MCQ: Instructions : . For each of the following question, select the most proper answer in your opinion. 1. A cost that would be included in product costs under both absorption costing and variable costing would be: a. supervisory salaries. b. equipment depreciation. c. variable manufacturing costs. d. variable selling expenses. 2. An allocated portion of fixed manufacturing overhead is included in product costs under: Absorption Variable costing costing a. No No b. No Yes c. Yes No d. Yes Yes : 3. The variable costing method ordinarily includes in product costs the following: a. Direct materials cost, -direct labor cost, but no manufacturing overhead cost. b. Direct materials cost, direct labor cost, and variable manufacturing overhead cost. c. Prime cost but not conversion cost. d. Prime cost and all conversion cost.4, A Company's fixed manufacturing overher. 100,000, and variable selling costs totalet a Costs totaleg variable costing, how should these costs be loaf Under led? Period costs Product costs a $0 $180,000 pb. $80,000 $100,000 c. $100,000 $80,000 d. $180,000 _ $0 5. What factor is the cause of the difference between net income as computed under absorption costing and net income as computed under variable costing? a. Absorption costing considers all manufacturing costs in the determination of net income, whereas variable costing considers only prime costs. b. Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories, and variable costing considers all fixed manufacturing costs as period costs. . c, Absorption costing includes all variable manufacturing costs in product costs, but variable costing considers variable manufacturing costs to be period costs. d. Absorption costing includes all fixed manufacturing costs in product costs, but variable costing expenses all fixed manufacturing costs. 6. Under variable costing, costs which are treated as Period costs include: a. only fixed manufacturing costs. b, both variable and fixed manufacturing costs. c. all fixed costs. : d. only fixed selling and administrative costs. - 7. Net income determined using full absorption costing can be reconciled to net income determined using variable costing by computing the difference between:a. Fixed manufacturing overhead costs deferred in or released from inventories. : b. Inventoried discretionary costs in ending inventories. c. Gross margin (absorption cos contribution margin (variable costing method). d. Sales as recorded under the variable costing method and sales as recorded under the absorption costing method. the beginning and ting method) and 8. Net income reported under absorption costing will exceed net income reported under variable costing for a given period if: a. production equals sales for that period. b. production exceeds sales for that period. c. sales exceed production for that period. d. the variable manufacturing overhead exceeds the fixed manufacturing overhead. 9. For the most recent year, a Company's net income computed by the absorption costing method was $7,400, and its net income computed by the variable costing method was $10,100. The company's unit product cost was $17 under variable costing and $22 under absorption costing. If the ending inventory consisted of 1,460 units, the beginning inventory must have been: a. 920 units. b. 1,460 units. ce. 2,000 units. d. 12,700 units.10. During the most recent year, Evans Company had a net income of $90,000 using absorption costing and $84,000 using variable costing. The fixed overhead application rate was $6 per unit. There were no beginning inventories. If 22,000 units were produced last year, then sales for last year were: a. 15,000 units. b- 21,000 units. , c. 23,000 units. d. 28,000 units. 11. During the year just ended, Roberts Company' income under absorption costing was $3,000 lower than its income under variable costing. The company sold 9,000 units during the year, and its variable costs were $9 per unit, of which $3 was variable selling expense. If production cost is $11 per unit under absorption costing every year, then how many units did the company produce during the year? a. 8,000. b. 10,000. c. 9,600. d. 8,400. 12. Last year, a Company's.variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true? a. Under variable costing, the units in the ending inventory will be costed at $4 each. b. The net income under absorption costing for the year will be $900 lower than the net income under variable costing. " ¢. The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing. da. Under absorption costing, the units in ending inventory will be costed at $2.50 each.Problem 1: For the current year, Marwan Company had sales of 75,000 units and production of 100,000 units. Other data for the year is shown below: Direct manufacturing labor $187,500 Variable manufacturing overhead 100,000 Direct materials 150,000 Variable selling expenses 100,000 Fixed administrative expenses 100,000 Fixed manufacturing overhead 200,000 There was no beginning inventory. Required: a. Calculate the ending finished goods inventory under both absorption and variable costing. b. Calculate the cost of goods sold under both absorption and variable costing. Answer: a. Absorption Variable _ Direct materials $150,000 $150,000 Direct manufacturing labor 187,500 187,500 Variable manufacturing overhead 100,000 100,000 Fixed manufacturing overhead 200,000 0 Total $637,500 $437,500 Unit costs: $637,500/100,000 units $6.375 $437,500/100,000 units $4.375 Ending