ACCT CH 6

Under absorption costing, a company had the following unit costs when 9,000 units were produced. Direct labor: $7.25 per unit Direct material: $8.00 per unit Variable overhead:$5.50 per unit Fixed overhead ($67,500/9,000 units): $7.50 per unit Total production cost: $28.25 per unit Compute the total product cost per unit under variable costing if 30,000 units had been produced.

20.75

Under absorption costing, a company had the following unit costs when 9,000 units were produced. Direct labor: $7.25 per unit Direct material: $8.00 per unit Variable overhead:$5.50 per unit Fixed overhead ($67,500/9,000 units): $7.50 per unit Total production cost: $28.25 per unit Compute the total product cost per unit under absorption costing if 25,000 units had been produced.

23.45

Under absorption costing, a company had the following unit costs when 8,000 units were produced. Direct labor: $8.50 per unit Direct material: $9.00 per unit Variable overhead: $6.75 per unit Fixed overhead ($60,000/8,000 units): $7.50 per unit Total production cost: $31.75 per unit Compute the total production cost per unit under variable costing if 25,000 units had been produced.

24.25

A company is currently operating at 75% capacity and producing 3,000 units. Current cost information relating to this production is shown in the table below: Per UnitSales price$43 Direct material$7 Direct labor$6 Variable overhead$4 Fixed overhead$4 The company has been approached by a customer with a request for a 200-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Any amount over $17

A company is currently operating at 80% capacity producing 5,000 units. Current cost information relating to this production is shown in the table below: Per UnitSales price$34 Direct material$2 Direct labor$3 Variable overhead$4 Fixed overhead$5 The company has been approached by a customer with a request for a 100-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Any amount over $9

Which of the following would be reported on a variable costing income statement?

Contribution margin

Under absorption costing, which of the following statements is not true?

Fixed inventory costs are treated in the same manner as they are under variable costing.

Which of the following is not a product cost under variable costing?

Fixed manufacturing overhead.

Which of the following statements is true regarding absorption costing?

It assigns all manufacturing costs to products.

When the number of units sold exceed the number of units produced, income reported under absorption costing will be lower than variable costing. Which of the following gives the best justification of the above statement?

The fixed overhead cost deferred in ending inventory is less than the fixed overhead cost recognized from beginning inventory.

Which of the following statements is true?

Under variable costing, fixed manufacturing overhead is expensed as period expenses.

Over the long run, the starting point for setting selling prices should be established by adding the target markup to the _________ cost per unit.

absorption

When manager bonuses are tied to income computed under ___________ costing, these managers may be tempted (even enticed) to increase production, since doing so will increase income and their bonuses.

absorption

The fixed overhead cost in ending inventory is ___________ the variable costing income when reconciling income under variable costing to income under absorption costing.

added to

An income statement prepared using the ___________ highlights the impact of each cost element for income and is also useful in aiding managers in pricing.

contribution format

An income statement under variable costing includes all of the following

direct materials direct labor variable overhead

Higher-level managers usually make decisions to change a company's ___________ costs.

fixed

Under absorption costing, when ___________ units are produced than are sold, some of the fixed overhead is assigned to ending inventory on the balance sheet.

more

When production is less than sales, the use of absorption costing:

produces a lower net income than the use of variable costing

Freshmart, Inc., began operations last year when it produced and sold the same number of units. This year, the company produced 1,000 units and sold 750 units at a selling price of $100 per unit. Fixed overhead costs totaled $30,000 and fixed selling and administrative expenses were $15,000. Variable production costs were $25.00 per unit while variable selling and administrative expenses were $10.00 per unit. Using absorption costing, net income was:

$11250 Per unit production costs = variable costs of $25 + fixed overhead cost of $30 (or $30,000 ÷ 1,000 units) = $55 Net income = Sales of $75,000 (or 750 units x $100 per unit) - Cost of goods sold of $41,250 (or 750 units x $55 per unit) - Selling and administrative expenses of $22,500 (or (750 units x $10 per unit) + $15,000) = $11,250

Units produced: 1,000 Direct materials: $6 Direct labor: $10 Fixed overhead: $6,000 Variable overhead: $6 Fixed selling and administrative: $2,000 Variable selling and administrative: $2 The cost per unit under variable costing is:

$22 direct materials + direct labor + variable overhead = 6 + 10 + 6 = 22

Mentor Corp. has provided the following information for the current year: Units produced: 3,500 units Sale price: $200 per unit Direct materials: $70 per unit Direct labor: $55 per unit Variable manufacturing overhead: $20 per unit Fixed manufacturing overhead: $350,000 per year Variable selling and administrative costs: $30 per unit Fixed selling and administrative costs: $150,000 per year Calculate the unit product cost using variable costing.

$145

Freshmart, Inc., began operations this year. The company produced 1,000 units and sold 1,000 units at a selling price of $100 per unit. Fixed overhead costs totaled $30,000 and fixed selling and administrative expenses were $15,000. Variable production costs were $25.00 per unit while variable selling and administrative expenses were $10.00 per unit. Using absorption costing, net income was:

20000 Absorption costing = direct materials cost per unit + direct labor cost per unit + variable overhead cost per unit + fixed overhead cost per unit Absorption costing = 10 + 25 + (15000/1000) + (30000/1000) = 80 Sales (1000 x $100) = 100000 Cost of Goods Sold (80 x 1000)= 80000 Net income = 100000-80000= 20000

Geneva Company manufactures dolls that are sold to various customers. The company works at full capacity for half the year to meet peak demand, and operates at 80% capacity for the other half of the year. The following information is provided: Units produced and sold 600,000 unitsSelling price$35/unitVariable manufacturing costs$20/unitFixed manufacturing costs$1,200,000/yr.Variable selling and administrative costs$6/unitFixed selling and administrative costs$950,000/yr. Geneva receives a purchase order to make 5,000 dolls as a one-time event. The good news is that this order is during a period when Geneva does have sufficient excess capacity. What is the lowest selling price Geneva should accept for this purchase order?

26

Which of the following statements is true?

Variable costing treats fixed overhead as a period cost.

Using absorption costing, which of the following manufacturing costs are assigned to products?

Variable manufacturing overhead, direct materials, direct labor, and fixed manufacturing overhead.

An income statement under absorption costing includes all of the following:

direct materials direct labor variable overhead fixed overhead

When evaluating a special order, management should:

Only accept the order if the incremental revenue exceeds total variable product costs.

Which of the following costing methods charges all manufacturing costs to its products?

absorption costing

Mentor Corp. has provided the following information for the current year: Units produced: 3,500 units Sale price: $200 per unit Direct materials: $70 per unit Direct labor: $55 per unit Variable manufacturing overhead: $20 per unit Fixed manufacturing overhead: $350,000 per year Variable selling and administrative costs: $30 per unit Fixed selling and administrative costs: $150,000 per year Calculate the unit product cost using absorption costing.

$245

Managers cannot increase income under ___________ costing by merely increasing production without increasing sales.

variable

Units produced: 1,000 Direct materials: $6 Direct labor: $10 Fixed overhead: $6,000 Variable overhead: $6 Fixed selling and administrative: $2,000 Variable selling and administrative: $2 The total product cost per unit under absorption costing is:

$28 Direct materials + direct labor + fixed overhead + variable overhead= 6 + 10 + (6000/1000) + 6 = $28

Which of the following statements is true regarding variable costing?

Only manufacturing costs that change in total with changes in production level are included in product costs.