CH 21 ACC

20) Dentofax Inc. reports the following information for August: Sale revenue $800,000 Variable cost of goods sold 200,000 Fixed cost of goods sold 100,000 Variable selling and administrative costs 150,000 Fixed selling and administrative costs 75,000 Calculate the operating income for August using absorption costing. A) $275,000 B) $350,000 C) $425,000 D) $525,000

A) $275,000

13) Which of the following statements is true of absorption and variable costing systems? A) Both costing methods consider selling and administrative costs to be period costs. B) Variable costing considers variable selling and administrative costs to be product costs. C) Absorption costing considers fixed manufacturing overhead to be period costs. D) Both costing methods consider fixed manufacturing overhead to be product costs.

A) Both costing methods consider selling and administrative costs to be period costs.

22) Zertrax Inc. reports the following information for July: Sale revenue $900,000 Variable costs 190,000 Operating income 600,000 What is the total fixed cost as per variable costing? A) $45,000 B) $110,000 C) $10,000 D) $135,000

B) $110,000

16) Nice Aqua Inc. has provided the following information for the year 2013. Units produced 8,000 units Sale price $400 per unit Direct materials $35 per unit Direct labor $25 per unit Variable manufacturing overhead $45 per unit Fixed manufacturing overhead $480,000 per year Variable selling and administrative costs $70 per unit Fixed selling and administrative costs $250,000 per year What is the unit product cost using absorption costing? A) $120 B) $165 C) $130 D) $105

B) $165 dm+dl+v moh +f moh

17) Jupiter Inc. reports the following information for August: Sale revenue $800,000 Variable costs 200,000 Fixed costs 100,000 Calculate the contribution margin for the month of August. A) $450,000 B) $600,000 C) $700,000 D) $650,000

B) $600,000

33) When production is more than sales, the operating income will be higher under absorption costing than variable costing. Assume zero beginning inventories. Which of the following gives the correct reason for the above statement? A) all costs incurred have been recorded as expenses B) a portion of the fixed manufacturing overhead is still in the ending Finished Goods Inventory account C) all selling and administrative expenses have been recorded as period costs D) fixed manufacturing costs have not been considered while calculating the operating profits

B) a portion of the fixed manufacturing overhead is still in the ending Finished Goods Inventory account

10) Gross profit is calculated by deducting ________ from sales revenue. A) total fixed costs B) cost of goods sold C) total variable costs D) selling and administrative costs

B) cost of goods sold

9) Which of the following is considered a period cost in absorption costing? A) variable manufacturing overhead costs B) fixed selling and administrative costs C) fixed manufacturing overhead costs D) semi-variable manufacturing overhead costs

B) fixed selling and administrative costs

26) In its first year of business, Greenlam Inc. produced 600 units and sold 400 units. If Greenlam uses variable costing, ________. A) its operating profit for the period will be higher than absorption costing B) its operating profit for the period will be lower than absorption costing C) its value of ending inventory reported in the balance sheet will be higher than absorption costing D) its operating profit will be the same under absorption costing

B) its operating profit for the period will be lower than absorption costing

29) When there are no beginning or ending finished goods inventories, ________. A) variable and absorption costing will result in different values for ending finished goods inventories B) variable and absorption costing will result in the same operating profits C) variable and absorption costing will result in different sales revenue D) variable and absorption costing will result in different values for cost of goods sold

B) variable and absorption costing will result in the same operating profits

7) Variable costing considers only ________ costs when determining product costs. A) fixed manufacturing B) variable manufacturing C) variable selling and administrative D) fixed selling and administrative

B) variable manufacturing

4) Period costs under the variable costing method include ________. A) variable manufacturing overhead B) variable selling and administrative costs C) direct materials D) direct labor

B) variable selling and administrative costs

15) Nice Aqua Inc. has provided the following information for the year 2013. Units produced 8,000 units Sale price $400 per unit Direct materials $35 per unit Direct labor $25 per unit Variable manufacturing overhead $45 per unit Fixed manufacturing overhead $480,000 per year Variable selling and administrative costs $70 per unit Fixed selling and administrative costs $250,000 per year What is the unit product cost using variable costing? A) $135 B) $100 C) $105 D) $165

C) $105

18) Jupiter Inc. reports the following information for August: Sale revenue $800,000 Variable costs 200,000 Fixed costs 75,000 Calculate the operating income for August using variable costing. A) $625,000 B) $450,000 C) $525,000 D) $420,000

C) $525,000

1) Which of the following statements is true of absorption costing? A) It considers variable selling and administrative costs as product costs. B) It considers fixed selling and administrative costs as product costs. C) It considers fixed manufacturing overhead cost as product costs. D) It considers variable manufacturing overhead cost as period costs.

C) It considers fixed manufacturing overhead cost as product costs.

