SU 19: Costing Method

For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the

Net sales value at split-off.

In joint-product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold to maximize profits?

Separable costs after the split-off point.

Dowell Co. manufactures a wooden item. Which of the following is included with the inventoriable cost under absorption costing and excluded from the inventoriable cost under variable costing?

Straight-line depreciation on factory equipment.

Which of the following must be known about a production process to institute a variable costing system?

The variable and fixed components of all costs related to production.

Actual manufacturing overhead for the month was $20,000. During the month, Mason completed Job Nos. 150 and 151. For the month, manufacturing overhead was

Underapplied by $2,000.

The change in period-to-period operating income when using variable costing can be explained by the change in the

Unit sales level multiplied by a constant unit contribution margin.

In an income statement prepared as an internal report using the variable costing method, fixed selling and administrative expenses are

Used in the computation of operating income but not in the computation of the contribution margin.

In an income statement prepared as an internal report using the variable costing method, variable selling and administrative expenses are

Used in the computation of the contribution margin.

Using the variable costing method, which of the following costs are assigned to inventory?

Variable Selling: No Variable Factory: Yes

In the application of variable costing as a cost-allocation process in manufacturing,

Variable indirect costs are treated as product costs.

Which of the following costing methods will yield the lowest inventory value?

Variable.

Which of the following statements is correct regarding the difference between the absorption costing and variable costing methods?

When production is greater than sales, absorption costing income is greater than variable costing income.

Assuming operating income under variable costing is $1,800, Casey's operating income under absorption costing is

$2,000

Over- or underapplied manufacturing overhead should be closed to the cost of goods sold account at February 28 in the amount of

$2,000 underapplied.

Under a job-order system of cost accounting, the dollar amount of the general ledger entry involved in the transfer of inventory from work-in-process to finished goods is the sum of the costs charged to all jobs

Completed during the period.

Lynn Manufacturing Co. prepares income statements using both standard absorption and standard variable costing methods. For the month just ended, unit standard costs were unchanged from the previous month. In the month just ended, the only beginning and ending inventories were finished goods of 5,000 units. How would Lynn's ratios using absorption costing compare with those using variable costing?

Current Ratio: Greater Return on Equity: Smaller

A direct labor overtime premium should be charged to a specific job when the overtime is caused by the

Customer's requirement for early completion of the job.

Which of the following components of production are allocable as joint costs when a single manufacturing process produces several salable products?

Direct materials, direct labor, and overhead.

In a job cost system, manufacturing overhead is

Indirect cost: Yes Necessary: Yes

In Year 2, by how much will ending inventory increase under absorption costing?

$0

Inventory of Moy was recorded at net realizable value when produced in the previous month. No units of Moy were produced in the month just ended. What amount should be recognized as profit on Moy's sales?

$0

Using absorption (full) costing, C.G.'s inventoriable costs are

$1,060,000

Under absorption costing, if all expenses are paid in cash, by how much does cost of goods sold exceed cash flows in Year 3?

$1,200

What is the cost recorded in ending inventory in Year 1 under absorption costing?

$1,200

Casey's operating income under variable (direct) costing is

$1,800

Work-in-process inventories at the beginning and end of the year were zero. What was the company's finished goods inventory cost at December 31 under the variable (direct) costing method?

$14,400

Overhead was applied at the rate of $50 per direct labor hour, and job J-1 required 400 direct labor hours. If job J-1 resulted in 4,000 good dresses, the cost of goods sold per unit is

$14.25

What amount would be the joint cost allocated to product M, assuming that LM Enterprises uses the estimated net realizable value method to allocate costs?

$18,000

What is the estimated product cost on the proposed job?

$18,000

At the end of Killo Co.'s first year of operations, 1,000 units of inventory remained on hand. Variable and fixed manufacturing costs per unit were $90 and $20, respectively. If Killo uses absorption costing rather than variable (direct) costing, the result would be a higher pretax income of

$20,000

Fleet, Inc., manufactured 700 units of Product A, a new product, during the year. Product A's variable and fixed manufacturing costs per unit were $6.00 and $2.00, respectively. The inventory of Product A on December 31 consisted of 100 units. There was no inventory of Product A on January 1. What would be the change in the dollar amount of inventory on December 31 if variable costing were used instead of absorption costing?

