Managerial Accounting 14Th Edition Warren Test Bank Full Chapter PDF

Managerial Accounting 14th Edition
Warren Test Bank

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Chapter 6 - Variable Costing for Management Analysis
1. In determining cost of goods sold, two alternate costing concepts can be used: absorption costing and variable costing.
a. True
b. False
ANSWER: True
DIFFICULTY: Bloom's: Remembering
Easy
LEARNING OBJECTIVES: MANG.WARD.18.06-01 - 06-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs
ACCT.IMA.07 - Cost Management
BUSPROG: Analytic
2. In determining cost of goods sold, two alternate costing concepts can be used: direct costing and variable costing.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
BUSPROG: Analytic
3. Fixed factory overhead costs are included as part of the cost of products manufactured under the absorption costing
concept.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
4. Under absorption costing, the cost of finished goods includes direct materials, direct labor, and all factory overhead.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
5. Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable factory
overhead.
Copyright Cengage Learning. Powered by Cognero. Page 1
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
6. In variable costing, the cost of products manufactured is composed of only those manufacturing costs that increase or
decrease as the volume of production rises or falls.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
7. In variable costing, fixed costs do not become part of the cost of goods manufactured, but are considered an expense of
the period.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
8. Variable costing is also known as direct costing.

a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
9. Property taxes on a factory building would be included as part of the cost of products manufactured under the
absorption costing concept.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
BUSPROG: Analytic
10. The taxes on the factory superintendent's salary would be included as part of the cost of products manufactured under
the variable costing concept.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
11. The factory superintendent's salary would be included as part of the cost of products manufactured under the
absorption costing concept.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
12. Electricity purchased to operate factory machinery would be included as part of the cost of products manufactured
under the absorption costing concept.
a. True
b. False
ANSWER: True
DIFFICULTY: Challenging
BUSPROG: Analytic
13. The absorption costing income statement does not distinguish between variable and fixed costs.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
14. In the absorption costing income statement, deduction of the cost of goods sold from sales yields gross profit.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
15. In the absorption costing income statement, deduction of the cost of goods sold from sales yields contribution margin.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
ACCREDITING STANDARDS: ACCT.ACBSP.APC.30 - Contribution Margin
BUSPROG: Analytic
16. In the absorption costing income statement, deduction of the cost of goods sold from sales yields net profit.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
17. On the variable costing income statement, deduction of the variable cost of goods sold from sales yields gross profit.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
18. On the variable costing income statement, deduction of the variable cost of goods sold from sales yields
manufacturing margin.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
19. On the variable costing income statement, all of the fixed costs are deducted from the contribution margin.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
20. On the variable costing income statement, variable selling and administrative expenses are deducted from
manufacturing margin to yield contribution margin.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
21. On the variable costing income statement, variable costs are deducted from contribution margin to yield
manufacturing margin.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
22. On the variable costing income statement, the amounts representing the difference between the contribution margin
and income from operations is the fixed manufacturing costs and fixed selling and administrative expenses.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
23. The contribution margin and the manufacturing margin are usually equal.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
24. For a period during which the quantity of inventory at the end was larger than that at the beginning, income from
operations reported under variable costing will be larger than income from operations reported under absorption costing.
a. True
b. False
ANSWER: False
ACCREDITING STANDARDS: ACCT.ACBSP.APC.27 - Managerial Accounting Features/Costs
BUSPROG: Analytic
25. For a period during which the quantity of inventory at the end was larger than that at the beginning, income from
operations reported under variable costing will be smaller than income from operations reported under absorption costing.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
26. For an accounting period during which the quantity of inventory at the end was smaller than the quantity at the
beginning, income from operations reported under variable costing will be larger than income from operations reported
under absorption costing.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
27. For a period during which the quantity of inventory at the end was smaller than that at the beginning, income from
a. True
b. False
ANSWER: False
BUSPROG: Analytic
28. For a period during which the quantity of inventory at the end equals the inventory at the beginning, income from
a. True
b. False
ANSWER: False
BUSPROG: Analytic
29. For a period during which the quantity of inventory at the end equals the inventory at the beginning, income from
operations reported under variable costing will equal income from operations reported under absorption costing.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
30. For a period during which the quantity of product manufactured exceeded the quantity sold, income from operations
reported under absorption costing will be smaller than income from operations reported under variable costing.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
31. For a period during which the quantity of product manufactured exceeded the quantity sold, income from operations
reported under absorption costing will be larger than income from operations reported under variable costing.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
32. For a period during which the quantity of product manufactured was less than the quantity sold, income from
operations reported under absorption costing will be larger than income from operations reported under variable costing.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
33. For a period during which the quantity of product manufactured was less than the quantity sold, income from
operations reported under absorption costing will be smaller than income from operations reported under variable costing.
a. True

b. False
ANSWER: True
BUSPROG: Analytic
34. For a period during which the quantity of product manufactured equals the quantity sold, income from operations
reported under absorption costing will equal the income from operations reported under variable costing.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
35. For a period during which the quantity of product manufactured equals the quantity sold, income from operations
reported under absorption costing will be smaller than the income from operations reported under variable costing.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
36. What term is commonly used to describe the concept whereby the cost of manufactured products is composed of
direct materials cost, direct labor cost, and all factory overhead cost?
a. Standard costing
b. Variable costing
c. Absorption costing
d. Marginal costing
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic

37. What term is commonly used to describe the concept whereby the cost of manufactured products is composed of
direct materials cost, direct labor cost, and variable factory overhead cost?
a. Absorption costing
b. Differential costing
c. Standard costing
d. Variable costing
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
38. Another name for variable costing is:

a. indirect costing
b. process costing
c. direct costing
d. differential costing
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
39. Under absorption costing, which of the following costs would not be included in finished goods inventory?
a. direct labor cost
b. direct materials cost
c. variable and fixed factory overhead cost
d. variable and fixed selling and administrative expenses
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
40. Under absorption costing, which of the following costs would not be included in finished goods inventory?
a. hourly wages of assembly worker
b. straight-line depreciation on factory equipment
c. overtime wages paid to factory workers
d. the salaries for salespeople
ANSWER: d
BUSPROG: Analytic
41. Under variable costing, which of the following costs would not be included in finished goods inventory?
a. direct labor cost
b. direct materials cost
c. variable factory overhead cost
d. fixed factory overhead cost
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
42. Under variable costing, which of the following costs would be included in finished goods inventory?
a. neither variable nor fixed factory overhead cost
b. both variable and fixed factory overhead cost
c. only variable factory overhead cost
d. only fixed factory overhead cost
ANSWER: c
BUSPROG: Analytic
43. Under variable costing, which of the following costs would be included in finished goods inventory?
a. salary of salesperson
b. salary of vice-president of finance
c. wages of carpenters in a furniture factory
d. straight-line depreciation on factory equipment
ANSWER: c
BUSPROG: Analytic
44. Under variable costing, which of the following costs would not be included in finished goods inventory?
a. wages of machine operator
b. steel costs for a machine tool manufacturer
c. salary of factory supervisor
d. electricity used by factory machinery
ANSWER: c
BUSPROG: Analytic
45. Which of the following would be included in the cost of a product manufactured according to absorption costing?
a. advertising expense
b. sales salaries
c. depreciation expense on factory building
d. office supplies costs
ANSWER: c
BUSPROG: Analytic
46. Which of the following would be included in the cost of a product manufactured according to variable costing?
a. sales commissions
b. office supply costs
c. interest expense
d. direct materials
ANSWER: d
BUSPROG: Analytic
47. On the variable costing income statement, the figure representing the difference between manufacturing margin and
contribution margin is the:
a. fixed manufacturing costs
b. variable cost of goods sold
c. fixed selling and administrative expenses
d. variable selling and administrative expenses
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
48. In the variable costing income statement, deduction of variable selling and administrative expenses from
manufacturing margin yields:
a. differential margin
b. contribution margin
c. gross profit
d. marginal expenses
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
49. The amount of income under absorption costing will equal the amount of income under variable costing when units
manufactured:
a. exceed units sold
b. equal units sold
c. are less than units sold
d. are equal to or greater than units sold
ANSWER: b
BUSPROG: Analytic
50. The amount of income under absorption costing will be less than the amount of income under variable costing when
units manufactured:
b. equal units sold
ANSWER: c
BUSPROG: Analytic
51. Which of the following statements is correct using the direct costing concept?
a. All manufacturing costs are included in the calculation of cost of goods manufactured.
b. Only fixed costs are included in the calculation of cost of goods manufactured while variable costs are
considered period costs.
c. Only variable manufacturing costs are included in the calculation of cost of goods manufactured while fixed
costs are considered period costs.
d. All manufacturing costs are considered period costs.
ANSWER: c
BUSPROG: Analytic
52. The amount of income under absorption costing will be more than the amount of income under variable costing when
units manufactured:
b. equal units sold
ANSWER: a
BUSPROG: Analytic
53. Philadelphia Company has the following information for March:
Sales $450,000
Variable cost of goods sold 240,000
Fixed manufacturing costs 70,000
Variable selling and administrative expenses 52,000
Fixed selling and administrative expenses 35,000
Determine the March (a) manufacturing margin, (b) contribution margin, and (c) income from operations for Philadelphia
Company.
ANSWER:
(a)
(b)
(c)
Bloom's: Applying

BUSPROG: Analytic
54. Tony's Company has the following information for March:
Sales $1,000,000
Fixed manufacturing costs 170,000
Fixed selling and administrative expenses 100,000
Determine the March (a) manufacturing margin, (b) contribution margin, and (c) income from operations for Tony's
Company.
ANSWER:
(a)
(b)
(c)
Bloom's: Applying
BUSPROG: Analytic
55. On January 1 of the current year, Townsend Co. commenced operations. It operated its plant at 100% of capacity
during January. The following data summarized the results for January:
Units
Production 50,000
Sales ($18 per unit) 42,000
Inventory, January 31 8,000
Manufacturing costs:
Variable $575,000
Fixed 80,000
Total $655,000
Selling and administrative expenses:

Variable $ 35,000
Fixed 10,500
Total $ 45,500
(a) Prepare an income statement using absorption costing.

