Managerial Accounting AGE Ray Garrison Eric Noreen Peter Brewer 2e - Test Bank

Managerial Accounting AGE Ray Garrison Eric Noreen Peter Brewer 2e – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

		Question Type	Difficulty	LO1: Unit product costs	LO2: Prepare income statements	LO3: Reconciliation of net operating incomes	LO4: Evaluation of methods	LO5: Predetermined overhead rate (App 5A)	LO6: Overhead rate and capacity (App 5A)	LO7: Under- or over-applied overhead (App 5B)	LO8: Potential problems of absorption costing (App 5C)	Professional Exam Adapted
	1	T/F	M	x
	2	T/F	M	x
	3	T/F	M	x
	4	T/F	H	x
	5	T/F	H	x
	6	T/F	H		x
	7	T/F	M			x
	8	T/F	M			x
	9	T/F	E			x
	10	T/F	M				x
	11	T/F	M				x
	12	T/F	M				x
	13	T/F	M				x
	14	T/F	E				x
	15	Conceptual M/C	M	x	x
	16	Conceptual M/C	M	x	x
	17	Conceptual M/C	M	x	x
	18	Conceptual M/C	M	x
	19	Conceptual M/C	E	x
	20	Conceptual M/C	M	x
	21	Conceptual M/C	E	x
	22	Conceptual M/C	M		x		x
	23	Conceptual M/C	M		x
	24	Conceptual M/C	E		x							CMA
	25	Conceptual M/C	M			x
	26	Conceptual M/C	M			x
	27	Conceptual M/C	E				x
	28	M/C	H	x	x	x
	29	M/C	E	x
	30	M/C	E	x
	31	M/C	E	x
	32	M/C	E	x
	33	M/C	E	x
	34	M/C	E	x
	35	M/C	E	x
	36	M/C	E	x
	37	M/C	E	x
	38	M/C	M		x
	39	M/C	E		x
	40	M/C	E		x
	41	M/C	M		x
	42	M/C	M		x
	43	M/C	H			x
	44	M/C	H			x
	45	M/C	H			x
	46	M/C	H			x
	47	M/C	E			x
	48	M/C	E			x
	49	M/C	M			x
	50	M/C	M			x
7-1	51-53	Multipart M/C	M-H	x	x	x
7-2	54-61	Multipart M/C	E-H	x	x
7-3	62-67	Multipart M/C	E-M	x	x
7-4	68-71	Multipart M/C	E-M	x	x
7-5	72-75	Multipart M/C	M	x	x
7-6	76-79	Multipart M/C	E-H	x	x
7-7	80-81	Multipart M/C	E-M	x	x
7-8	82-83	Multipart M/C	H	x	x
7-9	84-85	Multipart M/C	E-M	x	x
7-10	86-89	Multipart M/C	M-H	x	x
7-11	90-92	Multipart M/C	E-M	x		x
7-12	93-94	Multipart M/C	E	x
7-13	95-96	Multipart M/C	E	x
7-14	97-98	Multipart M/C	H	x
7-15	99-100	Multipart M/C	E	x
7-16	101-102	Multipart M/C	E	x
7-17	103-104	Multipart M/C	M		x
7-18	105-106	Multipart M/C	M		x
7-19	107-108	Multipart M/C	M		x
7-20	109-110	Multipart M/C	E			x
7-21	111-112	Multipart M/C	E			x
7-22	113-114	Multipart M/C	M			x
7-23	115-116	Multipart M/C	M			x
	117	Problem	H	x	x	x
	118	Problem	M	x	x	x
	119	Problem	M	x	x	x
	120	Problem	H	x	x	x
	121	Problem	M	x	x	x
	122	Problem	E	x
	123	Problem	E	x
	124	Problem	E	x
	125	Problem	E	x
	126	Problem	E	x
	127	Problem	E	x
	128	Problem	M		x	x
	129	Problem	H		x		x
	130	Problem	H		x
	131	Problem	M		x
	132	Problem	E			x
	133	Problem	E			x
	134	Problem	E			x
	135	Problem	M			x
	136	Problem	M			x
	137	Problem	M			x

 

 

 

True / False Questions

1. The costs assigned to units in inventory are typically lower under absorption costing than under variable costing.
   True    False

 

2. Under variable costing, product cost contains some fixed manufacturing overhead cost.
   True    False

 

3. Variable selling and administrative expenses are part of product costs under the variable costing approach.
   True    False

 

4. In a manufacturing company using absorption costing, the fixed costs associated with idle production capacity are commonly included as part of the product cost.
   True    False

 

5. Direct labor is always considered to be a product cost under variable costing.
   True    False

 

6. Suppose fewer units are sold in year 2 than in year 1. If production exceeds sales in year 2, net operating income under absorption costing could be higher in year 2 than in year 1.
   True    False

 

7. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs released from inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income.
   True    False

 

8. If production exceeds sales for the period, variable costing net operating income will typically be greater than absorption costing net operating income.
   True    False

 

9. When sales exceeds production for a period, absorption costing net operating income will generally be greater than variable costing net operating income.
   True    False

 

10. Profits move in the same direction as sales when variable costing is used if selling prices, the sales mix, and the cost structure remain the same.
    True    False

 

11. Net operating income is affected by changes in production under both variable costing and absorption costing.
    True    False

 

12. Net operating income is not affected by changes in production when absorption costing is used.
    True    False

 

13. Under the absorption costing method, a company can increase profits by increasing production rather than by increasing sales.
    True    False

 

14. Since variable costing emphasizes costs by behavior, it works well with cost-volume-profit analysis.
    True    False

 

 

Multiple Choice Questions

15. Which of the following statements is true?
    A. When production exceeds sales, a manufacturing company’s variable costing net operating income will usually be greater than its absorption costing net operating income.
    B. The variable costing method is usually not used for external reporting purposes.
    C. The absorption costing method treats fixed production costs as period costs.
    D. All of these.

 

16. Which of the following statements is true for a company that uses variable costing?
    A. The unit product cost changes because of changes in the number of units manufactured.
    B. Profit fluctuates with sales.
    C. Any underapplied overhead is included in the product cost.
    D. Product costs include variable administration costs.

 

17. Which of the following statements is true for a company that uses variable costing?
    A. The unit product cost changes as a result of changes in the number of units manufactured.
    B. Both variable selling costs and variable production costs are included in the unit product cost.
    C. Net operating income moves in the same direction as sales.
    D. Net operating income is greatest in periods when production is highest.

 

18. Which of the following costs at a sofa manufacturing company would be treated as a period cost under the variable costing method?
    A. the cost of glue used to assemble the wood frame of each sofa produced
    B. depreciation on sales vehicles
    C. the salary of a factory manager
    D. both B and C above

 

19. 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.

 

20. Which of the following costs at a manufacturing company would be treated as a product cost under the absorption costing method?
    A. sales commissions
    B. fire insurance cost on factory building
    C. advertising costs
    D. All of these

 

21. Assuming that direct labor is a variable cost, product costs under variable costing include only:
    A. direct materials and direct labor.
    B. direct materials, direct labor, and variable manufacturing overhead.
    C. direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative expenses.
    D. direct material, variable manufacturing overhead, and variable selling and administrative expenses.

 

22. Which of the following statements is true?
    A. Expenses are not usually separated into variable and fixed elements in externally reported income statements.
    B. Even if there is no change in units sold, selling price, or cost structure, a company can increase its absorption costing net operating income from one year to the next just by producing more units.
    C. When finished goods inventory decreases during a period, a manufacturing company’s absorption costing net operating income for that period will usually be greater than its variable costing net operating income.
    D. Both A and B above.

 

 

23. What is the cause of the difference between absorption costing net operating income and variable costing net operating income?
    A. Absorption costing deducts all manufacturing costs from net operating income; variable costing deducts only prime costs.
    B. Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs to be period costs.
    C. Absorption costing includes variable manufacturing costs in product costs; variable costing considers variable manufacturing costs to be period costs.
    D. Absorption costing includes fixed administrative costs in product costs; variable costing considers fixed administrative costs to be period costs.

 

24. The gross margin for a manufacturing company is the excess of sales over:
    A. cost of goods sold, excluding fixed manufacturing overhead.
    B. all variable costs, including variable selling and administrative expenses.
    C. cost of goods sold, including fixed manufacturing overhead.
    D. variable costs, excluding variable selling and administrative expenses.

 

25. Weber Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that:
    A. variable manufacturing costs were less than fixed manufacturing costs.
    B. more units were produced during the year than were sold.
    C. more units were sold during the year than were produced.
    D. common costs were greater than variable costs for the year.

 

26. Net operating income computed using variable costing would exceed net operating income computed using absorption costing if:
    A. units sold exceed units produced.
    B. units sold are less than units produced.
    C. units sold equal units produced.
    D. the average fixed cost per unit is zero.