$200 decrease.

Lowe Co. manufactures products A and B from a joint process. Sales value at split-off was $700,000 for 10,000 units of A and $300,000 for 15,000 units of B. Using the sales value at split-off approach, joint costs properly allocated to A were $140,000. Total joint costs were

$200,000

Osawa's operating income for the year using variable costing is

$200,000

Based on the following data, what is the net income for the company?

$250,000

The portion of the joint production costs assigned to Six Oil based upon physical output is

$3,636,000

Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa using the net realizable value method is

$30,000

Assuming that the 10,000 units of W were processed further and sold for $78,000, what was Ashwood's gross profit on this sale?

$30,000

How much of the joint costs should Warfield allocate to product D?

$30,000

A company manufactures two products, X and Y, through a joint process. The joint (common) costs incurred are $500,000 for a standard production run that generates 240,000 gallons of X and 160,000 gallons of Y. X sells for $4.00 per gallon, while Y sells for $6.50 per gallon. If there are no additional processing costs incurred after the split-off point, what is the amount of joint cost for each production run allocated to X on a physical-quantity basis?

$300,000

What is the cost assigned to two-by-fours?

$32,200

For the month of May, what amount of direct labor should Regan charge to work-in-process?

$325,000

Under the absorption costing method, Peterson's operating income for the year is

$352,000

At the start of its fiscal year, a company anticipated producing 300,000 units throughout the year. The annual budgeted manufacturing overhead was $150,000 for variable costs and $600,000 for fixed costs. In April, when there was a beginning inventory for finished goods of 5,000 units, the company showed an income of $40,000 using absorption costing. That same month, ending inventory for finished goods was 7,000 units. What amount would the company recognize as income for April using variable costing?

$36,000

How much lower would Magna's net income be if it used variable costing instead of full absorption costing?

$36,000

The portion of the joint production costs assigned to Two Oil based upon the relative sales value of output is

$4,000,000

Under absorption costing, Product X's unit cost was

$4.40

Osawa's operating income using absorption (full) costing is

$440,000

If Valenz Company uses variable costing, the inventoriable costs for the fiscal year are

$450,000

What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?

$48,000

Mighty, Inc., processes chickens for distribution to major grocery chains. The two major products resulting from the production process are white breast meat and legs. Joint costs of $600,000 are incurred during standard production runs each month, which produce a total of 100,000 pounds of white breast meat and 50,000 pounds of legs. Each pound of white breast meat sells for $2, and each pound of legs sells for $1. If there are no further processing costs incurred after the split-off point, what amount of the joint costs would be allocated to the white breast meat on a relative sales value basis?

$480,000

During the month just ended, Vane Co. produced and sold 10,000 units of a product. Manufacturing and selling costs incurred were as follows: The product's unit cost under variable (direct) costing was

$49

Birk applies overhead to production at a predetermined rate of 80% of direct labor cost. Job No. 5, the only job still in process at month end, has been charged with direct labor of $2,000. What was the amount of direct materials charged to Job No. 5?

$5,200

For a particular job, 1,500 direct-labor hours were used. Using direct-labor hours as the cost driver, what amount of overhead should be applied to this job?

$5,625

Lucy Sportswear manufactures a specialty line of T-shirts using a job-order cost system. During March, the following costs were incurred in completing Job ICU2: direct materials, $13,700; direct labor, $4,800; administrative, $1,400; and selling, $5,600. Overhead was applied at the rate of $25 per machine hour, and Job ICU2 required 800 machine hours. If Job ICU2 resulted in 7,000 good shirts, the cost of goods sold per unit would be

$5.50

What is the amount of over/underapplied overhead for the year?

$50,000

Using absorption (full) costing, inventoriable costs for Valenz are

$530,000

At the end of a company's first year of operations, 2,000 units of inventory are on hand. Variable costs are $100 per unit, and fixed manufacturing costs are $30 per unit. The use of absorption costing, rather than variable costing, would result in a higher net income of what amount?

$60,000

Assuming Atlas Foods does not inventory Morefeed, the by-product, the joint cost to be allocated to Betters using the net realizable value method is

$62,000

Under Worley's cost accounting system, over- or underapplied overhead is assigned to appropriate inventories and COGS based on year-end balances. In its year-end income statement, Worley should report COGS of

$757,500

The cost of goods manufactured for February was

$77,700

Lucas applies overhead to production at a predetermined rate of 90% based on direct labor cost. Job No. 100, the only job still in process at the end of April, has been charged with factory overhead of $4,500. The amount of direct materials charged to Job No. 100 was

$8,500

What amount should be considered product cost for external reporting purposes?

$898,000

What is Peterson's finished goods inventory cost at December 31 under the variable costing method?

$90,000

If C.G. uses variable costing, the inventoriable costs for the fiscal year are

$900,000

How much of these costs should be inventoried?

$995,000

What is the company's operating profit margin?

57.5%

In an income statement prepared as an internal report, total fixed costs normally are shown separately under

Absorption Costing: No Variable Costing: Yes

In an income statement prepared as an internal report, operating income can be measured under

Absorption Costing: Yes Variable Costing: Yes

Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs, both variable and fixed, as inventoriable costs?

Absorption costing.

What is the difference between operating income calculated on the absorption-costing basis and on the variable-costing basis?

Absorption-costing operating income is greater than variable-costing operating income by $200,000.

A job-order cost system uses a predetermined factory overhead rate based on expected volume and expected fixed cost. At the end of the year, underapplied overhead might be explained by which of the following situations?

Actual Volume: Less than expected Actual Fixed Costs: Greater than expected

In an income statement prepared using the variable-costing method, fixed factory overhead would

Be used in the computation of operating income but not in the computation of the contribution margin.

For the purposes of cost accumulation, which of the following are identifiable as different individual products before the split-off point?

By-Products: No Joint Products: No

In a traditional job-order cost system, the issuance of indirect materials to a production department increases

Factory overhead control.

A single-product company prepares income statements using both absorption and variable costing. Manufacturing overhead cost applied per unit produced in Year 2 was the same as in Year 1. The Year 2 variable-costing statement reported a profit, whereas the Year 2 absorption-costing statement reported a loss. A possible explanation for the difference in reported income is that the units produced in Year 2 were

Fewer than units sold in Year 2.

Which one of the following considers the impact of fixed overhead costs?

Full absorption costing.

Mig accounts for the by-product at the time of production. What was Mig's cost of sales for gasoline and the by-product?

Gasoline: $100,000 By-Product: $0

In an income statement prepared as an internal report using the variable costing method, which of the following terms should appear?

Gross Profit: No Operating Income: Yes

Kode Co. manufactures a major product that gives rise to a by-product called May. May's only separable cost is a $1 selling cost when a unit is sold for $4. Kode accounts for May's sales by deducting the $3 net amount from the cost of goods sold of the major product. There are no inventories. If Kode were to change its method of accounting for May from a by-product to a joint product, what would be the effect on Kode's overall gross margin?

Gross margin increases by $1 for each unit of May sold.

To identify costs that relate to a specific product, an allocation base should be chosen that

Has a cause-and-effect relationship.

Which items should be reviewed when making the upgrade decision?

I, II, III, and IV.

Which of the following costing methods provide(s) the added benefit of usefulness for external reporting purposes?

II only.

Which one of the following statements is true regarding absorption costing and variable costing?

If finished goods inventory increases, absorption costing results in higher income.

Actual sales values at the split-off point for joint products Y and Z are not known. For purposes of allocating joint costs to products Y and Z, the relative sales value at split-off method is used. An increase in the costs beyond split-off occurs for Product Z, while those of Product Y remain constant. If the selling prices of finished products Y and Z remain constant, the percentage of the total joint costs allocated to Product Y and Product Z will

Increase for Product Y and decrease for Product Z.

In a job-order cost system, the use of direct materials previously purchased usually is recorded as an increase in

Work-in-process control.

A joint process is a manufacturing operation yielding two or more identifiable products from the resources employed in the process. The two characteristics that identify a product generated from this type of process as a joint product are that it

Is identifiable as an individual product only upon reaching the split-off point, and it has relatively significant sales value when compared with the other products.

Activity-based costing (ABC) is a term used to describe allocation methods that are based on cause and effect (i.e., charging costs to whatever causes them). Why is this more important to project managers using job-order costing than those using process costing?

Job-order costing is used if the products or services sold are different enough to justify the additional cost involved in tracing costs to their cause. Charging all products or services a flat amount per unit shifts costs from those that cause them to those that do not.

By-products may have which of the following characteristics?

Zero Costs: Yes Additional Costs: Yes

Which of the following statement(s) is(are) true regarding the relationship between absorption costing net income and variable costing income?

Neither I nor II.

Which of the following statements is correct regarding variable costing and absorption costing income statements for a company that has no beginning inventory and whose production exceeds sales for the current period?

Net income is higher if absorption costing is used.

One hundred pounds of raw material W is processed into 60 pounds of X and 40 pounds of Y. Joint costs are $135. X is sold for $2.50 per pound, and Y can be sold for $3.00 per pound or processed further into 30 pounds of Z (10 pounds are lost in the second process) at an additional cost of $60. Each pound of Z can then be sold for $6.00. What is the effect on profits of further processing product Y into product Z?

No change.

What costs are treated as product costs under variable costing?

Only variable production costs.

The diagram represents the production and sales relationships of joint products P and Q. Joint costs are incurred until split-off; then separable costs are incurred in refining each product. Market values of P and Q at split-off are used to allocate joint costs. If the market value of P at split-off increases and all other costs and selling prices remain unchanged, then the gross margin of

P: Decreases Q: Increases

Cay Co.'s fixed manufacturing overhead costs for the month just ended totaled $100,000, and variable selling costs totaled $80,000. Under variable costing, how should these costs be classified?

Period Costs: $180,000 Product Costs: $0

Under variable (direct) costing, fixed manufacturing overhead costs are classified as

Period costs.

In accounting for by-products, the value of the by-product may be recognized at the time of

Production: Yes Sale: Yes

Which of the following statements is true for a firm that uses variable costing?

Profits fluctuate with sales.

When a firm prepares financial reports by using absorption costing,

Profits may decrease with increased sales even if there is no change in selling prices and costs.

When using a variable costing system, the contribution margin (CM) discloses the excess of

Revenues over variable costs.

The management of a company computes net income using both absorption and variable costing. This year, the net income under the variable-costing approach was greater than the net income under the absorption-costing approach. This difference is most likely the result of

Sales volume exceeding production volume.

A manufacturing company prepares income statements using both absorption and variable costing methods. At the end of a period, actual sales revenues, total gross profit, and total contribution margin approximated budgeted figures, whereas net income was substantially greater than the budgeted amount. There were no beginning or ending inventories. The most likely explanation of the net income increase is that, compared to budget, actual

Selling and administrative fixed expenses had decreased.

In a job-order cost system, direct labor costs usually are recorded initially as an increase in

Work-in-process control.

In a job-order cost system, the application of factory overhead is usually reflected in the general ledger as an increase in

Work-in-process control.

Waldo Company produces one product. The following are the data for the current month: The contribution margin is

$180,000

Nil Co. uses a predetermined factory overhead application rate based on direct labor cost. For the year ended December 31, Nil's budgeted factory overhead was $600,000, based on a budgeted volume of 50,000 direct labor hours, at a standard direct labor rate of $6 per hour. Actual factory overhead amounted to $620,000, with actual direct labor cost of $325,000. For the year, overapplied factory overhead was

$30,000

DJ Co. applies overhead at a predetermined rate of 90% of direct labor cost. Job No. 101, the only job still in process at the end of March, has been charged with manufacturing overhead of $2,250. What was the amount of direct materials charged to Job No. 101?

$4,250

Assuming Atlas Foods inventories Morefeed, the by-product, and that it incurs no additional processing costs for Alfa and Betters, the joint cost to be allocated to Alfa using the gross sales value method is

$40,000

Gage's actual manufacturing overhead was

$40,000

For purposes of allocating joint costs to joint products, the relative sales-value method could be used in which of the following situations?

No Costs Beyond: Yes Costs Beyond: Yes