(b) Prepare an income statement using variable costing.
ANSWER: (a)
Townsend Co.
Absorption Costing Income Statement
For Month Ended January 31, 20--
Sales $756,000
Cost of goods sold:
Cost of goods manufactured $655,000
Less inventory, January 31, 20-- 104,800
Cost of goods sold 550,200
Gross profit $205,800
Less selling and administrative expenses 45,500
Income from operations $160,300
(b)
Townsend Co.
Variable Costing Income Statement
For Month Ended January 31, 20--
Sales $756,000
Variable cost of goods sold:
Variable cost of goods manufactured $575,000
Less inventory, January 31, 20-- 92,000
Manufacturing margin $273,000
Variable selling and administrative expense 35,000
Contribution margin $238,000
Fixed costs:
Fixed manufacturing costs $ 80,000
Fixed selling and administrative expenses 10,500 (90,500)
Bloom's: Applying
BUSPROG: Analytic
56. On October 31, the end of the first month of operations, Morristown & Co. prepared the following income statement
based on absorption costing:
Morristown & Co.
Absorption Costing Income Statement
For Month Ended October 31, 20-
Sales (2,600 units) $117,000
Cost of goods sold:
Cost of goods manufactured $85,500
Less ending inventory (400 units) 11,400
Gross profit $ 42,900
Selling and administrative expenses 21,500
Income from operations $ 21,400
If the fixed manufacturing costs were $42,900 and the variable selling and administrative expenses were $14,600, prepare
an income statement using variable costing.
ANSWER:
Morristown & Co.
For Month Ended October 31, 20-
Sales $117,000
Less ending inventory
(400 units × $14.20) 5,680
Manufacturing margin $ 80,080
Contribution margin $ 65,480
Fixed costs:
Fixed manufacturing costs $42,900
Fixed selling and administrative expenses 6,900 49,800
Computations:
Variable cost of goods manufactured:
Unit cost of ending inventory:

$42,600 variable cost of goods manufactured
= $14.20
3,000 units manufactured
Fixed selling and admin. expenses:

Bloom's: Applying
BUSPROG: Analytic
57. Fixed costs are $10 per unit and variable costs are $25 per unit. Production was 13,000 units, while sales were 12,000
units. Determine (a) whether variable costing income from operations is less than or greater than absorption costing
income from operations, and (b) the difference in variable costing and absorption costing income from operations.
ANSWER: (a) Variable costing income from operations is less than absorption
cost income from operations.
(b)
Bloom's: Applying
BUSPROG: Analytic
58. Fixed costs are $50 per unit and variable costs are $125 per unit. Production was 130,000 units, while sales were
125,000 units. Determine (a) whether variable costing income from operations is less than or greater than absorption
costing income from operations, and (b) the difference in variable costing and absorption costing income from operations.
ANSWER: (a) Variable costing income from operations is less than absorption
cost income from operations.
(b)
Bloom's: Applying
BUSPROG: Analytic
59. At EOM Inc., the beginning inventory is 20,000 units. All of the units manufactured during the period and 16,000
units of the beginning inventory were sold. The beginning inventory fixed costs are $50 per unit, and variable costs are
$300 per unit. Determine (a) whether variable costing income from operations is less than or greater than absorption
costing income from operations, and (b) the difference in variable costing and absorption income from operations.
ANSWER: (a) Variable costing income from operations is greater than absorption
costing income from operations.
(b)
Bloom's: Applying
BUSPROG: Analytic
60. The beginning inventory is 5,000 units. All of the units manufactured during the period and 3,000 units of the
beginning inventory were sold. The beginning inventory fixed costs are $25 per unit, and variable costs are $55 per unit.
Determine (a) whether variable costing income from operations is less than or greater than absorption costing income
from operations, and (b) the difference in variable costing and absorption income from operations.
ANSWER: (a) Variable costing income from operations is greater than absorption
costing income from operations.
(b)
Bloom's: Applying
BUSPROG: Analytic
a. Absorption costing only

b. Variable costing only
c. Both absorption and variable costing
Moderate
MANG.WARD.18.06-02 - 06-02
MANG.WARD.18.06-03 - 06-03
BUSPROG: Analytic

61. Treats fixed selling cost as a period cost.
ANSWER: c
62. Required by generally accepted accounting principles.

ANSWER: a
63. Treats fixed manufacturing cost as a period cost.

ANSWER: b
64. Operating income is impacted by changes in inventory level.

ANSWER: a
65. Generally provides the most useful report for controlling costs.
ANSWER: b
66. Generally provides the most useful report for setting long-term prices.
ANSWER: a
67. May be used in a manufacturing company.