 

27. The costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques is:
    A. variable costing.
    B. absorption costing.
    C. process costing.
    D. job-order costing.

 

28. Silver Company produces a single product. Last year, the 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 operating income under absorption costing for the year will be $900 lower than the net operating income under variable costing.
    C. The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.
    D. Under absorption costing, the units in ending inventory will be costed at $2.50 each.

 

29. Charrd Corporation manufactures a gas operated barbecue grill. The following information relates to Charrd’s operations for last year:

    What is Charrd’s variable costing unit product cost?
    A. $29
    B. $34
    C. $58
    D. $63

 

30. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the variable costing unit product cost for the month?
    A. $97
    B. $90
    C. $68
    D. $75

 

31. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the absorption costing unit product cost for the month?
    A. $107
    B. $94
    C. $87
    D. $114

 

32. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the total period cost for the month under variable costing?
    A. $151,800
    B. $51,800
    C. $100,000
    D. $125,900

 

33. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the total period cost for the month under absorption costing?
    A. $48,000
    B. $275,100
    C. $86,400
    D. $188,700

34. Yoshihara Corporation produces a single product and has the following cost structure:

    The absorption costing unit product cost is:
    A. $140
    B. $197
    C. $133
    D. $227

 

35. Sharko Corporation produces a single product and has the following cost structure:

    The variable costing unit product cost is:
    A. $89
    B. $86
    C. $164
    D. $87

 

36. Gallipeau Inc., which produces a single product, has provided the following data for its most recent month of operations:

    There were no beginning or ending inventories. The absorption costing unit product cost was:
    A. $219
    B. $151
    C. $150
    D. $300

 

37. Baylor Inc., which produces a single product, has provided the following data for its most recent month of operations:

    There were no beginning or ending inventories. The variable costing unit product cost was:
    A. $91
    B. $67
    C. $69
    D. $61

 

38. Indiana Corporation produces a single product that it sells for $9 per unit. During the first year of operations, 100,000 units were produced and 90,000 units were sold. Manufacturing costs and selling and administrative expenses for the year were as follows:

    What was Indiana Corporation’s net operating income for the year using variable costing?
    A. $181,000
    B. $271,000
    C. $281,000
    D. $371,000

 

39. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    The total contribution margin for the month under variable costing is:
    A. $83,900
    B. $221,400
    C. $135,000
    D. $270,000

 

40. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    The total gross margin for the month under absorption costing is:
    A. $163,800
    B. $7,800
    C. $170,800
    D. $312,000

 

41. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the net operating income for the month under variable costing?
    A. $15,800
    B. $5,000
    C. $20,800
    D. $3,800

 

42. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the net operating income for the month under absorption costing?
    A. $(15,900)
    B. $19,200
    C. $10,200
    D. $9,000

 

43. Atlantic Company produces a single product. For the most recent year, the company’s net operating income computed by the absorption costing method was $7,400, and its net operating 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
    C. 2,000 units
    D. 12,700 units

 

44. Roberts Company produces a single product. During the year just ended, the company’s net operating income under absorption costing was $3,000 lower than 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

 

45. Lee Company produces a single product. At the end of last year, the company had 30,000 units in its ending inventory. Lee’s variable production costs are $10 per unit and its fixed manufacturing overhead costs are $5 per unit every year. The company’s net operating income for the year was $12,000 higher under variable costing than under absorption costing. Given these facts, the number of units of product in inventory at the beginning of the year must have been:
    A. 28,800 units
    B. 27,600 units
    C. 32,400 units
    D. 42,000 units

 

46. Ben Company produces a single product. Last year, the company’s net operating income under absorption costing was $4,400 lower than under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing. How many units did the company produce during the year?
    A. 12,400 units
    B. 3,600 units
    C. 7,120 units
    D. 7,450 units

 

47. Mcferrin Corporation manufactures a variety of products. Last year, the company’s variable costing net operating income was $53,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $32,900. What was the absorption costing net operating income last year?
    A. $86,100
    B. $20,300
    C. $32,900
    D. $53,200

 

48. Last year, Wardrup Corporation’s variable costing net operating income was $67,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $600. What was the absorption costing net operating income last year?
    A. $67,800
    B. $66,600
    C. $67,200
    D. $600

 

49. Schrick Inc. manufactures a variety of products. Variable costing net operating income was $86,800 last year and ending inventory increased by 1,900 units. Fixed manufacturing overhead cost was $6 per unit. What was the absorption costing net operating income last year?
    A. $86,800
    B. $75,400
    C. $98,200
    D. $11,400

 

50. Last year, Gransky Corporation’s variable costing net operating income was $52,100 and its ending inventory increased by 400 units. Fixed manufacturing overhead cost was $7 per unit. What was the absorption costing net operating income last year?
    A. $52,100
    B. $2,800
    C. $54,900
    D. $49,300

 

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

 

51. The contribution margin per unit was:
    A. $17.50
    B. $32.50
    C. $27.30
    D. $25.70

 

52. Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year would be:
    A. $190,800
    B. $170,000
    C. $230,800
    D. $0

 

53. Under variable costing, the company’s net operating income for the year would be:
    A. $60,000 higher than under absorption costing
    B. $108,000 higher than under absorption costing
    C. $108,000 lower than under absorption costing
    D. $60,000 lower than under absorption costing

 

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

54. What is the unit product cost for the month under variable costing?
    A. $73
    B. $44
    C. $79
    D. $38

 

55. What is the unit product cost for the month under absorption costing?
    A. $38
    B. $73
    C. $44
    D. $79

 

56. The total contribution margin for the month under the variable costing approach is:
    A. $273,000
    B. $42,000
    C. $84,500
    D. $312,000

 

57. The total gross margin for the month under the absorption costing approach is:
    A. $13,000
    B. $91,800
    C. $273,000
    D. $84,500

 

58. What is the total period cost for the month under the variable costing approach?
    A. $263,500
    B. $71,500
    C. $302,500
    D. $231,000

 

59. What is the total period cost for the month under the absorption costing approach?
    A. $32,500
    B. $71,500
    C. $302,500
    D. $231,000

 

60. What is the net operating income for the month under variable costing?
    A. $13,000
    B. $5,700
    C. $9,500
    D. $3,500

 

61. What is the net operating income for the month under absorption costing?
    A. $9,500
    B. $3,500
    C. $5,700
    D. $13,000

 

Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:

Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.

 

62. Under absorption costing, the unit product cost would be:
    A. $9.00
    B. $12.00
    C. $13.40
    D. $14.00

 

63. Under absorption costing, the gross margin would be:
    A. $176,000
    B. $242,000
    C. $66,000
    D. $21,000

 

64. The contribution margin per unit would be:
    A. $15.00
    B. $11.00
    C. $8.00
    D. $6.00

 

65. Under variable costing, the total amount of fixed manufacturing cost in the ending inventory would be:
    A. $0
    B. $9,000
    C. $14,400
    D. $27,000

 

66. The net operating income under variable costing would be:
    A. $2,000
    B. $21,000
    C. $12,000
    D. $9,000

 

67. The net operating income under absorption costing would be:
    A. $9,000
    B. $12,000
    C. $2,000
    D. $21,000

 

 

Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations:

68. What is the unit product cost for the month under variable costing?
    A. $122
    B. $108
    C. $99
    D. $131

 

 

69. What is the unit product cost for the month under absorption costing?
    A. $99
    B. $131
    C. $122
    D. $108

 

 

70. What is the net operating income for the month under variable costing?
    A. $2,300
    B. $(600)
    C. $9,300
    D. $11,600

 

 

71. What is the net operating income for the month under absorption costing?
    A. $11,600
    B. $2,300
    C. $(600)
    D. $9,300

 

Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations:

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.

 

72. What is the unit product cost for the month under variable costing?
    A. $78
    B. $105
    C. $73
    D. $110

 

 

73. What is the unit product cost for the month under absorption costing?
    A. $78
    B. $73
    C. $105
    D. $110

 

74. What is the net operating income for the month under variable costing?
    A. $4,500
    B. $10,900
    C. $25,500
    D. $12,800

 

75. What is the net operating income for the month under absorption costing?
    A. $4,500
    B. $12,800
    C. $25,500
    D. $10,900

Hackney Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

76. What is the unit product cost for the month under variable costing?
    A. $92
    B. $107
    C. $100
    D. $85
77. The total contribution margin for the month under the variable costing approach is:
    A. $47,000
    B. $117,500
    C. $12,600
    D. $84,600
78. What is the total period cost for the month under the variable costing approach?
    A. $42,300
    B. $81,400
    C. $114,300
    D. $72,000

 

79. What is the net operating income for the month under variable costing?
    A. $4,700
    B. $(5,300)
    C. $1,500
    D. $3,200

 

Ilford Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

80. What is the unit product cost for the month under variable costing?
    A. $87
    B. $64
    C. $68
    D. $83

 

81. What is the net operating income for the month under variable costing?
    A. $1,200
    B. $5,700
    C. $6,900
    D. $(18,000)

Crystal Company produces a single product. The company’s variable costing income statement for the month of May appears below:

The company produced 80,000 units in May and the beginning inventory consisted of 25,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months.