inventory: 25,000 units x $6.375 $159,375 25,000 units x $4.375 $109,375 b. Cost of goods sold:Problem 2: A Company sells its products for $60 each. The actual production level is 2,500 units, which is the same as the budget. Only 2,000 units are actually sold, which is the same as budget. Unit manufacturing costs are: Direct materials $12.00 Direct manufacturing labor $18.00 Variable manufacturing costs $10.00 Total fixed manufacturing costs $20,000 (same as budget) Variable marketing costs $6.00 per unit $6,000 Fixed marketing costs Required: a. Prepare an income statement using absorption costing. b. Prepare an income statement using variable costing. Problem 3: A Company sells a special putter for $20 each. In March, it sold 28,000 putters while manufacturing 30,000. There was no beginning inventory on March 1. Production information for March was: Direct manufacturing labor per unit 15 minutes Fixed selling and administrative costs $ 40,000 Fixed manufacturing overhead 132,000 Direct materials cost per unit 2 Direct manufacturing labor per hour , 24 Variable manufacturing overhead per unit 4 Variable selling expenses per unit 2Problem 4: Problem 4: Mohamed Company prepared the following absorption-costing income statement for the year ended May 31 Sales (16,000 units) $320,000 Cost of goods sold - 216,000 Gross margin $104,000 Selling and administrative expenses 46,000 Operating income $58,000 Additional information follows: Selling and administrative expenses include $1.50 of variable cost per unit sold. There was no beginning inventory, and 17,500 units were produced. Variable manufacturing costs. were $11 per unit. Actual fixed costs were equal to budgeted fixed costs. ‘ Required: Prepare a variable-costing income statement for the same period. Problem 5: : The following data are available for a Company for the year ended September 30. Sales: 24,000 units at $50 each Expected and actual production: 30,000 units Manufacturing costs incurred: 4 Variable i $525,000 Fixed "$372,000 Nonmanufacturi ing costs incurred: Variable $144,800 Fixed $77,400Required: : ; 7 a. Determine operating income using the variable-costing approach. : . b. Determine operating income using the absorption-costing approach. c. Explain why operating income is not the same under the two approaches Problem 6: During a recent period, Salma Company produced 15,000 units and sold 10,000 at $15 each. The company had no beginning inventory. During this period the Company incurred the following costs for the current level of production. Unit costs should be calculated from the units produced. Direct materials $ 60,000 Direct labor 30,000 Fixed overhead 22,500 Variable overhead 15,000 Fixed selling & administrative 30,000 Variable selling & administrative 11,250 Required: 1.Prepare an income statement using absorption costing. 2.Prepare an income statement using variable costing. 3. Briefly explain the difference between the gross margin format and the contribution margin format for the income statement. What information is highlighted with each? Problem 7: Tarek Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $95 Units in beginning inventory 100 Units produced , 6,200 Units sold 5,900 Units in ending inventory 400Variable costs per unit: Direct materials $42 ' Direct labor 28, Variable manufacturing overhead = 1 Variable selling and administrative 5 Fixed costs: Fixed manufacturing overhead $62,000 Fixed selling and administrative 35,400 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have ” been constant from month to month. Required: a. What is the unit product cost for the month under variable costing? : b. What is the unit product cost for the month under absorption costing? : . c. Prepare an income statement for the month using the contribution format and the variable costing method. d. Prepare an income statement for‘ the month using the absorption costing method. : e. Reconcile the variable costing and absorption costing net incomes for the month. Problem 8: A Company produces and sells one product--a microwave oven. The following data refer to the year just completed: Beginning inventory $0 Units produced 25,000 Units sold 20,000 Sales price per unit $400 Selling and administrative expenses: Variable per unit . $s Fixed (total) $275,000 Manufacturing costs: Direct materials cost per unit so. Direct labor cost per unitVariable overhead cost per unit $30 Fixed overhead (total) $300,000 Assume that direct labor is a variable cost. Required: a. Calculate the cost of a single unit of product under both the absorption costing and variable costing approaches. b. Prepare an income statement for the year using absorption costing. c. Prepare an income statement for the year using variable costing. d. Reconcile the absorption costing and variable costing net income figures in (b) and (c) above. Answer a. Cost per unit under absorption costing: Direct materials $200 Direct labor 50 Variable overhead. 30 Fixed overhead.($300,000 + 25 000) 12 Total cost per unit $292 Cost per unit under variable costing: _ Direct materials. $200 Direct labor. 50 Variable overhead. 30 Total cost per unit $ 280 b. Absorption costing income statement: Sales $8,000,000 Cost of goods sold: Beginning inventory $ 0 Cost of goods anufactured (25,000 @ $292) 7,300,000 Cost of goods available.. 7,300,000 Less ending inventory (5,000 units @ $292) 5,840,000 Cost of goods sold: . 1,460,000 . 