ANSWER: c
68. Includes gross profit on the income statement.

ANSWER: a
69. Changes in the quantity of finished goods inventory, caused by differences in the levels of sales and production,
directly affect the amount of income from operations reported under absorption costing.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
70. Under absorption costing, the amount of income reported from operations can be increased by producing more units
than are sold.
a. True
b. False
ANSWER: True
BUSPROG: Analytic

71. Under absorption costing, increases or decreases in income from operations due to changes in inventory levels could
be misinterpreted to be the result of operating efficiencies or inefficiencies.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
72. The level of inventory of a manufactured product has increased by 7,000 units during a period. The following data are
also available:
Variable Fixed
Unit manufacturing costs of the period $12.00 $6.00
Unit operating expenses of the period 4.00 1.50
What would be the effect on income from operations if absorption costing is used rather than variable costing?
a. $42,000 decrease
b. $42,000 increase
c. $52,500 increase
d. $52,500 decrease
ANSWER: b
RATIONALE: Under variable costing, only variable manufacturing costs are included in the cost of the
product manufactured, whereas under absorption costing, both variable and fixed
manufacturing costs are included in the cost of the product manufactured. Therefore, if
absorption costing is used and the inventory level increases by 7,000 units, income from
operations would increase by $6 × 7,000 units = $42,000.
DIFFICULTY: Bloom's: Applying

Moderate
BUSPROG: Analytic
also available:
Variable Fixed
What would be the effect on income from operations if variable costing is used rather than absorption costing?
a. $80,000 decrease
b. $80,000 increase
c. $104,000 decrease
d. $104,000 increase
ANSWER: a
manufacturing costs are included in the cost of the product manufactured. Therefore,
if variable costing is used and the inventory level increases by 8,000 units, income from
operations would decrease by $10 × 8,000 units = $80,000.
Moderate
BUSPROG: Analytic
74. S&P Enterprises sold 10,000 units of inventory during a given period. The level of inventory of the manufactured
product remained unchanged. The manufacturing costs were as follows:
Variable Fixed
Which of the following statements is true?
a. Net income will be the same under both variable and absorption costing.
b. Net income under variable costing will be $45,000 less than net income under absorption costing
c. Net income under absorption costing will be $40,000 more than under variable costing.
d. The difference in net income cannot be determined.
ANSWER: a
RATIONALE: As the level of inventory of the manufactured product remained unchanged, the number
of units manufactured is equal to the number of units sold. Therefore, the income from
operations will remain the same under both variable and absorption costing.
Moderate
BUSPROG: Analytic
also available:
Variable Fixed
a. $80,000 decrease
b. $80,000 increase
c. $104,000 increase
d. $104,000 decrease
ANSWER: b

RATIONALE: Under absorption costing, both variable and fixed manufacturing costs are included in the
cost of the product manufactured, whereas under variable costing, only variable
absorption costing is used and the inventory level increases by 8,000 units, income
from operations would increase by $10 × 8,000 units = $80,000.
Moderate
BUSPROG: Analytic
also available:
Variable Fixed
What would be the effect on income from operations if variable costing is used rather than absorption costing?
a. $50,000 decrease
b. $50,000 increase
c. $65,000 increase
d. $65,000 decrease
ANSWER: a
variable costing is used and the inventory level increases by 5,000 units, income from
operations would decrease by $10 × 5,000 units = $50,000.
Moderate
BUSPROG: Analytic
also available:
Variable Fixed
a. $44,000 decrease
b. $44,000 increase
c. $64,000 increase
d. $64,000 decrease
ANSWER: b
RATIONALE: Under absorption costing, both variable and fixed manufacturing costs are included in the
cost of the product manufactured, whereas under variable costing, only variable
absorption costing is used and the inventory level increases by 4,000 units, income
from operations would increase by $11 × 4,000 units = $44,000.
Moderate
BUSPROG: Analytic
78. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (20,000 units):
Direct materials $180,000
Direct labor 240,000
Variable factory overhead 280,000
Fixed factory overhead 100,000 $800,000
Operating expenses:
Variable operating expenses $130,000
Fixed operating expenses 50,000 180,000
If 1,600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the
variable costing balance sheet?
a. $64,000
b. $56,000
c. $66,400
d. $78,400
ANSWER: b
RATIONALE: Cost of the finished goods inventory reported = $35* × 1,600 units = $56,000
Total Cost Number of Unit Cost
Units
Direct materials $180,000 20,000 $ 9
Direct labor 240,000 20,000 12
Variable factory overhead 280,000 20,000 14
Total variable manufacturing $700,000 $35*

costs

Moderate

BUSPROG: Analytic
Direct materials $ 80,000
Operating expenses:
Variable operating expenses $ 65,000
absorption costing balance sheet?
a. $38,000
b. $40,500
c. $34,000
d. $47,000
ANSWER: a
Total Cost Number of Units Unit Cost
Direct materials $ 80,000 10,000 $8
Direct labor 120,000 10,000 12
Fixed factory overhead 40,000 10,000 4
Total $380,000 $38*

Moderate
BUSPROG: Analytic
Operating expenses:
variable costing balance sheet?
a. $62,500
b. $73,500
c. $60,000
d. $52,500
ANSWER: d
Direct materials $180,000 20,000 $9
Direct labor 240,000 20,000 12
costs

Moderate
ACCREDITING STANDARDS ACCT.ACBSP.APC.27 - Managerial Accounting Features/Costs
: ACCT.IMA.07 - Cost Management
BUSPROG: Analytic
Direct materials $ 80,000
Operating expenses:
If 600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the
a. $24,300
b. $28,200
c. $22,800
d. $34,000
ANSWER: c
RATIONALE: Cost of the finished goods inventory reported = $38* × 600 units = $22,800
Direct labor 120,000 10,000 12
Total $380,000 $38*

Moderate
BUSPROG: Analytic
Direct labor 85,000
Operating expenses:
If 75 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the
a. $5,625
b. $5,250
c. $5,760
d. $6,210
ANSWER: a
Manufacturing costs: Total Cost Number of Units Unit Cost
Direct labor 85,000 2,500 34
Total $187,500 $75*

Moderate
BUSPROG: Analytic
Operating expenses:

If 500 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable
costing balance sheet?
a. $41,500
b. $36,000
c. $42,800
d. $38,500
ANSWER: b
Direct labor 360,000 10,000 36
costs

Moderate
BUSPROG: Analytic
Direct labor 40,000
Operating expenses:
If 2,000 units remain unsold at the end of the month and sales total $300,000 for the month, what would be the amount of
income from operations reported on the variable costing income statement?
a. $100,800
b. $100,000
c. $114,800
d. $140,000
ANSWER: b
RATIONALE: Variable Costing Income Statement
Sales (10,000 units – 2,000 units = 8,000 $300,000
units)
Variable cost of goods manufactured (10,000 $200,000
× $20*)
Less ending inventory (2,000 × $20*) 40,000
Variable operating expenses 34,000
Fixed costs:
Fixed factory overhead $ 4,000
Number of
Total Cost Units Unit Cost
Production costs:
Direct materials $140,000 10,000 $14.00
Direct labor 40,000 10,000 4.00
Variable factory overhead 20,000 10,000 2.00
Total $200,000 $20.00*

Moderate
BUSPROG: Analytic
Direct labor 20,000
Operating expenses:
If 1,000 units remain unsold at the end of the month and sales total $150,000 for the month, what would be the amount of
income from operations reported on the absorption costing income statement?
a. $50,400
b. $70,000
c. $52,000
d. $68,400
ANSWER: a
RATIONALE: Absorption Costing Income Statement
Sales (5,000 units – 1,000 units = 4,000 units) $150,000
Cost of goods sold:
Cost of goods manufactured
(5,000 units × $20.40*) $102,000

Less ending inventory (1,000 units × $20.40*) 20,400
Gross profit $ 68,400
Operating expenses($17,000 + $1,000) 18,000

Production costs:
Direct materials $ 70,000 5,000 $14.00
Direct labor 20,000 5,000 4.00
Fixed factory overhead 2,000 5,000 0.40
Total $102,000 $20.40*
Operating expenses:
Variable operating expenses $ 17,000 5,000 $ 3.40**
Fixed operating expenses 1,000
Total $ 18,000

Moderate
BUSPROG: Analytic
Direct labor 40,000
Operating expenses:
If 2,000 units remain unsold at the end of the month and sales total $300,000 for the month, what is the amount of the
manufacturing margin that would be reported on the variable costing income statement?
a. $104,000
b. $106,000
c. $140,000
d. not reported
ANSWER: c
Variable cost of goods manufactured
$200,000
(10,000 × $20*)


Production costs:
Direct labor 40,000 10,000 4
Total $200,000 $20*

Moderate
BUSPROG: Analytic
Direct labor 20,000
Operating expenses:
manufacturing margin that would be reported on the absorption costing income statement?
a. $50,000
b. $54,000
c. not reported
d. $70,000
ANSWER: c
BUSPROG: Analytic
Direct labor 20,000
Operating expenses:
contribution margin that would be reported on the variable costing income statement?
a. $51,400
b. $52,000
c. $54,000
d. $53,000
ANSWER: d
$100,000
(5,000 × $20*)

Production costs:
Direct materials $ 70,000 5,000 $14.00
Direct labor 20,000 5,000 4.00
Total $100,000 $20.00*
Operating expenses:
Variable operating expenses $ 17,000 5,000 $ 3.40

Moderate
ACCREDITING STANDARDS ACCT.ACBSP.APC.30 - Contribution Margin
BUSPROG: Analytic
89. A business operated at 100% of capacity during its first month, with the following results:
Sales (160 units) $160,000
Production costs (200 units):
Direct labor 20,000
Fixed factory overhead 4,000 134,000
Operating expenses:
What is the amount of the manufacturing margin that would be reported on the variable costing income statement?
a. $30,000
b. $38,000
c. $56,000
d. $44,000
ANSWER: c
Sales (160 units) $160,000
$130,000
(200 × $650*)
Less ending inventory (40 × $650*) 26,000

Production costs:
Direct materials $100,000 200 $500
Direct labor 20,000 200 100
Variable factory overhead 10,000 200 50
Total $130,000 $650*

Moderate
BUSPROG: Analytic
A business operated at 100% of capacity during its first month, with the following results:
Sales (90 units) $90,000
Production costs (100 units):
Direct labor 20,000
Fixed factory overhead 7,000 69,000
Operating expenses:
90. What is the amount of the contribution margin that would be reported on the variable costing income statement?
a. $34,200
b. $20,200
c. $29,700
d. $26,200
ANSWER: d
Sales (90 units × $1,000) $90,000
Variable cost of goods manufactured
$62,000
(100 × $620*)
Total Cost Number of Unit Cost

Units
Production costs:
Total $62,000 $620*

Moderate
BUSPROG: Analytic
91. What is the amount of the income from operations that would be reported on the variable costing income statement?
a. $18,900
b. $18,200
c. $18,000
d. $21,000
ANSWER: b
Sales (90 units × $1,000) $90,000
$62,000
(100 × $620*)
Fixed costs:
Fixed factory overhead $ 7,000


Production costs:
Total $62,000 $620*
Moderate
BUSPROG: Analytic
92. What is the amount of the income from operations that would be reported on the absorption costing income statement?
a. $21,000
b. $18,900
c. $18,200
d. $27,900
ANSWER: b
Sales (90 units × $1,000) $90,000
Cost of goods sold:
$69,000
(100 units × $690*)
Less ending inventory (10 units × $690*) 6,900
Operating expenses ($8,000 + $1,000) 9,000

Production costs:
Fixed factory overhead 7,000 100 70
Total $69,000 $690*
Operating expenses:
Variable operating expenses 8,000 100 $80
Fixed operating expenses 1,000
Total $ 9,000

Moderate
BUSPROG: Analytic
93. What is the amount of the gross profit that would be reported on the absorption costing income statement?
a. $21,000
b. $18,900
c. $27,900
d. $18,000
ANSWER: c
Sales (90 units) $90,000
Cost of goods sold:
Cost of goods manufactured (100 units × $690*) $69,000
Less ending inventory (10 units × $690*) 6,900

Production costs:
Fixed factory overhead 7,000 100 70
Total $69,000 $690*

Moderate
BUSPROG: Analytic
94. Accountants prefer the variable costing method over absorption costing method for evaluating the performance of a
company because
a. by using the absorption costing method, income could appear to be higher by producing more inventory.
b. by using the absorption costing method, income could appear to be lower by producing more inventory.
c. by using the variable costing method, the cost of goods sold will be higher as more units are manufactured and
sales remain the same.
d. by using the variable costing method, all fixed and variable costs are included in the unit cost of the product
manufactured.
ANSWER: a
BUSPROG: Analytic
95. Under which inventory costing method could increases or decreases in income from operations be misinterpreted to be
the result of operating efficiencies or inefficiencies?
a. only variable costing
b. only absorption costing
c. both variable and absorption costing
d. neither variable nor absorption costing
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
96. Presented below are the major categories or captions that would appear on an income statement prepared in the
variable costing format:
Contribution margin
Fixed costs
Income from operations
Manufacturing margin
Sales
Variable cost of goods sold
Variable selling and administrative expenses
(a) Arrange the above captions in the proper order in accordance with the variable
costing concept.
(b) Which of the captions represents (1) the difference between sales and the total of all
the variable costs and expenses and (2) the remaining amount of revenue available
for fixed manufacturing costs, fixed expenses, and net income?
ANSWER: (a) Sales
Variable cost of goods sold
Manufacturing margin
Variable selling and administrative expenses
Contribution margin
Fixed costs
Income from operations
(b) (1) Contribution margin
(2) Contribution margin
DIFFICULTY: Easy
BUSPROG: Analytic
97. At XLT Inc, variable costs are $80 per unit, and fixed costs are $40,000. Sales are estimated to be 4,000 units. (a)
How much would absorption costing income from operations differ between a plan to produce 8,000 units and a plan to
produce 10,000 units? (b) How much would variable costing income from operations differ between the two production
plans?
ANSWER: (a)
(b) There would be no difference in variable costing income from
operations between the two plans.
Bloom's: Applying
BUSPROG: Analytic
98. If variable manufacturing costs are $15 per unit and total fixed manufacturing costs are $200,000, what is the
manufacturing cost per unit if:
(a) 20,000 units are manufactured and the company uses the variable costing concept?
(b) 25,000 units are manufactured and the company uses the variable costing concept?
(c) 20,000 units are manufactured and the company uses the absorption costing concept?
(d) 25,000 units are manufactured and the company used the absorption costing concept?
ANSWER: (a) $15 (variable cost only)
(b) $15 (variable cost only)
(c) $25 [variable cost ($15) + fixed costs ($200,000 / 20,000)]
(d) $23 [variable cost ($15) + fixed costs ($200,000 / 25,000)]
Bloom's: Applying
BUSPROG: Analytic
99. During the first year of operations, 18,000 units were manufactured and 13,500 units were sold. On August
31, Olympic Inc. prepared the following income statement based on the variable costing concept:
Olympic Inc.
For Year Ended August 31, 20--
Sales $297,000
Less ending inventory 72,000
Fixed costs:
Fixed manufacturing costs $ 12,000
Fixed selling and administrative expenses 10,800 22,800
Determine the unit cost of goods manufactured, based on (a) the variable costing concept and (b) the absorption costing
concept.
ANSWER: (a) $16.00 ($288,000 total variable cost of goods manufactured/18,000
units manufactured.)
(b) Unit variable cost of goods manufactured (a) $16.00

Unit fixed cost of goods manufactured
($12,000 / 18,000 units manufactured) .67
Unit cost $16.67
Bloom's: Applying
BUSPROG: Analytic
100. Management may use both absorption and variable costing methods for analyzing a particular product.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
101. Property tax expense is an example of a controllable cost for the supervisor of a manufacturing department.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
102. Direct labor cost is an example of a controllable cost for the supervisor of a manufacturing department.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
103. In the short run, the selling price of a product should normally not be less than the variable costs and expenses of
making and selling it.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
104. In the long run, for a business to remain in operation, the revenues from products sold should normally cover all
costs and expenses and provide a reasonable income.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
105. For short-run production planning, information in the variable costing format is more useful to management than is
information in the absorption costing concept format.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
106. For short-run production planning, information in the absorption costing format is more useful to management than is
information in the variable costing format.
a. True
b. False

ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
107. It would be acceptable to have the selling price of a product just above the variable costs and expenses of making and
selling it in:
a. the long run
b. the short run
c. both the short run and long run
d. neither in the short run nor the long run
ANSWER: b
BUSPROG: Analytic
108. Costs that can be influenced by management at a specific level of management are called:
a. direct costs.
b. variable costs.
c. noncontrollable costs.
d. controllable costs.
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
109. Which of the following is(are) reason(s) for easy identification and control of variable manufacturing costs under the
variable costing method?
a. variable and fixed costs are reported separately.
b. variable costs can be controlled by the operating management.
c. fixed costs, such as property insurance, are normally the responsibility of higher management not the
operating management.
d. All of the above are true.
ANSWER: d
DIFFICULTY: Easy

BUSPROG: Analytic
110. Which of the following is not true when determining the selling price for a product?
a. Absorption costing should be used to determine routine pricing which includes both fixed and variable costs.
b. As long as the selling price is set above the variable costs, the company will make a profit in short run.
c. Variable costing is effective when determining short run decisions, but absorption costing is only used for
long-term pricing policies.
d. Both variable and absorption pricing plans should be considered, to include several pricing alternatives.
ANSWER: c
BUSPROG: Analytic
111. Management will use both variable and absorption costing in all of the following activities except:
a. controlling costs
b. product pricing
c. production planning
d. controlling inventory levels
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
112. For a supervisor of a manufacturing department, which of the following costs is controllable?
a. direct materials
b. insurance on factory building
c. depreciation of factory building
d. sales salaries
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
113. Gyro Company manufactures Products T and W and is operating at full capacity. To manufacture Product W requires
three times the number of machine hours required for Product T. Market research indicates that 1,000 additional units of
Product W could be sold. The contribution margin by unit of product is as follows:
Product T Product W
Sales price $300 $325
Variable cost of goods sold 235 250
Manufacturing margin $ 65 $ 75
Variable selling and administrative expenses 25 10
Contribution margin $ 40 $ 65
Calculate the increase or decrease in total contribution margin if 1,000 additional units of Product W are produced and
sold.
ANSWER:
Additional contribution margin from sale of additional 1,000
$ 65,000
units of Product W (1,000 $65)
Less contribution margin from forgoing production and sale of 120,000
3,000 units of Product T (3,000 $40)
Decrease in total contribution margin $ (55,000)
Bloom's: Applying
BUSPROG: Analytic
114. Sales mix is generally defined as the relative distribution of sales among the various products sold.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
115. If the ability to sell and the amount of production facilities devoted to each of two products is equal, it is profitable to
increase the sales of that product with the lowest contribution margin.
a. True
b. False
ANSWER: False
BUSPROG: Analytic

116. If the ability to sell and the amount of production facilities devoted to each of two products is equal, it is profitable to
increase the sales of that product with the highest contribution margin.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
117. The contribution margin ratio is computed as contribution margin divided by sales.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
118. In evaluating the performance of salespersons, the salesperson with the highest level of sales should be evaluated as
the best performer.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
119. Companies prepare contribution margin reports by market segments and product segments because products
contribute to profitability in various ways.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic

120. Ford’s Expedition sport utility vehicle is its most profitable model. Therefore, Ford need not promote its Expedition
model anymore.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
121. The relative distribution of sales among various products sold is referred to as the:
a. by-product mix
b. joint product mix
c. profit mix
d. sales mix
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
122. Management should focus its sales and production efforts on the product or products that will provide
a. the highest sales revenue
b. the lowest product costs
c. the maximum contribution margin
d. the lowest direct labor hours
ANSWER: c
BUSPROG: Analytic
123. The contribution margin ratio is computed as:

a. sales divided by contribution margin
b. contribution margin divided by sales
c. contribution margin divided by cost of sales
d. contribution margin divided by variable cost of sales
ANSWER: b
DIFFICULTY: Easy

BUSPROG: Analytic
124. Contribution margin reporting can be beneficial for analyzing which of the following?
a. sales personnel
b. products
c. sales territory
d. all of the above
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
125. The following data are for Trendy Fashion Apparel:
North South
Sales volume (units):
Blouses 5,000 5,000
Skirts 4,000 8,000
Sales price per unit:
Blouses $20.00 $22.00
Skirts $18.00 $20.00
Variable cost per unit
Blouses $ 7.00 $ 9.00
Skirts $ 9.00 $11.00
Determine the contribution margin for (a) Skirts and (b) the South Region.
ANSWER:
(a)
(b)
Bloom's: Applying
BUSPROG: Analytic
126. The Excelsior Company has three salespersons. Average sales price per unit sold, average variable manufacturing
costs per unit, and number of units sold for each salesperson are shown below.
Commissions are earned according to the following schedule:

Total Sales Percentage
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Page 313: “shine in the bark” changed to “shine in the dark”
Page 315: “mary him” changed to “marry him”
Page 321: “aphabetical order” changed to “alphabetical order”
Page 352: “more stupid that our” changed to “more stupid than our”
Page 418: “are overthown” changed to “are overthrown”
Page 438: “learny our parts” changed to “learn our parts”
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Managerial Accounting 14Th Edition Warren Test Bank Full Chapter PDF

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8. Variable costing is also known as direct costing.

Copyright Cengage Learning. Powered by Cognero. Page 8

Copyright Cengage Learning. Powered by Cognero. Page 9

38. Another name for variable costing is:

53. Philadelphia Company has the following information for March:

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54. Tony's Company has the following information for March:

Selling and administrative expenses:

(a) Prepare an income statement using absorption costing.

Unit cost of ending inventory:

Fixed selling and admin. expenses:

a. Absorption costing only

Copyright Cengage Learning. Powered by Cognero. Page 18

62. Required by generally accepted accounting principles.

63. Treats fixed manufacturing cost as a period cost.

64. Operating income is impacted by changes in inventory level.

67. May be used in a manufacturing company.

68. Includes gross profit on the income statement.

Copyright Cengage Learning. Powered by Cognero. Page 19

DIFFICULTY: Bloom's: Applying

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Direct materials $180,000 20,000 $ 9

Direct labor 240,000 20,000 12

Variable factory overhead 280,000 20,000 14

Total variable manufacturing $700,000 $35*

DIFFICULTY: Bloom's: Applying

Copyright Cengage Learning. Powered by Cognero. Page 23

DIFFICULTY: Bloom's: Applying

DIFFICULTY: Bloom's: Applying

DIFFICULTY: Bloom's: Applying

DIFFICULTY: Bloom's: Applying

Copyright Cengage Learning. Powered by Cognero. Page 26

DIFFICULTY: Bloom's: Applying

DIFFICULTY: Bloom's: Applying

(5,000 units × $20.40*) $102,000

Total Cost Number of Units Unit Cost

DIFFICULTY: Bloom's: Applying

Less ending inventory (2,000 × $20*) 40,000

Total Cost Number of Units Unit Cost

DIFFICULTY: Bloom's: Applying

Total Cost Number of Units Unit Cost

DIFFICULTY: Bloom's: Applying

Total Cost Number of Units Unit Cost

DIFFICULTY: Bloom's: Applying

Total Cost Number of Unit Cost

DIFFICULTY: Bloom's: Applying

Copyright Cengage Learning. Powered by Cognero. Page 33

Total Cost Number of Units Unit Cost

Total Cost Number of Units Unit Cost

DIFFICULTY: Bloom's: Applying

Total Cost Number of Units Unit Cost

DIFFICULTY: Bloom's: Applying

(b) Unit variable cost of goods manufactured (a) $16.00

Copyright Cengage Learning. Powered by Cognero. Page 39

Copyright Cengage Learning. Powered by Cognero. Page 40

Copyright Cengage Learning. Powered by Cognero. Page 42

Copyright Cengage Learning. Powered by Cognero. Page 43

123. The contribution margin ratio is computed as:

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125. The following data are for Trendy Fashion Apparel: