Chapter 21

Use the following data for questions 3-7: Donovan Company incurred the following costs while producing 500 units: direct materials, $10 per unit; direct labor, $25 per unit; variable manufacturing overhead, $15 per unit; total fixed manufacturing overhead costs, $10,000; variable selling and administrative costs, $5 per unit; total fixed selling and administrative costs, $7,500. There are no beginning inventories. 3. What is the unit product cost using variable costing? a. $50 per unit b. $55 per unit c. $70 per unit d. $90 per unit 4. What is the unit product cost using absorption costing? a. $50 per unit b. $55 per unit c. $70 per unit d. $90 per unit 5. What is the operating income using absorption costing if 500 units are sold for $100 each? a. $500 b. $2,500 c. $2,750 d. $5,000 6. What is the operating income using variable costing if 450 units are sold for $100 each? a. $2,750 b. $5,000 c. $500 d. $2,500 7. What is the ending balance in Finished Goods Inventory using variable costing if 450 units are sold? a. $2,000 b. $2,500 c. $2,750 d. $3,500

3. a 4. c 5. d 6. a 7. b

During a recent month, Cleveland Company planned to provide cleaning services to 30 customers for $25 per hour. Each job was expected to take 3 hours. The company actually served 10 more customers than expected, but the average time spent on each job was only 2.5 hours each. Cleveland's revenues for the month were a. $250 more than expected. b. $250 less than expected. c. $750 more than expected. d. Cannot be determined from data given

a

1. The primary difference between variable costing and absorption costing is a. in variable costing, fixed manufacturing overhead is a product cost. b. in absorption costing, fixed manufacturing overhead is a product cost. c. in variable costing, variable selling and administrative costs are product costs. d. in absorption costing, fixed selling and administrative costs are product costs.

b

8. The contribution margin per unit and total contribution margin for Singles and Supremes are: Singles Supremes Contribution Margin per Unit Total Contribution Margin Contribution Margin per Unit Total Contribution Margin a. $6 $720 $6 $180 b. $6 $180 $6 $720 c. $6 $240 $6 $360 d. $6 $180 $6 $180

b

Which pizza should Sammie's Pizza promote to maximize profits? a. Singles because they contribute the highest total contribution margin. b. Supremes because they have the highest contribution margin ratio. c. Singles because they have the highest contribution margin ratio. d. Both should be promoted equally because they have the same contribution margin per unit.

d

Winters, Inc. is preparing financial statements to be distributed to investors and creditors. The company should prepare the income statement using a. variable costing because it is better for planning purposes. b. variable costing because it follows GAAP. c. absorption costing because it is better for controlling purposes. d. absorption costing because it follows GAAP.

d