear1,al
thoughthesame
numberofuni t
swer esoldi
neachy ear
.

7-
124 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Ans:

a
. Costperuni
tunderabsor
pti
oncost
ing:
Year Year
1 2
Variablepr
oducti
oncostperuni
t $ 5 $ 5
Fixedmanuf act
uri
ngover
headcost
:
($600,000/40,
000) 15
($600,000/50,
000)  
  
    
12
Unitproductcost $20 $17

Costperuni
tunderv
ari
abl
ecost
ing:
Year Year
1 2
Var
iabl
epr
oduct
ioncostperuni
t $5 $5

b.I
ncomest atementsf oreachy earunderv
ari
abl
ecosting:
Year1 Year2
$1,200,00 $1,
200,
00
Sales 0 0
Costofgoodssol d($5×40, 000) 200,000 200,
000
Var i
ablesell
ingandadmi nistr
ati
veexpense
($2×40, 000)   
  
  
80,000  
  
  
 80,
000
Cont ri
buti
onmar gin 920,000 920,000
Fixedexpenses:
Fixedmanuf act
uringoverhead 600,000 600,
000
  
  
220,00   
  
220,
00
Fixedsell
ingandadmi nistr
ativ
eexpense 0 0
$  
100,00 $  
100,
00
Netoper ati
ngincome 0 0

c.Reconci
l
iat
ionofabsor
pti
oncost
ingandv
ari
abl
ecost
ingnetoper
ati
ng
i
ncomes:

Year1 Year2
$100,
00 $100,
00
Netoperat
ingincomeunderv ari
ablecost i
ng 0 0
Fi
xedmanuf actur
ingoverheaddeferredin
(rel
easedfrom)inventory
:Year2( 10,000uni
ts×  
 120,
00
$12peruni t
)  
  
  
  
  
  
  
   0
$100,00 $220,00
Netoperat
ingincomeunderabsor ptioncosti
ng 0 0

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
125
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

d.Theincreasei nproduct i
oninYear2, i
nt hef aceoflevelsales,causeda
bui
ldupofinv entoryandadef erralofapor t
ionoftheov erheadcost sofYear
2tothenexty ear.Thisdeferr
alofcostr eli
ev edYear2of$120, 000offixed
manuf act
uringov erhead.Incomef orYear2was$120, 000highert han
i
ncomeofYear1, ev enthoughthesamenumberofuni tswassol deachy ear.
Byincreasi
ngpr oduct ionandbuildi
ngupi nventory,
thecompanywasabl et o
i
ncreasepr ofi
tswi thoutincr
easingsales.Thi sismajorcrit
icism ofthe
absorpti
oncost ingappr oach.

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 2,
3,
4
Lev
el:
 
 Medium

7-
126 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

155.Neuki
rchenCompany
,whi
chhasonl
yoneproduct,haspr
ovi
dedt
hef
oll
owi
ng
dat
aconcerni
ngi
tsmostr
ecentmont
hofoperati
ons:

Sel
l
ingpr
ice $140

Uni
tsi
nbegi nni
nginv
entor
y 300
Uni
tsproduced 4,
300
Uni
tssold 4,
500
Uni
tsi
nendi ngi
nventor
y 100

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $25
Dir
ectlabor $51
Vari
ablemanuf act
uri
ngover
head $7
Vari
ablesell
ingandadmini
str
ati
ve $6

Fi
xedcost
s:
$150,
50
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $72,
000

Thecompanyproducesthesamenumberofunit
severymonth,
alt
hought
he
sal
esinuni
tsvaryf
rom monthtomonth.Thecompany
'svar
iabl
ecost
speruni
t
andtot
alfi
xedcost
shavebeenconstantfr
om montht
omont h.