 

82. The dollar value of the company’s inventory on May 31 under the absorption costing method would be:
    A. $120,000
    B. $90,000
    C. $75,000
    D. $60,000

 

83. Under absorption costing, for the month ended May 31, the company would report a:
    A. $30,000 loss
    B. $0 profit
    C. $30,000 profit
    D. $60,000 profit

 

Erie Company manufactures a single product. Assume the following data for the year just completed:

There were no units in inventory at the beginning of the year. During the year 30,000 units were produced and 25,000 units were sold. Each unit sells for $35.

 

84. Under absorption costing, the unit product cost would be:
    A. $8.00
    B. $17.75
    C. $13.00
    D. $10.75

 

85. The company’s net operating income under variable costing would be:
    A. $407,500
    B. $421,250
    C. $431,250
    D. $417,500

 

Gallager Company, which has only one product, has provided the following data concerning its most recent month of operations:

86. The total contribution margin for the month under the variable costing approach is:
    A. $303,600
    B. $132,000
    C. $356,400
    D. $72,400
87. The total gross margin for the month under the absorption costing approach is:
    A. $303,600
    B. $132,000
    C. $19,800
    D. $148,600

 

88. What is the total period cost for the month under the variable costing approach?
    A. $290,600
    B. $112,200
    C. $231,200
    D. $343,400
89. What is the total period cost for the month under the absorption costing approach?
    A. $59,400
    B. $112,200
    C. $343,400
    D. $231,200

 

During its first year of operations, Holt Manufacturing Company incurred the following costs to produce 200,000 units of its only product:

Holt also incurred the following costs in the sale of 180,000 units of product during its first year:

Assume that direct labor is a variable cost.

 

90. What would be the cost per unit of Holt’s finished goods inventory at the end of the first year of operations under the variable costing method?
    A. $2.34
    B. $2.74
    C. $4.50
    D. $6.30

 

91. What would be the cost per unit of Holt’s finished goods inventory at the end of the first year of operations under the absorption costing method?
    A. $2.34
    B. $2.74
    C. $4.50
    D. $6.30
92. If Holt’s variable costing net operating income for this first year is $397,800, what would its absorption costing net operating income be for this first year?
    A. $354,600
    B. $441,000
    C. $445,800
    D. $473,800

 

Ross Company produces a single product. The company has direct materials costs of $8 per unit, direct labor costs of $6 per unit, and manufacturing overhead of $10 per unit. Sixty percent of the manufacturing overhead is for fixed costs. In addition, variable selling and administrative costs are $2 per unit, and fixed selling and administrative costs are $3 per unit at the current activity level. Assume that direct labor is a variable cost.

 

93. Under absorption costing, the unit product cost is:
    A. $24
    B. $20
    C. $26
    D. $29

 

94. Under variable costing, the unit product cost is:
    A. $24
    B. $20
    C. $18
    D. $21

 

Bawcutt Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

95. What is the unit product cost for the month under variable costing?
    A. $93
    B. $62
    C. $66
    D. $97

 

96. What is the unit product cost for the month under absorption costing?
    A. $62
    B. $93
    C. $97
    D. $66

 

 

Dearman Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

97. What is the total period cost for the month under the variable costing approach?
    A. $98,700
    B. $64,400
    C. $65,100
    D. $129,500

 

98. What is the total period cost for the month under the absorption costing approach?
    A. $33,600
    B. $65,100
    C. $129,500
    D. $64,400

 

Mcgougan Corporation produces a single product and has the following cost structure:

 

99. The unit product cost under absorption costing is:
    A. $126
    B. $158
    C. $139
    D. $121

 

100. The unit product cost under variable costing is:
     A. $139
     B. $126
     C. $122
     D. $127

 

Slovick Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories.

 

101. The unit product cost under absorption costing was:
     A. $161
     B. $199
     C. $262
     D. $168

 

102. The unit product cost under variable costing was:
     A. $168
     B. $164
     C. $199
     D. $171

 

Clubb Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

103. The total contribution margin for the month under the variable costing approach is:
     A. $38,000
     B. $92,000
     C. $170,200
     D. $119,600

 

104. The total gross margin for the month under the absorption costing approach is:
     A. $110,000
     B. $92,000
     C. $119,600
     D. $13,800

 

Elder Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

105. What is the net operating income for the month under variable costing?
     A. $9,800
     B. $(27,400)
     C. $15,400
     D. $5,600

 

106. What is the net operating income for the month under absorption costing?
     A. $(27,400)
     B. $5,600
     C. $9,800
     D. $15,400

 

Kidwell Company, which has only one product, has provided the following data concerning its most recent month of operations:

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.

 

107. What is the net operating income for the month under variable costing?
     A. $5,800
     B. $5,400
     C. $8,300
     D. $16,000

 

108. What is the net operating income for the month under absorption costing?
     A. $5,800
     B. $16,000
     C. $5,400
     D. $8,300

 

Botwinick Corporation manufactures a variety of products. The following data pertain to the company’s operations over the last two years:

 

109. What was the absorption costing net operating income last year?
     A. $57,000
     B. $28,000
     C. $58,000
     D. $88,000

 

110. What was the absorption costing net operating income this year?
     A. $98,000
     B. $36,000
     C. $68,000
     D. $66,000

 

 

Schubert Corporation manufactures a variety of products. Variable costing net operating income last year was $59,000 and this year was $70,000. Last year, $31,000 in fixed manufacturing overhead costs were released from inventory under absorption costing. This year, $22,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing.

 

111. What was the absorption costing net operating income last year?
     A. $90,000
     B. $59,000
     C. $28,000
     D. $68,000

 

112. What was the absorption costing net operating income this year?
     A. $92,000
     B. $58,000
     C. $79,000
     D. $61,000

 

 

Dewiel Corporation manufactures a variety of products. The following data pertain to the company’s operations over the last two years:

 

 

113. What was the absorption costing net operating income last year?
     A. $90,900
     B. $96,900
     C. $84,900
     D. $92,100

 

114. What was the absorption costing net operating income this year?
     A. $105,900
     B. $115,500
     C. $89,700
     D. $109,500

Caparros Corporation manufactures a variety of products. Variable costing net operating income was $62,800 last year and was $74,900 this year. Last year, ending inventory decreased by 3,300 units. This year, ending inventory increased by 1,900 units. Fixed manufacturing overhead cost is $7 per unit.

 

115. What was the absorption costing net operating income last year?
     A. $72,600
     B. $85,900
     C. $62,800
     D. $39,700

 

116. What was the absorption costing net operating income this year?
     A. $88,200
     B. $65,100
     C. $61,600
     D. $53,000

 

 

Essay Questions

117. Leibson Company, which has only one product, has provided the following data concerning its most recent month of operations:

     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 a contribution format income statement for the month using variable costing.

     d. Prepare an income statement for the month using absorption costing.

     e. Reconcile the variable costing and absorption costing net operating incomes for the month.

 

 

 

 

118. Mafli Company, which has only one product, has provided the following data concerning its most recent month of operations:

     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 a contribution format income statement for the month using variable costing.

     d. Prepare an income statement for the month using absorption costing.

     e. Reconcile the variable costing and absorption costing net operating incomes for the month.

 

 

 

 

119. Fowler Company manufactures a single product. Operating data for the company and its absorption costing income statements for the last two years are presented below:

     Variable manufacturing costs are $6 per unit. Fixed manufacturing overhead totals $72,000 in each year. This overhead is applied at the rate of $4 per unit. Variable selling and administrative expenses are $2 per unit sold.

     Required:

     a. What was the unit product cost in each year under variable costing?

     b. Prepare new income statements for each year using variable costing.

     c. Reconcile the absorption costing and variable costing net operating income for each year.

 

 

 

 

120. Pachur Company, which has only one product, has provided the following data concerning its most recent month of operations:

     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 a contribution format income statement for the month using variable costing.

     c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

 

 

 

 

121. Qiu Company, which has only one product, has provided the following data concerning its most recent month of operations:

     Required:

     a. What is the unit product cost for the month under variable costing?

     b. Prepare a contribution format income statement for the month using variable costing.

     c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

 

 

 

 

122. Penna Corporation produces a single product and has the following cost structure:

     Required:

     a. Compute the unit product cost under absorption costing. Show your work!

     b. Compute the unit product cost under variable costing. Show your work!