30) Which of the following costing methods charges all the manufacturing costs to the products? A) variable costing B) direct costing C) absorption costing D) contribution costing

C) absorption costing

8) Which of the following is considered a period cost under variable costing but not under absorption costing? A) fixed selling and administrative costs B) variable manufacturing costs C) fixed manufacturing overhead D) variable selling and administrative costs

C) fixed manufacturing overhead

34) When production is less than sales, the operating income will be lower under absorption costing than variable costing. Assume zero ending inventories. Which of the following gives the correct reason for the above statement? A) all costs incurred have been recorded as expenses B) a portion of the fixed manufacturing overhead is still in the ending Finished Goods Inventory account C) the units in the beginning finished goods inventory have manufacturing fixed costs assigned to them D) fixed manufacturing costs have not been considered while calculating the operating profits

C) the units in the beginning finished goods inventory have manufacturing fixed costs assigned to them

21) In variable costing, fixed manufacturing overhead is considered a period cost because ________. A) these costs are indirectly related to production B) these are not incurred in the period in which the units are produced C) these costs are incurred whether or not the company manufactures any goods D) these costs are direct costs incurred for production

C) these costs are incurred whether or not the company manufactures any goods

5) Unit product cost calculations using absorption costing does not include ________. A) fixed manufacturing overhead B) variable manufacturing overhead C) variable selling and administrative costs D) direct materials

C) variable selling and administrative costs

19) Nimtrans Inc. reports the following information for August: Sale revenue $800,000 Variable cost of goods sold 200,000 Fixed cost of goods sold 100,000 Variable selling and administrative costs 150,000 Fixed selling and administrative costs 75,000 Calculate the gross profit for August using absorption costing? A) $725,000 B) $650,000 C) $600,000 D) $500,000

D) $500,000

35) Kaycom Inc. reports the following information: Units produced 500 units Units sold 500 units Sale price $110 per unit Direct materials $20 per unit Direct labor $15 per unit Variable manufacturing overhead $10 per unit Fixed manufacturing overhead $15,000 per year Variable selling and administrative costs $5 per unit Fixed selling and administrative costs $10,000 per year What is the amount of unit product cost that will be considered for external reporting purposes? A) $45 B) $65 C) $85 D) $75

D) $75

2) Which of the following statements is true of variable costing? A) It considers variable manufacturing overhead as period costs. B) It considers fixed manufacturing overhead as product costs. C) It considers variable selling and administrative costs as product costs. D) It considers fixed selling and administrative costs as period costs.

D) It considers fixed selling and administrative costs as period costs.

6) Which of the following is true of the traditional format of the income statement? A) It is prepared under the variable costing method. B) It shows contribution margin as a line item. C) It is not allowed under the US GAAP. D) It is prepared under the absorption method.

D) It is prepared under the absorption method.

11) Which of the following will appear as a line item in the traditional format of an income statement? A) contribution margin B) total variable costs (manufacturing and non-manufacturing) C) total fixed costs (manufacturing and non-manufacturing) D) gross profit

D) gross profit

31) A variable costing income statement is used for ________. A) filing income tax returns B) external reporting purposes C) determining the amount of gross profit D) internal decision making purposes

D) internal decision making purposes

27) In its first year of business, Greenlam Inc. produced and sold 600 units. If Greenlam uses variable costing, ________. A) its operating profit for the period will be higher than absorption costing B) its operating profit for the period will be lower than absorption costing C) its value of ending inventory reported in the balance sheet will be higher than absorption costing D) its operating profit will be the same under absorption costing

D) its operating profit will be the same under absorption costing

14) Contribution margin is calculated by deducting ________ from sales revenue. A) total product costs B) total selling and administrative costs C) total fixed costs D) total variable costs

D) total variable costs

32) When all of the units produced are sold, the operating income will be the same under both the costing methods. (Assume no beginning inventories.) Which of the following gives the correct reason for the above statement? A) all costs incurred have been recorded as expenses B) a portion of the fixed manufacturing overhead is still in the Finished Goods Inventory account C) all selling and administrative expenses have been recorded as period costs D) fixed manufacturing costs have not been considered while calculating the operating profits

A) all costs incurred have been recorded as expenses

3) Following Generally Accepted Accounting Principles, the income statement issued to investors and creditors must ________. A) be prepared in the traditional format B) be prepared using variable costing C) be prepared in the contribution margin format D) show the value of contribution margin

A) be prepared in the traditional format

12) Which of the following will appear as a line item in the income statement prepared under variable costing? A) contribution margin B) total cost of goods sold C) work-in-process inventory D) gross profit

A) contribution margin

28) Greenlam Inc. started the year with 200 units in the Finished Goods Inventory account. It produced 600 units during the year and sold 800 units. If Greenlam uses variable costing: A) its operating profit for the period will be higher than absorption costing. B) its operating profit for the period will be lower than absorption costing. C) its value of ending inventory reported in the balance sheet will be higher than absorption costing. D) its operating profit will be the same under absorption costing.

A) its operating profit for the period will be higher than absorption costing.

24) The following data has been provided by Zimtex Inc. for the year 2015. Units produced and sold 5,500 units Sale price $300 per unit Direct materials $90 per unit Direct labor $50 per unit Variable manufacturing overhead $40 per unit Fixed manufacturing overhead $110,000 per year Fixed selling and administrative costs $150,000 per year There are no beginning inventories. Prepare an income statement using the contribution margin format.

Answer: Zimtex Inc. Income Statement Year Ended December 31, 2015 Sales Revenue 1,650,000 - Variable Costs 990,000 Contribution Margin 660,000 - Fixed Costs 260,000 Operating Income 400,000 Explanation: *$990,000 (Variable costs) = 5,500 units × ($90 + $50 + $40) **$260,000 (Fixed costs) = $110,000 + $150,000

23) Zot-Ice Corp. has provided the following data for the current year. Units produced 2,500 units Sale price $200 per unit Direct materials $75 per unit Direct labor $65 per unit Variable manufacturing overhead $25 per unit Fixed manufacturing overhead $225,000 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 and variable costing.

VCosting ACosting Direct materials $75 75 Direct labor 65 65 Variable manufacturing overhead 25 25 Fixed manufacturing overhead ($225,000 ÷ 2,500 units) ____ 90 Total unit product cost $165 $255