Requi
red:

a.Prepar
eanincomestat
ementfort
hemont
husi
ngt
hecontr
ibuti
onfor
mat
andthevar
iabl
ecost
ingmethod.
b.Prepar
eanincomestat
ementfort
hemont
husi
ngt
heabsorpti
oncost
ing
method.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
127
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Ans:

a.Var
iabl
ecost
ingi
ncomest
atement
$630,
00
Sales 0
Lessv ari
ableexpenses:
Variablecostofgoodssol d:
Beginninginventory $ 
24,900
Addv ariabl
emanuf act
uringcost
s  
356,900
Goodsav ai
labl
ef orsal
e 381,800
Lessendi nginventory   
  
 8,
300
Variabl
ecostofgoodssol d 373,500
 
400,
50
Variablesel
li
ngandadmi ni
str
ati
ve  
  
27,
000 0
Contri
butionmargin 229,
500
Lessfixedexpenses:
Fixedmanuf act
uringov
erhead 150,
500
 
222,50
Fixedsel
li
ngandadmi
nist
rat
ive  
  
72,
000 0
Netoperat
ingi
ncome $ 
  
7,000

b.Absor
pti
oncost
ingi
ncomest
atement
$630,
00
Sal
es 0
Costofgoodssold:
Beginni
nginventory $ 
35,
400
Addcostofgoodsmanuf act
ured  
507,
400
Goodsav ai
labl
ef orsal
e 542,
800
 
531,
00
Lessendi nginvent
ory  
  
11,
800 0
Grossmar gin 99,
000
Sell
ingandadmi nist
rat
iveexpenses
expenses:
Var i
ablesell
i
ngandadmi ni
str
ati
ve 27,
000
Fixedselli
ngandadmi nistr
ati
ve  
 72,
000  
  
99,
000
Netoperatingincome $ 
  
  
  
  
 0

AACSB: 
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yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 2
Lev
el:
 
 Hard

7-
128 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

156.OatesCompany,
whichhasonlyonepr
oduct
,haspr
ovi
dedt
hef
oll
owi
ngdat
a
concer
ningi
tsmostrecentmont
hofoper
ati
ons:

Sel
l
ingpr
ice $120

Uni
tsi
nbegi nni
nginv
entor
y 0
Uni
tsproduced 7,
600
Uni
tssold 7,
400
Uni
tsi
nendi ngi
nventor
y 200

Var
iabl
ecost sperunit
:
Dir
ectmat eri
als $15
Dir
ectlabor $48
Vari
ablemanuf act
uri
ngover
head $7
Vari
ablesell
ingandadmini
str
ati
ve $10

Fi
xedcost
s:
$228,
00
Fi
xedmanufact
uri
ngover
head 0
Fi
xedsel
l
ingandadmini
str
ati
ve $66,
600

Requi
red:

a.Prepar
eanincomestat
ementfort
hemont
husi
ngt
hecontr
ibuti
onfor
mat
andthevar
iabl
ecost
ingmethod.
b.Prepar
eanincomestat
ementfort
hemont
husi
ngt
heabsorpti
oncost
ing
method.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
129
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

Ans:
a.Var
iabl
ecost i
ngi ncomest atement
Sales $888,
000
Lessv ari
ableexpenses:
Var
iablecostofgoodssol d:
Beginningi nventory $ 
  
  
  
  
 0
Addv ariablemanuf acturingcosts  
532,
000
Goodsav ailableforsale 532,
000
Lessendi ngi nventory  
  
14,
000
Var
iablecostofgoodssol d 518,
000
Var
iablesellingandadmi nist
rati
ve  
  
74,
000  
592,
000
Contri
but i
onmar gin 296,
000
Lessfixedexpenses:
Fi
xedmanuf act uri
ngov erhead 228,
000
Fi
xedsel l
ingandadmi nistr
ative  
  
66,
600  
294,600
Netoper ati
ngi ncome $ 
  
1,400

b.Absor
pti
oncost
ingi
ncomest
atement
$888,
00
Sal
es 0
Costofgoodssold:
Beginni
nginventory $ 
  
  
  
  
 0
Addcostofgoodsmanuf act
ured  
760,
000
Goodsav ai
labl
ef orsal
e 760,
000
 
740,
00
Lessendi nginvent
ory  
  
20,
000 0
Grossmar gin 148,
000
Sell
ingandadmi nist
rat
iveexpenses
expenses:
Var i
ablesell
i
ngandadmi nistr
ati
ve 74,
000
 
140,60
Fixedsel
li
ngandadmi
nist
rat
ive  
  
66,
600 0
Netoperat
ingi
ncome $ 
  
7,400

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 2
Lev
el:
 
 Medium

7-
130 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

157.SucculentJuiceCompanymanuf act
uresandsell
spremiumtomatoj
uicebythe
gal
lon.Succulentjustf
ini
shedi
tsfir
styearofoper
ati
ons.Thef
oll
owi
ngdat a
rel
atestothisfir
styear:

Numberofgal
l
onsproduced 75,
000
Numberofgal
l
onssold 70,
000
$3.
00per
Sal
espr
ice gal
lon
$1.
45per
Uni
tproductcostundervari
abl
ecosti
ng gal
lon
Tot
alcontr
ibuti
onmar gin $84,000
Tot
alfi
xedmanuf act
uringover
headcost $63,000
Tot
alfi
xedsell
ingandadmi ni
str
ati
veexpense $10,500

Requi
red:

Usi
ngt
heabsorpt
ioncost
ingmethod,
prepar
eSuccul
entJui
ceCompany
's
i
ncomest
atementfort
hey ear
.

Ans:

$210,
00
Sal
es( 70,
000×$3. 00) 0
Costofgoodssol d:
Beginninginventory $ 
  
  
   
  
0
Addcostofgoodsmanuf act
ured(
75,
000×  
171,75
$2.29*) 0
Goodsav ailabl
ef orsal
e 171,750
 
  
11,45  160,30
Lessendinginvent
ory(5,
000×$2. 29) 0 0
Grossmargin 49,700
Sell
i
ngandadmi nist
rat
iveexpenses**  
  
35,000
$ 
14,70
Netoper
ati
ngi
ncome 0

*$1.45+( $63,
000/75,
000)
**Totalvari
abl
ecost=$210,000-$84,000=$126,000;
Vari
ablesell
ingandadminist
rat
ive=$126,000-(
$1.45×70,
000)=$24,
500
Totalsel
l
ingandadmi ni
str
ati
ve=$24,500+$10,500

AACSB: 
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yti
c AI
CPA 
BB:
 
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it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 2
Lev
el:
 
 Hard

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
131
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

158.WorrelCor
por
ati
onmanufact
uresavari
etyofproduct
s.Thefol
l
owi
ngdat
a
per
taintot
hecompany
'soperat
ionsov
erthelasttwoyears:

$71,
00
Var
iabl
ecost
ingnetoper
ati
ngi
ncome,
lasty
ear 0
$92,
00
Vari
ablecosti
ngnetoperati
ngi
ncome, t
hisyear 0
Fi
xedmanuf actur
ingover
headcostsdeferr
edin
inventor
yunderabsorpti
oncost
ing,l
astyear $2,
000
Fi
xedmanuf actur
ingov
erheadcostsr
eleasedfr
om $11,
00
inventor
yunderabsorpti
oncost
ing,t
hisyear 0

Requi
red:

a.Det
ermi
net
heabsor
pti
oncost
ingnetoper
ati
ngi
ncomel
asty
ear
.Showyour
wor
k!
b.Det
ermi
net
heabsor
pti
oncost
ingnetoper
ati
ngi
ncomet
hisy
ear
.Showy
our
wor
k!

Ans:

a.andb.
This
LastYear Year
Vari
ablecostingnetoper at
ingincome $71,000 $92,000
Addfixedmanuf acturi
ngov er
headcost s
deferredininvent
or yunderabsorpti
on
costing 2,
000 0
Deductfixedmanuf actur
ingoverheadcosts
rel
easedf rom inv
ent or
yunderabsor pt
ion
costing  
  
  
  
  
 0 (11,
000)
Absorpti
oncost i
ngnetoper ati
ngincome $73,
000 $81,
000

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 3
Lev
el:
 
 Easy

7-
132 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

159.CorbettCor
porati
onmanuf act
uresav ari
etyofpr
oduct
s.Lastyear
,var
iable
costi
ngnetoperatingincomewas$72, 000.Thef
ixedmanufact
uri
ngov er
head
costsdefer
redininventoryunderabsorpti
oncosti
ngamountedto$29,000.
Requir
ed:

Det
ermi
net
heabsor
pti
oncost
ingnetoper
ati
ngi
ncomel
asty
ear
.Showy
our
wor
k!

Ans:

Vari
ablecosti
ngnetoperati
ngincome $72,
000
Addfixedmanufact
uri
ngov erheadcostsdefer
red
ininvent
oryunderabsorpti
oncost i
ng 29,
000
Deductfi
xedmanufacturi
ngov erheadcosts
rel
easedf r
om i
nventor
yunderabsor pti
on  
  
  
  
  
  
  
costing 0
$101,00
Absor
pti
oncost
ingnetoper
ati
ngi
ncome 0

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 3
Lev
el:
 
 Easy

160.Lasty
ear,RasbandCorporati
on'svar
iabl
ecosti
ngnetoper
atingi
ncomewas
$57,
000.Thefixedmanufacturi
ngoverheadcost
sdefer
redininv
entor
yunder
absor
pti
oncost i
ngamount edto$30,
000.

Requi
red:

Deter
minet
heabsor
pti
oncost
ingnetoper
ati
ngi
ncomel
asty
ear
.Showy
our
work!
Ans:

$57,
00
Vari
ablecosti
ngnetoperati
ngincome 0
Addfixedmanufact
uri
ngov erheadcostsdefer
red
ininvent
oryunderabsorpti
oncost i
ng 30,
000
Deductfi
xedmanufacturi
ngov erheadcosts
rel
easedf r
om i
nventor
yunderabsor pti
on   
  
  
  
  
 
costing 0
$87,
00
Absor
pti
oncost
ingnetoper
ati
ngi
ncome 0

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 3
Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
133
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

7-
134 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

161.Phi
niseeCorpor
ati
onmanuf
acturesavar
ietyofpr
oducts.Thef
oll
owi
ngdat
a
per
taintot
hecompany'
soperat
ionsov
ert hel
asttwoyears:

$82,
70
Var
iabl
ecost
ingnetoper
ati
ngi
ncome,
lasty
ear 0
$87,
80
Vari
ablecosti
ngnetoper atingincome, t
hisyear 0
I
ncreaseinendinginventory,l
asty ear 900
Decreasei
nendi nginventory,t
hisy ear 3,
100
Fi
xedmanuf acturi
ngov erheadcostperuni t $2

Requi
red:

a.Deter
minetheabsor
pti
oncost
ingnetoper
ati
ngi
ncomef
orl
asty
ear
.Show
yourwork!
b.Deter
minetheabsor
pti
oncost
ingnetoper
ati
ngi
ncomef
ort
hisy
ear
.Show
yourwork!

Ans:
a.andb.
Last This
Year Year
Changeinunitsinendi
nginvent
ory $900 (
$3,
100)
Fi
xedmanuf acturi
ngover
headcostperunit $2 $2
Changeinfi
xedmanuf act
uri
ngov er
headin
endinginv
ent or
y $1,
800 (
$6,
200)

Vari
ablecostingnetoper at
ingincome $82,
700 $87,
800
Addfixedmanuf acturi
ngov er
headcost s
deferredininvent
or yunderabsorpti
on
costing 1,
800 0
Deductfixedmanuf actur
ingoverheadcosts
rel
easedf rom inv
ent or
yunderabsor pt
ion
costing   
  
  
  
  
 0   
(6,
200)
Absorpti
oncost i
ngnetoper ati
ngincome $84,
500 $81,
600

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 3
Lev
el:
 
 Medium

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 7-
135
Chapt
er7Var
iabl
eCost
ing:
ATool
forManagement

162.Lastyear,
DenogeanCor por
ati
on'
svari
abl
ecost
ingnetoperat
ingi
ncomewas
$64,
200andendi nginvent
oryi
ncr
easedby1,
900unit
s.Fixedmanufact
uri
ng
overheadcostperunitwas$4.

Requi
red:

Det
ermi
net
heabsor
pti
oncost
ingnetoper
ati
ngi
ncomef
orl
asty
ear
.Showy
our
wor
k!

Ans:

Changeinunitsinendi
nginvent
ory $1,
900
Fi
xedmanuf acturi
ngover
headcostperunit $4
Changeinfi
xedmanuf act
uri
ngov er
headinendi
ng
invent
ory $7,
600

Vari
ablecostingnetoperati
ngi ncome $64,
200
Addfixedmanuf act
uri
ngov erheadcostsdeferr
edin
inventoryunderabsorpti
oncost ing 7,
600
Deductfixedmanufacturi
ngov erheadcost
sr el
eased
from invent
oryunderabsorpt i
oncosti
ng  
  
  
  
  
 0
Absorpti
oncost i
ngnetoperatingincome $71,
800

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 3
Lev
el:
 
 Medium

7-
136 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on