 

 

123. Smolinski Corporation produces a single product and has the following cost structure:

     Required:

     Compute the unit product cost under absorption costing. Show your work!

 

 

 

 

124. Mascioli Corporation produces a single product and has the following cost structure:

     Required:

     Compute the unit product cost under variable costing. Show your work!

 

 

125. Nimocks Inc., which produces a single product, has provided the following data for its most recent month of operation:

     The company had no beginning or ending inventories.

     Required:

     a. Compute the unit product cost under absorption costing. Show your work!

     b. Compute the unit product cost under variable costing. Show your work!

 

 

126. Przygocki Inc., which produces a single product, has provided the following data for its most recent month of operation:

     The company had no beginning or ending inventories.

     Required:

     Compute the unit product cost under absorption costing. Show your work!

 

 

127. Friddell Inc., which produces a single product, has provided the following data for its most recent month of operation:

     The company had no beginning or ending inventories.

     Required:

     Compute the unit product cost under variable costing. Show your work!

 

 

128. Data concerning Sonderegger Company’s operations last year appear below:

     Required:

     a. Prepare an income statement for the year using absorption costing.

     b. Prepare a contribution format income statement for the year using variable costing.

     c. Prepare a report reconciling the difference in net operating income between absorption and variable costing for the year.

 

 

 

 

129. The Hadfield Company manufactures and sells a unique electronic part. The company’s plant is highly automated with low variable and high fixed manufacturing costs. Operating results on an absorption costing basis for the first three years of activity were as follows:

     Additional information about the company is as follows:

     – Variable manufacturing costs (direct labor, direct materials, and variable manufacturing overhead) total $3 per unit, and fixed manufacturing overhead costs total $400,000.
     – Fixed manufacturing costs are applied to units of product on the basis of the number of units produced each year (i.e., a new fixed manufacturing overhead rate is computed each year).
     – The company uses a FIFO inventory flow assumption.
     – Variable selling and administrative expenses are $2 per unit sold. Fixed selling and administrative expenses total $100,000.
     – Production and sales information for the three years is as follows:

     Required:

     a. Compute net operating income for each year under the variable costing approach.

     b. Referring to the absorption costing income statements above, explain why net operating income was higher in Year 2 than in Year 1 under absorption costing, in light of the fact that fewer units were sold in Year 2 than in Year 1.

     c. Referring again to the absorption costing income statements, explain why the company suffered a loss in Year 3 but reported a profit in Year 1, although the same number of units was sold in each year.

     d. If the company had used lean production during Year 2 and Year 3 and produced only what could be sold, what would the company’s net operating income (loss) have been each year under absorption costing?

 

 

 

 

130. Neuman Company, which has only one product, has provided the following data concerning its most recent month of operations:

     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. Prepare a contribution format income statement for the month using variable costing.

     b. Prepare an income statement for the month using absorption costing.

 

 

 

 

131. O’Bannion Company, which has only one product, has provided the following data concerning its most recent month of operations:

     Required:

     a. Prepare a contribution format income statement for the month using variable costing.

     b. Prepare an income statement for the month using absorption costing.

 

 

 

 

132. Boyar Corporation manufactures a variety of products. The following data pertain to the company’s operations over the last two years:

     Required:

     a. Determine the absorption costing net operating income last year. Show your work!

     b. Determine the absorption costing net operating income this year. Show your work!

 

 

133. Soffer Corporation manufactures a variety of products. Last year, variable costing net operating income was $72,000. The fixed manufacturing overhead costs released from inventory under absorption costing amounted to $24,000.

     Required:

     Determine the absorption costing net operating income last year. Show your work!

 

 

 

 

 

134. Last year, Jaquet Corporation’s variable costing net operating income was $58,000. The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $9,000.

     Required:

     Determine the absorption costing net operating income last year. Show your work!

 

 

135. Eagen Corporation manufactures a variety of products. The following data pertain to the company’s operations over the last two years:

Required:

a. Determine the absorption costing net operating income for last year. Show your work!

b. Determine the absorption costing net operating income for this year. Show your work!

 

 

 

136. Cardwell Corporation manufactures a variety of products. Last year, the company’s variable costing net operating income was $63,900 and ending inventory increased by 900 units. Fixed manufacturing overhead cost per unit was $3.

     Required:

     Determine the absorption costing net operating income for last year. Show your work!

 

 

 

 

137. Last year, Brunkow Corporation’s variable costing net operating income was $93,500 and ending inventory increased by 800 units. Fixed manufacturing overhead cost per unit was $7.

     Required:

     Determine the absorption costing net operating income for last year. Show your work!

 

 

 

 

True / False Questions

1. The costs assigned to units in inventory are typically lower under absorption costing than under variable costing.
   FALSE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

2. Under variable costing, product cost contains some fixed manufacturing overhead cost.
   FALSE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

3. Variable selling and administrative expenses are part of product costs under the variable costing approach.
   FALSE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

4. In a manufacturing company using absorption costing, the fixed costs associated with idle production capacity are commonly included as part of the product cost.
   TRUE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

 

 

5. Direct labor is always considered to be a product cost under variable costing.
   FALSE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

6. Suppose fewer units are sold in year 2 than in year 1. If production exceeds sales in year 2, net operating income under absorption costing could be higher in year 2 than in year 1.
   TRUE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Hard

7. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs released from inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income.
   TRUE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

8. If production exceeds sales for the period, variable costing net operating income will typically be greater than absorption costing net operating income.
   FALSE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

 

 

9. When sales exceeds production for a period, absorption costing net operating income will generally be greater than variable costing net operating income.
   FALSE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

10. Profits move in the same direction as sales when variable costing is used if selling prices, the sales mix, and the cost structure remain the same.
    TRUE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium

11. Net operating income is affected by changes in production under both variable costing and absorption costing.
    FALSE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium

12. Net operating income is not affected by changes in production when absorption costing is used.
    FALSE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium

 

13. Under the absorption costing method, a company can increase profits by increasing production rather than by increasing sales.
    TRUE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium

14. Since variable costing emphasizes costs by behavior, it works well with cost-volume-profit analysis.
    TRUE

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy

 

Multiple Choice Questions

15. Which of the following statements is true?
    A.When production exceeds sales, a manufacturing company’s variable costing net operating income will usually be greater than its absorption costing net operating income.
    B. The variable costing method is usually not used for external reporting purposes.
    C. The absorption costing method treats fixed production costs as period costs.
    D. All of these.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

16. Which of the following statements is true for a company that uses variable costing?
    A.The unit product cost changes because of changes in the number of units manufactured.
    B. Profit fluctuates with sales.
    C. Any underapplied overhead is included in the product cost.
    D. Product costs include variable administration costs.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

17. Which of the following statements is true for a company that uses variable costing?
    A.The unit product cost changes as a result of changes in the number of units manufactured.
    B. Both variable selling costs and variable production costs are included in the unit product cost.
    C. Net operating income moves in the same direction as sales.
    D. Net operating income is greatest in periods when production is highest.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

18. Which of the following costs at a sofa manufacturing company would be treated as a period cost under the variable costing method?
    A.the cost of glue used to assemble the wood frame of each sofa produced
    B. depreciation on sales vehicles
    C. the salary of a factory manager
    D. both B and C above

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

 

19. 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.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

20. Which of the following costs at a manufacturing company would be treated as a product cost under the absorption costing method?
    A.sales commissions
    B. fire insurance cost on factory building
    C. advertising costs
    D. All of these

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

21. Assuming that direct labor is a variable cost, product costs under variable costing include only:
    A.direct materials and direct labor.
    B. direct materials, direct labor, and variable manufacturing overhead.
    C. direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative expenses.
    D. direct material, variable manufacturing overhead, and variable selling and administrative expenses.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

22. Which of the following statements is true?
    A.Expenses are not usually separated into variable and fixed elements in externally reported income statements.
    B. Even if there is no change in units sold, selling price, or cost structure, a company can increase its absorption costing net operating income from one year to the next just by producing more units.
    C. When finished goods inventory decreases during a period, a manufacturing company’s absorption costing net operating income for that period will usually be greater than its variable costing net operating income.
    D. Both A and B above.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 4
Level: Medium

23. What is the cause of the difference between absorption costing net operating income and variable costing net operating income?
    A.Absorption costing deducts all manufacturing costs from net operating income; variable costing deducts only prime costs.
    B. Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs to be period costs.
    C. Absorption costing includes variable manufacturing costs in product costs; variable costing considers variable manufacturing costs to be period costs.
    D. Absorption costing includes fixed administrative costs in product costs; variable costing considers fixed administrative costs to be period costs.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

 

24. The gross margin for a manufacturing company is the excess of sales over:
    A.cost of goods sold, excluding fixed manufacturing overhead.
    B. all variable costs, including variable selling and administrative expenses.
    C. cost of goods sold, including fixed manufacturing overhead.
    D. variable costs, excluding variable selling and administrative expenses.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy

25. Weber Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that:
    A.variable manufacturing costs were less than fixed manufacturing costs.
    B. more units were produced during the year than were sold.
    C. more units were sold during the year than were produced.
    D. common costs were greater than variable costs for the year.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

26. Net operating income computed using variable costing would exceed net operating income computed using absorption costing if:
    A.units sold exceed units produced.
    B. units sold are less than units produced.
    C. units sold equal units produced.
    D. the average fixed cost per unit is zero.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

 

27. The costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques is:
    A.variable costing.
    B. absorption costing.
    C. process costing.
    D. job-order costing.

 

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy

28. Silver Company produces a single product. Last year, the 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 operating income under absorption costing for the year will be $900 lower than the net operating income under variable costing.
    C. The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.
    D. Under absorption costing, the units in ending inventory will be costed at $2.50 each.

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Hard

 

 

29. Charrd Corporation manufactures a gas operated barbecue grill. The following information relates to Charrd’s operations for last year:

What is Charrd’s variable costing unit product cost?
A. $29
B. $34
C. $58
D. $63

Unit fixed manufacturing overhead = $300,000  25,000 = $12
Unit variable product cost = Unit product cost – Unit manufacturing overhead
= $46 – $12 = $34

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

30. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the variable costing unit product cost for the month?
    A. $97
    B. $90
    C. $68
    D. $75

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead
= $20 + $41 + $7
= $68

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

31. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the absorption costing unit product cost for the month?
    A. $107
    B. $94
    C. $87
    D. $114

Unit fixed manufacturing overhead = $130,000  6,500 = $20
Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost
= $26 + $55 + $6 + $20
= $107

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

32. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the total period cost for the month under variable costing?
    A. $151,800
    B. $51,800
    C. $100,000
    D. $125,900

Total variable selling and administrative cost = $7 x 3,700 = $25,900
Period cost = Total variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost
= $25,900 + $100,000 + $25,900
= $151,800

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

33. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the total period cost for the month under absorption costing?
    A. $48,000
    B. $275,100
    C. $86,400
    D. $188,700

Total variable selling and administrative cost = $8 x 4,800 = $38,400
Period cost = Variable selling and administrative cost + Fixed selling and administrative cost
= $38,400 + $48,000
= $86,400

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

34. Yoshihara Corporation produces a single product and has the following cost structure:

    The absorption costing unit product cost is:
    A. $140
    B. $197
    C. $133
    D. $227

Unit fixed manufacturing overhead = $228,000  4,000 = $57
Unit product cost = $57 + $62 + $71 + $7
= $197

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

35. Sharko Corporation produces a single product and has the following cost structure:

    The variable costing unit product cost is:
    A. $89
    B. $86
    C. $164
    D. $87

Unit product cost = $66 + $18 + $2
= $86

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

36. Gallipeau Inc., which produces a single product, has provided the following data for its most recent month of operations:

    There were no beginning or ending inventories. The absorption costing unit product cost was:
    A. $219
    B. $151
    C. $150
    D. $300

Unit fixed manufacturing overhead = $68,000  1,000 = $68
Unit product cost = $68 + $79 + $71 + $1
= $219

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

37. Baylor Inc., which produces a single product, has provided the following data for its most recent month of operations:

    There were no beginning or ending inventories. The variable costing unit product cost was:
    A. $91
    B. $67
    C. $69
    D. $61

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead
= $40 + $19 + $8
= $67

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

38. Indiana Corporation produces a single product that it sells for $9 per unit. During the first year of operations, 100,000 units were produced and 90,000 units were sold. Manufacturing costs and selling and administrative expenses for the year were as follows:

    What was Indiana Corporation’s net operating income for the year using variable costing?
    A. $181,000
    B. $271,000
    C. $281,000
    D. $371,000

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Source: CMA, adapted

 

39. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    The total contribution margin for the month under variable costing is:
    A. $83,900
    B. $221,400
    C. $135,000
    D. $270,000

Total contribution margin = $41 x 5,400 = $221,400

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy

 

40. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    The total gross margin for the month under absorption costing is:
    A. $163,800
    B. $7,800
    C. $170,800
    D. $312,000

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy

 

41. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the net operating income for the month under variable costing?
    A. $15,800
    B. $5,000
    C. $20,800
    D. $3,800

Unit product cost = $39 + $15 + $6 = $60

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

 

42. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

    What is the net operating income for the month under absorption costing?
    A. $(15,900)
    B. $19,200
    C. $10,200
    D. $9,000

Unit fixed manufacturing overhead = $227,800  6,700 = $34
Unit product cost = $34 + $43 + $35 + $5 = $117

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

 

43. Atlantic Company produces a single product. For the most recent year, the company’s net operating income computed by the absorption costing method was $7,400, and its net operating 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
    C. 2,000 units
    D. 12,700 units

Fixed manufacturing overhead per unit
= Unit cost under absorption costing – Unit cost under variable costing
= $22 – $17 = $5
Difference in income between absorption and variable costing
= Fixed manufacturing overhead per unit x Change in inventory in units
($10,100 – $7,400) = $5 x Change in inventory in units
Change in inventory in units = 540 units
Since variable costing net income is greater than absorption costing net income, then inventory must have decreased since the beginning of the year. Therefore, beginning inventory must have been 2,000 units (1,460 units + 540 units).

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard

 

44. Roberts Company produces a single product. During the year just ended, the company’s net operating income under absorption costing was $3,000 lower than 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

Direct material + Direct labor + Variable manufacturing overhead
= Variable unit product cost = $9 – $3 = $6
Unit fixed manufacturing overhead = $11 – $6 = $5
Difference in net income between methods  Unit fixed manufacturing overhead
= ($3,000)  $5 = (600) units
Units produced = Units sold + Change in inventory = 9,000 + (600) = 8,400

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard

 

45. Lee Company produces a single product. At the end of last year, the company had 30,000 units in its ending inventory. Lee’s variable production costs are $10 per unit and its fixed manufacturing overhead costs are $5 per unit every year. The company’s net operating income for the year was $12,000 higher under variable costing than under absorption costing. Given these facts, the number of units of product in inventory at the beginning of the year must have been:
    A.28,800 units
    B. 27,600 units
    C. 32,400 units
    D. 42,000 units

Unit fixed manufacturing overhead
= Difference in net income  Change in inventory
= $12,000  Change in inventory = $5
Change in inventory = 2,400 units
Beginning inventory = 2,400 + 30,000 = 32,400 units

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard

 

46. Ben Company produces a single product. Last year, the company’s net operating income under absorption costing was $4,400 lower than under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing. How many units did the company produce during the year?
    A.12,400 units
    B. 3,600 units
    C. 7,120 units
    D. 7,450 units

Unit fixed manufacturing overhead
= (Difference in income / Change in inventory)
= $4,400  Change in inventory = $1
Change in inventory = 4,400 units
Units produced during the year
= 8,000 units sold – 4,400 units change in inventory
= 3,600 units

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard

47. Mcferrin Corporation manufactures a variety of products. Last year, the company’s variable costing net operating income was $53,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $32,900. What was the absorption costing net operating income last year?
    A.$86,100
    B. $20,300
    C. $32,900
    D. $53,200

Absorption costing net income = Variable costing net income – fixed manufacturing overhead costs released from inventory
= $53,200 – $32,900 = $20,300

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

 

48. Last year, Wardrup Corporation’s variable costing net operating income was $67,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $600. What was the absorption costing net operating income last year?
    A.$67,800
    B. $66,600
    C. $67,200
    D. $600

Absorption costing net income = Variable costing net income – fixed manufacturing overhead costs released from inventory
= $67,200 – $600 = $66,600

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

49. Schrick Inc. manufactures a variety of products. Variable costing net operating income was $86,800 last year and ending inventory increased by 1,900 units. Fixed manufacturing overhead cost was $6 per unit. What was the absorption costing net operating income last year?
    A.$86,800
    B. $75,400
    C. $98,200
    D. $11,400

Fixed manufacturing overhead deferred = $6 x 1,900 = $11,400
Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred
= $86,800 + $11,400
= $98,200

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

 

50. Last year, Gransky Corporation’s variable costing net operating income was $52,100 and its ending inventory increased by 400 units. Fixed manufacturing overhead cost was $7 per unit. What was the absorption costing net operating income last year?
    A.$52,100
    B. $2,800
    C. $54,900
    D. $49,300

Fixed manufacturing overhead deferred = $7 x 400 = $2,800
Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred
= $52,100 + $2,800
= $54,900

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

 

 

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

 

51. The contribution margin per unit was:
    A.$17.50
    B. $32.50
    C. $27.30
    D. $25.70

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

52. Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year would be:
    A.$190,800
    B. $170,000
    C. $230,800
    D. $0

Unit fixed manufacturing overhead = $255,000  17,000 = $15
Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = ($153,000  17,000) + ($110,500  17,000) + ($204,000  17,000) + $15 = $42.50
Carrying value = Unit product cost x Ending inventory in units = $42.50 x (17,000 – 13,000) = $42.50 x 4,000 = $170,000

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Medium

53. Under variable costing, the company’s net operating income for the year would be:
    A.$60,000 higher than under absorption costing
    B. $108,000 higher than under absorption costing
    C. $108,000 lower than under absorption costing
    D. $60,000 lower than under absorption costing

Unit fixed manufacturing overhead x Change in inventory in units
= ($255,000  17,000) x (17,000 – 13,000)
= $15 x 4,000
= $60,000
Since the units produced are greater than the units sold (inventory increased), net income under absorption costing will be higher than net income under variable costing.Level: Hard

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3

 

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

54. What is the unit product cost for the month under variable costing?
    A.$73
    B. $44
    C. $79
    D. $38

Direct materials + Direct labor + Variable manufacturing overhead
= $22 + $12 + $4
= $38

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

55. What is the unit product cost for the month under absorption costing?
    A.$38
    B. $73
    C. $44
    D. $79

Unit fixed manufacturing overhead = $231,000  6,600 = $35
Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
= $22 + $12 + $4 + $35 = $73

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

56. The total contribution margin for the month under the variable costing approach is:
    A.$273,000
    B. $42,000
    C. $84,500
    D. $312,000

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

57. The total gross margin for the month under the absorption costing approach is:
    A.$13,000
    B. $91,800
    C. $273,000
    D. $84,500

Unit fixed manufacturing overhead = $231,000  6,600 = $35
Unit product cost under absorption costing = $22 + $12 + $4 + $35 = $73

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

58. What is the total period cost for the month under the variable costing approach?
    A.$263,500
    B. $71,500
    C. $302,500
    D. $231,000

Variable selling and administrative cost + Fixed costs
= ($6 x 6,500) + ($231,000 + $32,500)
= $39,000 + $263,500
= $302,500

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

 

59. What is the total period cost for the month under the absorption costing approach?
    A.$32,500
    B. $71,500
    C. $302,500
    D. $231,000

Variable selling and administrative cost + Fixed selling and administrative cost
= ($6 x 6,500) + $32,500
= $39,000 + $32,500
= $71,500

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

60. What is the net operating income for the month under variable costing?
    A.$13,000
    B. $5,700
    C. $9,500
    D. $3,500

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

61. What is the net operating income for the month under absorption costing?
    A.$9,500
    B. $3,500
    C. $5,700
    D. $13,000

Unit fixed manufacturing overhead = $231,000  6,600 = $35
Unit product cost under absorption costing = $22 + $12 + $4 + $35 = $73

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

 

Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:

Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.

 

62. Under absorption costing, the unit product cost would be:
    A.$9.00
    B. $12.00
    C. $13.40
    D. $14.00

Unit product cost under absorption costing
= ($100,000  25,000) + ($75,000  25,000) + ($50,000  25,000) + ($75,000  25,000)
= $4 + $3 + $2 + $3
= $12.00

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

63. Under absorption costing, the gross margin would be:
    A.$176,000
    B. $242,000
    C. $66,000
    D. $21,000

Unit fixed manufacturing overhead = $75,000  25,000 = $3
Unit product cost under absorption costing
= ($100,000  25,000) + ($75,000  25,000) + ($50,000  25,000) + ($75,000  25,000)
= $4 + $3 + $2 + $3
= $12

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

64. The contribution margin per unit would be:
    A.$15.00
    B. $11.00
    C. $8.00
    D. $6.00

Variable product cost
= ($100,000  25,000) + ($75,000  25,000) + ($50,000  25,000) = $9

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

65. Under variable costing, the total amount of fixed manufacturing cost in the ending inventory would be:
    A.$0
    B. $9,000
    C. $14,400
    D. $27,000

Under variable costing, all fixed manufacturing overhead is expensed in the period in which it is incurred. No fixed manufacturing overhead is added to the cost of inventory.

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

66. The net operating income under variable costing would be:
    A.$2,000
    B. $21,000
    C. $12,000
    D. $9,000

Variable product cost
= ($100,000  25,000) + ($75,000  25,000) + ($50,000  25,000) = $9
Variable selling and administrative cost
= $110,000  22,000 = $5

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

67. The net operating income under absorption costing would be:
    A.$9,000
    B. $12,000
    C. $2,000
    D. $21,000

Unit direct material = $100,000  25,000 = $4
Unit direct labor = $75,000  25,000 = $3
Unit variable manufacturing overhead = $50,000  25,000 = $2
Unit fixed manufacturing overhead = $75,000  25,000 = $3
Unit product cost under absorption costing = $4 + $3 + $2 + $3 = $12

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

68. What is the unit product cost for the month under variable costing?
    A.$122
    B. $108
    C. $99
    D. $131

Direct materials + Direct labor + Variable manufacturing overhead
= $40 + $53 + $6
= $99

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

69. What is the unit product cost for the month under absorption costing?
    A.$99
    B. $131
    C. $122
    D. $108

Unit fixed manufacturing overhead = $69,000  3,000 = $23
Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
= $40 + $53 + $6 + $23
= $122

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

70. What is the net operating income for the month under variable costing?
    A.$2,300
    B. $(600)
    C. $9,300
    D. $11,600

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

71. What is the net operating income for the month under absorption costing?
    A.$11,600
    B. $2,300
    C. $(600)
    D. $9,300

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
= $40 + $53 + $6 + $23
= $122

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations:

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.

 

72. What is the unit product cost for the month under variable costing?
    A.$78
    B. $105
    C. $73
    D. $110

Direct materials + Direct labor + Variable manufacturing overhead
= $45 + $27 + $1
= $73

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

 

73. What is the unit product cost for the month under absorption costing?
    A.$78
    B. $73
    C. $105
    D. $110

Unit fixed manufacturing overhead = $41,600  1,300 = $32
Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
= $45 + $27 + $1 + $32
= $105

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

74. What is the net operating income for the month under variable costing?
    A.$4,500
    B. $10,900
    C. $25,500
    D. $12,800

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

75. What is the net operating income for the month under absorption costing?
    A.$4,500
    B. $12,800
    C. $25,500
    D. $10,900

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
= $45 + $27 + $1 + $32
= $105

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

Hackney Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

76. What is the unit product cost for the month under variable costing?
    A.$92
    B. $107
    C. $100
    D. $85

Direct materials + Direct labor + Variable manufacturing overhead
= $30 + $52 + $3
= $85

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

77. The total contribution margin for the month under the variable costing approach is:
    A.$47,000
    B. $117,500
    C. $12,600
    D. $84,600

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

78. What is the total period cost for the month under the variable costing approach?
    A.$42,300
    B. $81,400
    C. $114,300
    D. $72,000

Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost
= ($7 x 4,700) + $72,000 + $9,400
= $32,900 + $72,000 + $9,400
= $114,300

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Hard

 

79. What is the net operating income for the month under variable costing?
    A.$4,700
    B. $(5,300)
    C. $1,500
    D. $3,200

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

Ilford Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

80. What is the unit product cost for the month under variable costing?
    A.$87
    B. $64
    C. $68
    D. $83

Product cost = Direct materials + Direct labor + Variable manufacturing overhead
= $27 + $35 + $2
= $64

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

81. What is the net operating income for the month under variable costing?
    A.$1,200
    B. $5,700
    C. $6,900
    D. $(18,000)

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

 

Crystal Company produces a single product. The company’s variable costing income statement for the month of May appears below:

The company produced 80,000 units in May and the beginning inventory consisted of 25,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months.

 

82. The dollar value of the company’s inventory on May 31 under the absorption costing method would be:
    A.$120,000
    B. $90,000
    C. $75,000
    D. $60,000

Units sold = $900,000  $10 = 90,000
Ending inventory = Beginning inventory + Units produced – Units sold
= 25,000 + 80,000 – 90,000
= 15,000
Unit fixed manufacturing overhead = $240,000  80,000 = $3
Unit product cost
= ($450,000  90,000) + $3
= $5 + $3
= $8
Value of ending inventory = Unit product cost x Units in ending inventory
= $8 x 15,000 = $120,000

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

 

 

83. Under absorption costing, for the month ended May 31, the company would report a:
    A.$30,000 loss
    B. $0 profit
    C. $30,000 profit
    D. $60,000 profit

Unit fixed manufacturing cost = $240,000  80,000 = $3
Unit product cost
= ($450,000  90,000) + $3
= $5 + $3
= $8
Units sold = $900,000  $10 = 90,000

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Hard

 

 

Erie Company manufactures a single product. Assume the following data for the year just completed:

There were no units in inventory at the beginning of the year. During the year 30,000 units were produced and 25,000 units were sold. Each unit sells for $35.

 

84. Under absorption costing, the unit product cost would be:
    A.$8.00
    B. $17.75
    C. $13.00
    D. $10.75

Unit fixed product cost = $82,500  30,000 = $2.75
Unit product cost = Variable product cost + Fixed product cost
= $8.00 + $2.75
= $10.75

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

85. The company’s net operating income under variable costing would be:
    A.$407,500
    B. $421,250
    C. $431,250
    D. $417,500

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

Gallager Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

86. The total contribution margin for the month under the variable costing approach is:
    A.$303,600
    B. $132,000
    C. $356,400
    D. $72,400

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

 

87. The total gross margin for the month under the absorption costing approach is:
    A.$303,600
    B. $132,000
    C. $19,800
    D. $148,600

Unit fixed manufacturing overhead = $231,200  6,800 = $34
Unit product cost = $22 + $23 + $4 + $34 = $83

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

88. What is the total period cost for the month under the variable costing approach?
    A.$290,600
    B. $112,200
    C. $231,200
    D. $343,400

Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost
= $8 x 6,600 + $231,200 + $59,400
= $52,800 + $231,200 + $59,400
= $343,400

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Hard

 

89. What is the total period cost for the month under the absorption costing approach?
    A.$59,400
    B. $112,200
    C. $343,400
    D. $231,200

Period cost = Variable selling and administrative cost + Fixed selling and administrative cost
= $8 x 6,600 + $59,400
= $112,200

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Hard

 

During its first year of operations, Holt Manufacturing Company incurred the following costs to produce 200,000 units of its only product:

Holt also incurred the following costs in the sale of 180,000 units of product during its first year:

Assume that direct labor is a variable cost.

 

90. What would be the cost per unit of Holt’s finished goods inventory at the end of the first year of operations under the variable costing method?
    A.$2.34
    B. $2.74
    C. $4.50
    D. $6.30

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead
= ($144,000  200,000) + ($108,000  200,000) + ($216,000  200,000)
= $0.72 + $0.54 + $1.08
= $2.34

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

91. What would be the cost per unit of Holt’s finished goods inventory at the end of the first year of operations under the absorption costing method?
    A.$2.34
    B. $2.74
    C. $4.50
    D. $6.30

Unit fixed manufacturing overhead = $432,000  200,000 = $2.16
= ($144,000  200,000) + ($108,000  200,000) + ($216,000  200,000) + $2.16
= $0.72 + $0.54 + $1.08 + $2.16
= $4.50

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

92. If Holt’s variable costing net operating income for this first year is $397,800, what would its absorption costing net operating income be for this first year?
    A.$354,600
    B. $441,000
    C. $445,800
    D. $473,800

Unit fixed manufacturing overhead = $432,000  200,000 = $2.16
Variable costing net income = Absorption costing net income – (Unit fixed manufacturing overhead x Change in inventory in units)
$397,800 = Absorption costing net income – [$2.16 x (200,000 – 180,000)]
$397,800 = Absorption costing net income – $43,200
Absorption costing net income = $441,000

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 3
Level: Medium

 

Ross Company produces a single product. The company has direct materials costs of $8 per unit, direct labor costs of $6 per unit, and manufacturing overhead of $10 per unit. Sixty percent of the manufacturing overhead is for fixed costs. In addition, variable selling and administrative costs are $2 per unit, and fixed selling and administrative costs are $3 per unit at the current activity level. Assume that direct labor is a variable cost.

 

93. Under absorption costing, the unit product cost is:
    A.$24
    B. $20
    C. $26
    D. $29

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $8 + $6 + $10* = $24
* Manufacturing overhead cost of $10 includes variable and fixed costs.

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

94. Under variable costing, the unit product cost is:
    A.$24
    B. $20
    C. $18
    D. $21

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $8 + $6 + [$10 x (100% – 60%)] = $8 + $6 + $4= $18

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

Bawcutt Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

95. What is the unit product cost for the month under variable costing?
    A.$93
    B. $62
    C. $66
    D. $97

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $10 + $45 + $7 = $62

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

96. What is the unit product cost for the month under absorption costing?
    A.$62
    B. $93
    C. $97
    D. $66

Unit fixed manufacturing overhead = $263,500  8,500 = $31
Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $10 + $45 + $7 + $31 = $93

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

 

 

Dearman Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

 

97. What is the total period cost for the month under the variable costing approach?
    A.$98,700
    B. $64,400
    C. $65,100
    D. $129,500

Total variable selling and administrative cost = $11 x 2,800 = $30,800
Period cost = Total variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost = $30,800 + $65,100 + $33,600 = $129,500

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

98. What is the total period cost for the month under the absorption costing approach?
    A.$33,600
    B. $65,100
    C. $129,500
    D. $64,400

Total variable selling and administrative cost = $11 x 2,800 = $30,800
Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $30,800 + $33,600 = $64,400

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

 

 

Mcgougan Corporation produces a single product and has the following cost structure:

 

 

99. The unit product cost under absorption costing is:
    A. $126
    B. $158
    C. $139
    D. $121

Unit fixed manufacturing overhead = $91,000  7,000 = $13
Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $81 + $40 + $5 + $13 = $139

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

 

100. The unit product cost under variable costing is:
     A.$139
     B. $126
     C. $122
     D. $127

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $81 + $40 + $5 = $126

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

 

 

Slovick Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories.

 

 

101. The unit product cost under absorption costing was:
     A. $161
     B. $199
     C. $262
     D. $168

Unit fixed manufacturing overhead = $31,000  1,000 = $31
Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost + Fixed manufacturing overhead cost = $79 + $82 + $7 + $31 = $199

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

102. The unit product cost under variable costing was:
     A.$168
     B. $164
     C. $199
     D. $171

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $79 + $82 + $7 = $168

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

 

Clubb Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

 

103. The total contribution margin for the month under the variable costing approach is:
     A.$38,000
     B. $92,000
     C. $170,200
     D. $119,600

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

 

 

104. The total gross margin for the month under the absorption costing approach is:
     A.$110,000
     B. $92,000
     C. $119,600
     D. $13,800

Unit fixed manufacturing overhead = $81,600  4,800 = $17
Unit product cost under absorption costing = $48 + $23 + $2 + $17 = $90

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

 

 

 

Elder Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

 

105. What is the net operating income for the month under variable costing?
     A.$9,800
     B. $(27,400)
     C. $15,400
     D. $5,600

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

106. What is the net operating income for the month under absorption costing?
     A.$(27,400)
     B. $5,600
     C. $9,800
     D. $15,400

Unit fixed manufacturing overhead = $113,400  8,100 = $14
Unit product cost under absorption costing = $27 + $59 + $7 + $14 = $107

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

 

Kidwell Company, which has only one product, has provided the following data concerning its most recent month of operations:

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.

107. What is the net operating income for the month under variable costing?
     A. $5,800
     B. $5,400
     C. $8,300
     D. $16,000

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

108. What is the net operating income for the month under absorption costing?
     A.$5,800
     B. $16,000
     C. $5,400
     D. $8,300

Unit fixed manufacturing overhead = $153,700  5,300 = $29
Unit product cost under absorption costing = $38 + $38 + $1 + $29 = $106

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

 

 

Botwinick Corporation manufactures a variety of products. The following data pertain to the company’s operations over the last two years:

109. What was the absorption costing net operating income last year?
     A. $57,000
     B. $28,000
     C. $58,000
     D. $88,000

Absorption costing net income
= Variable costing net operating income + Fixed manufacturing overhead deferred = $58,000 + $30,000 = $88,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

 

110. What was the absorption costing net operating income this year?
     A.$98,000
     B. $36,000
     C. $68,000
     D. $66,000

Absorption costing net income = Variable costing net operating income – Fixed manufacturing overhead released
= $67,000 – $31,000
= $36,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

Schubert Corporation manufactures a variety of products. Variable costing net operating income last year was $59,000 and this year was $70,000. Last year, $31,000 in fixed manufacturing overhead costs were released from inventory under absorption costing. This year, $22,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing.

 

111. What was the absorption costing net operating income last year?
     A.$90,000
     B. $59,000
     C. $28,000
     D. $68,000

Absorption costing net income = Variable costing net operating income – Fixed manufacturing overhead released
= $59,000 – $31,000
= $28,000

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

 

 

 

112. What was the absorption costing net operating income this year?
     A.$92,000
     B. $58,000
     C. $79,000
     D. $61,000

Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred
= $70,000 + $22,000
= $92,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

Dewiel Corporation manufactures a variety of products. The following data pertain to the company’s operations over the last two years:

 

 

113. What was the absorption costing net operating income last year?
     A.$90,900
     B. $96,900
     C. $84,900
     D. $92,100

Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred
= $90,900 + ($4 x 1,500)
= $96,900

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

114. What was the absorption costing net operating income this year?
     A.$105,900
     B. $115,500
     C. $89,700
     D. $109,500

Absorption costing net income = Variable costing net operating income – Fixed manufacturing overhead released
= $110,700 – ($4 x 1,200)
= $105,900

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

 

Caparros Corporation manufactures a variety of products. Variable costing net operating income was $62,800 last year and was $74,900 this year. Last year, ending inventory decreased by 3,300 units. This year, ending inventory increased by 1,900 units. Fixed manufacturing overhead cost is $7 per unit.

 

115. What was the absorption costing net operating income last year?
     A.$72,600
     B. $85,900
     C. $62,800
     D. $39,700

Absorption costing net income = Variable costing net operating income – Fixed manufacturing overhead released
= $62,800 – ($7 x 3,300)
= $39,700

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

116. What was the absorption costing net operating income this year?
     A.$88,200
     B. $65,100
     C. $61,600
     D. $53,000

Absorption costing net income
= Variable costing net operating income + Fixed manufacturing overhead deferred
= $74,900 + ($7 x 1,900)
= $88,200

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

 

 

Essay Questions

117. Leibson Company, which has only one product, has provided the following data concerning its most recent month of operations:

     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 a contribution format income statement for the month using variable costing.

     d. Prepare an income statement for the month using absorption costing.

     e. Reconcile the variable costing and absorption costing net operating incomes for the month.

118. & b. Unit product costs

119. & d. Income statements

     e. Reconciliation

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Hard
118. Mafli Company, which has only one product, has provided the following data concerning its most recent month of operations:

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 a contribution format income statement for the month using variable costing.

d. Prepare an income statement for the month using absorption costing.

e. Reconcile the variable costing and absorption costing net operating incomes for the month.

 

 

1. & b. Unit product costs

   c. & d. Income statements

   e. Reconciliation

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Medium
119. Fowler Company manufactures a single product. Operating data for the company and its absorption costing income statements for the last two years are presented below:

Variable manufacturing costs are $6 per unit. Fixed manufacturing overhead totals $72,000 in each year. This overhead is applied at the rate of $4 per unit. Variable selling and administrative expenses are $2 per unit sold.

Required:

a. What was the unit product cost in each year under variable costing?

b. Prepare new income statements for each year using variable costing.

c. Reconcile the absorption costing and variable costing net operating income for each year.

1. The manufacturing cost of $6 per unit is the unit product cost under variable costing in both years.

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Medium

 

120. Pachur Company, which has only one product, has provided the following data concerning its most recent month of operations:

     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 a contribution format income statement for the month using variable costing.

     c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Hard

 

121. Qiu Company, which has only one product, has provided the following data concerning its most recent month of operations:

     Required:

     a. What is the unit product cost for the month under variable costing?

     b. Prepare a contribution format income statement for the month using variable costing.

     c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Medium

 

 

122. Penna Corporation produces a single product and has the following cost structure:

     Required:

     a. Compute the unit product cost under absorption costing. Show your work!

     b. Compute the unit product cost under variable costing. Show your work!

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

123. Smolinski Corporation produces a single product and has the following cost structure:

     Required:

     Compute the unit product cost under absorption costing. Show your work!

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

124. Mascioli Corporation produces a single product and has the following cost structure:

     Required:

     Compute the unit product cost under variable costing. Show your work!

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

125. Nimocks Inc., which produces a single product, has provided the following data for its most recent month of operation:

     The company had no beginning or ending inventories.

     Required:

     a. Compute the unit product cost under absorption costing. Show your work!

     b. Compute the unit product cost under variable costing. Show your work!

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

126. Przygocki Inc., which produces a single product, has provided the following data for its most recent month of operation:

     The company had no beginning or ending inventories.

     Required:

     Compute the unit product cost under absorption costing. Show your work!

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

127. Friddell Inc., which produces a single product, has provided the following data for its most recent month of operation:

     The company had no beginning or ending inventories.

     Required:

     Compute the unit product cost under variable costing. Show your work!

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

 

128. Data concerning Sonderegger Company’s operations last year appear below:

     Required:

     a. Prepare an income statement for the year using absorption costing.

     b. Prepare a contribution format income statement for the year using variable costing.

     c. Prepare a report reconciling the difference in net operating income between absorption and variable costing for the year.

129. * $6 = $2.00 + $1.00 + $1.00 + $140,000/70,000
     **$150,000 + 60,000 units x $1.50 per unit

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 3
Level: Medium

 

129. The Hadfield Company manufactures and sells a unique electronic part. The company’s plant is highly automated with low variable and high fixed manufacturing costs. Operating results on an absorption costing basis for the first three years of activity were as follows:

     Additional information about the company is as follows:

     – Variable manufacturing costs (direct labor, direct materials, and variable manufacturing overhead) total $3 per unit, and fixed manufacturing overhead costs total $400,000.
     – Fixed manufacturing costs are applied to units of product on the basis of the number of units produced each year (i.e., a new fixed manufacturing overhead rate is computed each year).
     – The company uses a FIFO inventory flow assumption.
     – Variable selling and administrative expenses are $2 per unit sold. Fixed selling and administrative expenses total $100,000.
     – Production and sales information for the three years is as follows:

     Required:

     a. Compute net operating income for each year under the variable costing approach.

     b. Referring to the absorption costing income statements above, explain why net operating income was higher in Year 2 than in Year 1 under absorption costing, in light of the fact that fewer units were sold in Year 2 than in Year 1.

     c. Referring again to the absorption costing income statements, explain why the company suffered a loss in Year 3 but reported a profit in Year 1, although the same number of units was sold in each year.

     d. If the company had used lean production during Year 2 and Year 3 and produced only what could be sold, what would the company’s net operating income (loss) have been each year under absorption costing?

130. Production increased sharply in Year 2 even though unit sales declined. The increase in production resulted in a lower unit product cost in Year 2 than in Year 1. Furthermore, because production exceeded sales, fixed manufacturing overhead costs were deferred in inventories. These effects more than offset the loss of revenue due to lower sales. The company’s income thus rose even though sales were down.

     c. Production decreased sharply in Year 3. This resulted in an increase in the unit product cost. In addition, inventories decreased and as a result fixed manufacturing overhead deferred in inventories in Year 2 were released to the income statement in Year 3.

     d. If lean production had been in use, the net operating income under absorption costing would have been the same as under variable costing in all three years. With production geared to sales, there would have been no ending inventory, and therefore, there would have been no fixed manufacturing overhead costs deferred in inventory to other years.

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 4
Level: Hard

 

130. Neuman Company, which has only one product, has provided the following data concerning its most recent month of operations:

     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. Prepare a contribution format income statement for the month using variable costing.

     b. Prepare an income statement for the month using absorption costing.

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Hard

 

131. O’Bannion Company, which has only one product, has provided the following data concerning its most recent month of operations:

     Required:

     a. Prepare a contribution format income statement for the month using variable costing.

     b. Prepare an income statement for the month using absorption costing.

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

132. Boyar Corporation manufactures a variety of products. The following data pertain to the company’s operations over the last two years:

     Required:

     a. Determine the absorption costing net operating income last year. Show your work!

     b. Determine the absorption costing net operating income this year. Show your work!

133. and b.

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

 

 

133. Soffer Corporation manufactures a variety of products. Last year, variable costing net operating income was $72,000. The fixed manufacturing overhead costs released from inventory under absorption costing amounted to $24,000.

     Required:

     Determine the absorption costing net operating income last year. Show your work!

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

134. Last year, Jaquet Corporation’s variable costing net operating income was $58,000. The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $9,000.

     Required:

     Determine the absorption costing net operating income last year. Show your work!

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

 

135. Eagen Corporation manufactures a variety of products. The following data pertain to the company’s operations over the last two years:

     Required:

     a. Determine the absorption costing net operating income for last year. Show your work!

     b. Determine the absorption costing net operating income for this year. Show your work!

136. and b.

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

 

136. Cardwell Corporation manufactures a variety of products. Last year, the company’s variable costing net operating income was $63,900 and ending inventory increased by 900 units. Fixed manufacturing overhead cost per unit was $3.

     Required:

     Determine the absorption costing net operating income for last year. Show your work!

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

 

137. Last year, Brunkow Corporation’s variable costing net operating income was $93,500 and ending inventory increased by 800 units. Fixed manufacturing overhead cost per unit was $7.

     Required:

     Determine the absorption costing net operating income for last year. Show your work!

 

 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium