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6. If production is greater than sales (units), then absorption costing net income
will generally be
A. Equal to direct costing net income.
B. Greater than direct costing net income
C. Less than direct costing net income.
D. Additional data is needed to be able to answer.
7. Which of the following statements is correct?
A. When production is lower than sales, variable costing net income is lower
than absorption costing net income.
B. When production is higher than sales, absorption costing net income is
lower than variable costing net income.
C. If all the products manufactured during the period are sold in that period,
variable costing net income is equal to absorption costing net income.
D. When production and sales level are equal, variable costing net income is
lower than absorption costing net income.
11.Absorption costing differs from variable costing in all of the following except
A. Acceptability for external repoting
B. Treatment of fixed manufacturing overhead
C. Treatment of variable production costs.
D. Arrangement of the income statement.
A. no no yes yes
B. yes no yes no
C. yes no yes yes
D. no no yes no
13.The variable costing method ordinarily includes in product costs the following:
A. Prime cost but not conversion cost.
B. Direct materials cost, direct labor cost, but no manufacturing overhead
cost.
C. Direct materials cost, direct labor cost, and variable manufacturing
overhead cost.
D. Prime cost and all conversion cost.
14.Net income determined using full absorption costing can be reconciled to net
income determined using variable costing by computing the difference
between them.
A. Gross margin (absorption costing method) and contribution margin
(variable costing method).
B. Fixed manufacturing overhead costs deferred in or released from
inventories.
C. Inventoried discretionary costs in the beginning and ending inventory.
D. Sales as recorded under the variable costing method and sales as
recorded under the absorption costing method.
Question 17 and 18 are based on the following information. The excerpt presented
below was taken from Smurf Company’s records for the fiscal year ended November
30:
Direct materials used P300,000
Direct labor 100,000
Variable factory overhead 50,000
Fixed factory overhead 80,000
Selling and administrative cost - variable 40,000
Selling and administrative cost – fixed 20,000
17.If Smurf Company uses variable costing, the inventoriable costs for the
current fiscal year are
A. 530,000 C. 450,000
B. 400,000 D. 490,000
19.Compute for the inventory under the direct costing method using the data
given: units unsold at the end of the period 45,000; raw materials used, P6.00
per unit; raw materials inventory, beginning, P5.90 per unit; direct labor,
P3.00 per unit; variable overhead per unit, P2.00 per unit; indirect labor for
the month, P33,750. Total fixed costs, P67,500.
A. P17.45 C. P11.00
B. P16.90 D. P19.15
22.LY & Company completed its first year of operations during which time the
following information were generated:
Total units produced 100,000
Total units sold 80,000 at 100 per unit
Work in process ending inventory cost
Fixed cost Factory Overhead P 1.2 million
Selling and administrative P 0.7 million
Per unit variable cost
Raw materials P 20.00
Direct labor 12.50
Factory Overhead 7.50
Selling and administrative 10.00
If the company used the variable (direct) costing method, the operating
income would be
A. P 3,040,000 C. P 4,000,000
B. P 2,100,000 D. P 2,480,000
23.CERTS for life, Inc., manufactures a single product for which the costs and
selling prices are:
Variable production costs P 50 per unit
Selling price P 125 per unit
Fixed production overhead P 200,000 per quarter
Fixed selling and administrative overhead P 80,000 per quarter
Normal capacity is 20,000 units per quarter. Production in the first quarter
was 19,000 units and sales volume was 16,000 units. No opening inventory
for the quarter. The absorption costing profit for the quarter was:
A. P 920,000 C. P 960,000
B. P 950,000 D. P 970,000
25.The net income for the month under the variable costing method would be:
A. P 32,420 C. P 23,320
B. P 25,500 D. P 22,420
Questions 26 and 27 are based on the following information. The books of Mariposa
Company pertaining to the year ended December 31, 2013 operations, showed the
following figures relating to product A:
Beginning inventory-FG and WIP none
No. of units produced 40,000
No. of units sold at 15 32,500
Direct materials used P 177,500
Direct labor used P 85,000
Fixed P 110,000
Variable 61,500_ P 171,500
Fixed admin expenses P 30,000
26.Under variable costing, what would be the finished goods inventory as at
December 31, 2013?
A. P 81,375.00 C. P 87,000.00
B. P 60,750.00 D. P 49,218.75
28.During the year 2013, Good Health Corporation manufactured 70,000 units of
product A, a new product. Only 65,000 units were sold during the year. There
was no beginning inventory. Manufacturing cost per unit was P20.00 variable
and P50.00 fixed. What would be the effect in net income if absorption
costing is used instead of variable costing?
A. Profit is P 100,000 lower C. Profit is P250,000
higher
B. Profit is P 250,000 lower D. None of the above.
Use the following information for questions 29 and 30: The following information has
been extracted from P Co.’s financial records for its first year of operations:
Units produced, 10,000
Units sold, 7,000
Variable costs per unit:
Direct material, P 8
Direct labor, 9
Manufacturing overhead, 3
SG&A, 4
Fixed costs:
Manufacturing overhead, P 70,000
SG&A, 30,000
29.Based on absorption costing, the Cost of Goods Manufactured for P Co.’s first
year would be
A. P 200,000 C. P 300,000
B. P 270,000 D. P 210,000
30.Based on absorption costing, what amount of period costs will P Co. Deduct?
A. P 70,000 C. P 30,000
B. P 79,000 D. P 58,000
32.Eastern Co. has total budgeted fixed costs of P150,000. Actual production of
39,000 units resulted in a P 6,000 favorable volume variance. What normal
capacity was used to determine the fixed overhead rate?
A. P 40,560 C. P 37,500
B. P 33,000 D. Cannot be determined without further
information