2,160,000 Gross profit Less selling and administrative expenses:[($15 x 20,000) + $275,000] 575,000 Net income c. Variable costing income statement: Sales $8,000,000 Varaibel costs: "Cost of goods sold: Beginning inventory $ 0 Cost of goods manufactured (25,000 @ $280) 7,000,000 Cost of goods available 7,000,000 Less ending inventory 1,400,000 (5,000 units @ $280) Variable cost of goods sold 5,600,000 Variable selling and admin. expenses: (20,000 x $15) _ _300,000 Total variable costs 5,900,000 Contribution margin * 2,100,000 Less fixed expenses: Manufacturing overhead. 300,000 Selling and administrative 275,000 - Total fixed costs * 575,000 _ Net income : 1,525,000 d. i Net income under variable costing. $1,525,000 Add fixed manufacturing overhead costs deferred in inventory under absorption costing (5,000 units sX $12) “60000. - Net i income under absorption costing $1 585,000 « Problem 9: A Company, which has only one product, has provided the foll6wing data concerning its most recent month of operations: 000). - " $112 ll Selling price 500 Units in beginning inventory. Units produced 2,800 ‘Units sold 2,900 Units in ending inventory 400 Variable cost. cr andl Direct materials. $37 Direct labor. 19 Variable manufacturing overhead 7 5 Variable selling and administrative Fixed costs Fixed manufacturing overhead $109,200 Fixed selling and administrative 5,800 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month: Required: a. What is the unit product cost for the month under variable costing? b. Prepare an income statement for the month using the contribution format and the variable costing method. c. Without preparing an income statement, determine the absorption costing net income for the month. (Hint: Use the reconciliation method.) Problem 10: The follwing data is obtained from Mark Curry Company for two consecutive yéars. ; Selling price per unit $50 Manufacturing costs:Variable per unit produced: Direct materials Sil Direct labor $6 Variable overhead $3 Fixed per year $120,000 Selling and administrative costs: , Variable per unit sold $4 Fixed per year $70,000 The physical flow of units for the 2 years as follows Yearl Year2 Units in beginning inventory 0 2,000 Units produced during the year 10,000 6,000 Goods available for sale 10,000 8,000 Units sold during the year 8,000 8,000 Units in ending inventory 2,000 0 Required: 1. Assume the company uses absorption costing. a. Compute the unit product cost in each year. b. Prepare an income statement for each year. 2. Assume the company uses variable costing. a. Compute the unit product cost in each year. b. Prepare an income statement for each year. 3. Reconcile the variable costing and absorption costing net operating incomes Answer lia Unit cost Absorption costing Year1 Year2 $il sil Direct materialsProblem 11: Tanta Motors manufactures and sells one product. The following information pertains to the company's first year of operations: Variable costs per unit: Direct materials....... ee ee $91 Fixed costs per year: Direct labor $420,000 Fixed manufacturing ov: +. $2,100,000 Fixed selling and administrative... $874,000 The company does not have any variable manufacturing overhead costs or variable selling and administrative costs. During its first year of operations, the company produced 30,000 units and sold 23,000 units. The company's only product is sold for $239 per unit. Required: : a. Assume the company uses throughput (super-variable) costing. Compute the unit product cost for the year and prepare an income statement for the year. b. Assume that the company uses an absorption costing system that assigns $14 of direct labor cost and $70 of fixed manufacturing overhead to each unit that is produced. Compute the unit product cost for the year and prepare an — income statement for the year. c, Prepare a reconciliation that explains the difference between . the throughput (super-variable) costing and absorption costing net incomes.problem 12: —_———. . Grand Corporation manufactures and sells one product. The following information pertains to the company's first year of operations: Variable costs per unit: Direct materials... $98 Fixed costs per year: Direct labor .... 5s sagedererenens $460,000 Fixed manufacturing overhead .. $1,633,000 Fixed selling and administrative. $672,000 The company does not have any variable manufacturing overhead costs or variable selling and administrative costs. During its first year of operations, the company produced 23,000 units and sold 21,000 units. The company's only product is sold for $254 per unit. Required: a. Assume the company uses throughput (super-variable) costing. Compute the unit product cost for the year and prepare an income statement for the year. b. Assume that the company uses a variable costing system that assigns $20 of direct labor cost to each unit that is produced. Compute the unit product cost for the year and prepare an income statement for the year. c. Assume that the company uses an absorption costing system that assigns $20 of direct labor cost and $71 of fixed manufacturing overhead to each unit that is produced. Compute the unit product cost for the year and prepare an income statement for the year. d. Prepare a reconciliation that explains the difference between the throughput (super-variable) costing and variable costing " net incomes. ‘ e. Prepare a reconciliation that explains the difference between the throughput (super-variable) costing and absorption costing het incomes.Problem 13: Calder Corporation manufactures and sells one product. The following information pertains to the company's first year of operations: Variable costs per unit: Direct materials .... $92 Fixed costs per year" Direct labor... $720,000 Fixed manufacturing overhead... $3,264,000 Fixed selling and administrative... ~ $1,935,000 The company does not have any variable manufacturing overhead costs or variable selling and administrative costs. _ During its first year of operations, the company produced 48,000 units and sold 45,000 units. The company's only product is sold for $258 per unit. Required: a. Assume the company uses throughput (super-variable) costing. Compute the unit product cost for the year. b. Assume the company uses throughput (super-variable) _ costing. Prepare an income statement for the year. Problem 14: i The variable manufacturing costs per unit for Nasser Company are as follows: ‘April May Direct materials cost per unit $6,700 $6,700 Direct manufacturing labor cost per unit 1,500 2,500 Manufacturing overhead cost per unit 1,800 1,800 Required: : Prepare a comparative income statement for April and MayProblem 15: Problem TS: An Enterprises produces a specialty statue item. The following information has been provided by management: Actual sales 150,000 units Budgeted production 160,000 units Selling price $34 per unit Direct manufacturing costs $9 per unit Fixed manufacturing costs $5 per unit Variable manufacturing costs $4 per unit Variable administrative costs $2 per unit Required: a. What is the cost per statue if absorption costing is used? b. What is the cost per statue if "super-variable costing" is ‘used? ; c. What is the total throughput contribution? Problem 16: Bobby Smith and Sons Company was concerned that increased sales did not result in increased profits for 20x3. Both variable unit and total fixed manufacturing costs for 20x2 and 20x3 remained constant at $20 and $2,000,000, respectively. In 20x2, the company produced 100,000 units and sold 80,000 units at a price of $50 per unit. There was no beginning inventory in 20x2. In 20x3, the company made 70,000 units and sold 90,000 units at a price of $50. Selling and administrative expenses were all fixed at $100,000 each year. Required: . a. Prepare income statements for each year using absorption Costing. b. Prepare income statements for each year using variable Costing.c. Explain why the income was different each year using the two methods. Show computations. Problem 17: Megredy Company prepared the following absorption-costing income statement for the year ended May 31, 20x4. Sales (16,000 units) ' $320,000 Cost of goods sold 216,000 Gross margin $104,000 Selling and administrative expenses 46,000 Operating income $ 58,000 Additional information follows: Selling and administrative expenses include $1.50 of variable cost per unit sold. There was no beginning inventory, and 17,500 units were produced. Variable manufacturing costs -were $11 per unit. Actual fixed costs were equal to budgeted fixed costs. Required: Prepare a variable-costing income statement for the same period. True or False questions Instructions: For each of the following questions, indicate whether the statement is true (T) or false (F). 1. In the preparation of financial statements using variable costing, fixed manufacturing overhead is treated as a period cost. 2. Direct labor is always considered to be a product cost under variable costing. hie 3.Under variable costing, the unit product cost contains some fixed manufacturing overhead cost.r 4. Under variable costing it may be possible to report a rofit even if the company sells less than the break-even volume of sales. . 5, Under variable costing, the impact of fixed cost is emphasized because the total amount of such cost for the eriod appears in the income statement. 6.Absorption costing treats fixed manufacturing overhead as a period cost, rather than as a product cost. 7.The unit product cost under absorption costing contains no element of fixed manufacturing overhead cost. g.Absorption costing treats all manufacturing costs as product costs. 9, When the number of units in work in process and finished goods inventories increase, absorption costing net income will typically be greater than variable costing net income. 10.When sales exceed production for a period, absorption costing net income will generally be greater than variable costing net income. 11.Absorption costing net income is closer to the net cash flow of a period than is variable costing net income. 12. Variable costing is not permitted for income tax purposes, but it is widely accepted for external financial reports. 13.Net income is not affected by changes in production when absorption costing is used. 14.When JIT methods are introduced, the difference in net income computed under the absorption and variable costing methods is reduced. 15. Since variable costing emphasizes costs by behavior, it works well with cost-volume-profit analysis. 16.Throughput (super-variable) costing is a costing method that treats direct labor and manufacturing overhead costs as period costs and includes only direct materials cost in unit Product costs. 17.All differences between throughput (super-variable) Costing and absorption costing net operating income are explained by the accounting for direct materials costs. 18.The throughput (super-variable) costing net operating income period can be computed by multiplying the number Of units sold by the contribution margin per unit and then