Section No.

4 Cost Accounting (1) Level 2

Tuesday 24/8/2021

Chapter 3 – Part 1
First: MCQs

1) Which of the following costs is inventoried when using absorption costing?

A) variable selling costs
B) fixed administrative costs
C) variable manufacturing costs
D) fixed selling costs
Answer: C

2) is a method of inventory costing in which all variable manufacturingcosts and

all fixed manufacturing costs are included as inventoriable costs.
A) Variable costing
B) Mixed costing
C) Absorption costing
D) Standard costing
Answer: C

3) Which of the following is true of absorption costing?

A) It expenses marketing costs as cost of goods sold.
B) It treats direct manufacturing costs as a period cost.
C) It includes fixed manufacturing overhead as an inventoriable cost.
D) It treats indirect manufacturing costs as a period cost.
Answer: C

4) Which of the following costs will be treated as period costs under absorptioncosting?
A) raw materials used in the production
B) sales commission paid on sale of product
C) depreciation on factory equipment
D) rent for factory building
Answer: B
Section No.4 Cost Accounting (1) Level 2
Tuesday 24/8/2021
5) AAA Manufacturing Inc, makes a product with the following costs per unit:
Direct materials $180
Direct labor $20
Manufacturing overhead (variable) $30
Manufacturing overhead (fixed) $130
Marketing costs $75

What would be the inventoriable cost per unit under absorption costing?
A) $350
B) $305
C) $360
D) $300
Answer: C
Explanation: Absorption costing: $180 + $20 + $30 + $130 = $360

6) Time Again LLC produces and sells a mantel clock for $100 per unit. In 2017, 41,000
clocks were produced and 37,000 were sold. Other information for the year includes:

Direct materials $42 per unit

Direct manufacturing labor $7 per unit
Variable manufacturing costs $4.00 per unit
Sales commissions $14.50 per part
Fixed manufacturing costs $64.00 per unit
Administrative expenses, all fixed $38.50 per unit

What is the inventoriable cost per unit using absorption costing?

A) $49.00
B) $53.00
C) $117.00
D) $106.00
Answer: C
Explanation: Absorption costing considers all variable manufacturing costs and all fixed
manufacturing costs as inventoriable costs. Therefore, in this case, direct materials, direct
manufacturing labor, variable manufacturing costs, and fixed manufacturing costs will be
considered as inventoriable cost. The total inventoriable cost = ($42 + $7 + $4.00 + $64.00) =
$117.00.
Section No.4 Cost Accounting (1) Level 2
Tuesday 24/8/2021

7) For 2017, Rockford, Inc., had sales of 150,000 units and production of 200,000units.
Other information for the year included:

Direct manufacturing labor $197,500

Variable manufacturing overhead 100,000
Direct materials 160,000
Variable selling expenses 100,000
Fixed administrative expenses 100,000
Fixed manufacturing overhead 250,000

There was no beginning inventory.

Required:
a. Compute the ending finished goods inventory under absorption costing.
b. Compute the cost of goods sold under absorption costing.

Answer:

a. Absorption
Direct materials $160,000
Direct manufacturing labor 197,500
Variable manufacturing overhead 100,000
Fixed manufacturing overhead 250,000
Total $707,500

Unit cost:
$707,500/200,000 units $3.5375

Ending inventory:
50,000 units × $3.5375 $176,875

b. Cost of goods sold:

150,000 × $3.5375 $530,625

8) The gross-margin format is used for .

A) variable costing income statement
B) mixed costing income statement
C) absorption costing income statement
D) standard costing income statement
Answer: C
Section No.4 Cost Accounting (1) Level 2
Tuesday 24/8/2021

9) Which of the following statements is true of gross-margin format of the income

statement?
A) It distinguishes between manufacturing and nonmanufacturing costs.
B) It distinguishes variable costs from fixed costs.
C) It is used for variable costing.
D) It calculates the contribution margin from sales.
Answer: A

10) Jean Peck's Furniture manufactures tables for hospitality sector. It takes only bulk
orders and each table is sold for $400 after negotiations. In the month of January, it
manufactures 3,200 tables and sells 2,400 tables. Actual fixed costs are the same as the
amount of fixed costs budgeted for the month.

The following information is provided for the month of January:

Variable manufacturing costs $130 per unit

Fixed manufacturing costs $90,000 per month
Fixed Administrative expenses $30,000 per month

At the end of the month Jean Peck's Furniture has an ending inventory of finished
goods of 800 units. The company also incurs a sales commission of $11 per unit.

What is the cost of goods sold per unit when using absorption costing?
A) $130.00
B) $101.87
C) $158.13
D) $169.13
Answer: C
Explanation: The variable manufacturing costs per unit is $130.
Fixed manufacturing costs attributable to 3,200 tables is $90,000. Therefore, the fixed
manufacturing cost per unit = ($90,000/3,200) = $28.13
The total cost of goods sold per unit = ($130.00 + $28.13) = $158.13
Section No.4 Cost Accounting (1) Level 2
Tuesday 24/8/2021

11) Charlassier Corporation manufactures and sells laptop computers and

uses standard costing. For the month of September there was no beginning
inventory, there were 3,000 units produced and 2,500 units sold. The
manufacturing variable cost per unit is $385 and the variable operating cost
per unit was $312.50. The fixed manufacturing cost is $450,000 and the
fixed operating cost is $75,000. The selling price per unit is $925.
Required:
Prepare the income statement for Charlassier Corporation for Septemberunder
absorption costing?

Answer:
Revenues (2,500 × $925) $2,312,500
Cost of Goods Sold
Beginning inventory $0

Variable manufacturing costs (3,000 × $385) 1,155,000

Fixed manufacturing costs 450,000
Cost of goods available for sale 1,605,000

Deduct ending inventory ( 500 × $535) (267,500)

Cost of goods sold 1,337,500

Gross margin 975,000

Variable operating costs (2500*$312.5) 781,250

Fixed operating costs 75,000

Operating income $118,750

Second: T& F
1) Under absorption costing, research and development costs are period costs.
Answer: TRUE

2) In absorption costing, fixed manufacturing overhead is treated as a period cost.

Answer: FALSE
Explanation: In absorption costing, fixed manufacturing overhead costs are inventoried.