Accounting 2 | Final Exam

During a year in which the number of units manufactured is less than the number of units sold, the operating income reported under the variable costing concept would be: a. larger than the operating income reported under the absorption costing concept. b. smaller than the operating income reported under the absorption costing concept. c. the same as the operating income reported under the absorption costing concept. d. none of the above.

a

Segment information of a public company can be found a. as a footnote disclosure in the company's annual report. b. on the company's tax returns. c. as a separate statement available on the company's website. d. on the income statement and balance sheet of the company's annual report.

a

Which of the following statements regarding variable costing reports is true? a. They can be used to decide whether to discontinue a product. b. They are used to fire poor-performing employees. c. Long-term market segment decisions are easily made with variable costing reports. d. They are typically used for long-term analysis of market segments.

a

Ormand Company uses variable costing for internal decision-making purposes and has the following information for June: Sales $895,000 Variable cost of goods sold 445,000 Fixed manufacturing costs 155,000 Variable selling and admin. expenses 100,000 Fixed selling and administrative expenses 70,000 What is the operating income for June? $450,000 $295,000 $350,000 $125,000

$125,000 STEP 1 (Manufacturing Margin) $895,000 - $445,000 = $450,000 STEP (Contribution Margin) $450,000 - $100,000 = $350,000 STEP 3 (Operating Income) $350,000 - $155,000 - $70,000 = $125,000

Sales were $750,000, the variable cost of goods sold was $400,000, the variable selling and administrative expenses were $90,000, and fixed costs were $200,000. The contribution margin was: a. $60,000. b. $260,000. c. $350,000. d. none of the above

b $750,000 - $400,000 = $350,000 $350,000 - $90,000 = $260,000

Given the following information for Smith Company's Northern Division, what is the division's EBITDA? Revenue $44,130 Operating income 18,120 Depreciation 4,900 Amortization 1,420 Tax rate 20% a. $37,810 b. $24,440 c. $13,220 d. $19,552

b EBITDA = Operating Income + Depreciation + Amortization = $18,120 + $4,900 + $1,420 = $24,440

Which of the following statements regarding service companies is true? a. Service companies use only absorption costing to allocate fixed costs. b. Service companies report finished goods inventory on their variable costing income statements. c. A contribution margin report can be used to analyze and evaluate market segments. d. Service companies report manufacturing margin.

c

Under absorption costing, managers may be encouraged to a. reduce inventory. b. ignore inventory. c. produce inventory. d. keep inventory levels steady.

c Absorption costing may encourage managers to produce inventory, because it absorbs fixed manufacturing costs, which increases operating income.

Operating income can be determined using a. absorption costing only. b. neither absorption nor variable costing. c. absorption and variable costing. d. variable costing only.

c Operating income can be determined using absorption and variable costing.

Under variable costing, all fixed manufacturing costs are treated as a a. product cost included in the cost of goods manufactured. b. period expense deducted from manufacturing margin. c. period expense deducted from contribution margin. d. product cost included in the cost of ending inventory.

c Under variable costing, all fixed costs are treated as a period expense and are deducted from contribution margin on the variable costing income statement.

If the number of units manufactured is greater than the number of units sold, the operating income reported under the absorption costing concept? a. would be smaller than the operating income reported under the variable costing concept. b. would be the same as the operating income reported under the variable costing concept. c. would be larger than the operating income reported under the variable costing concept. d. cannot be determined without specific amounts given.

c When the units manufactured exceed the number of units sold, the variable costing operating income will be less than that of absorption costing.

Fixed manufacturing overhead costs are normally controlled by a. the Human Resources Department. b. the manufacturing employees' union. c. front-line supervisors. d. a higher level of management.

d

In the long run, a company must set its selling price to generate a profit and cover a. fixed costs. b. controllable costs. c. variable costs. d. variable and fixed costs.

d

Variable costing reports for each product (product profitability analysis) are often used for deciding a. whether to discontinue a product. b. product promotional efforts. c. product pricing. d. All of these choices

d

Variable manufacturing costs are $60 per unit, and fixed manufacturing costs are $116,640. Sales are estimated to be 5,400 units. How much would absorption costing operating income differ between a plan to produce 5,400 units and a plan to produce 6,480 units? a. $64,800 b. $23,328 c. No difference d. $19,440

d 6,480 units − 5,400 units = 1,080 units; 1,080 × ($116,640 ÷ 6,480 units) = $19,440

The beginning inventory consists of 6,000 units, all of which are sold during the period. The beginning inventory fixed costs are $20 per unit, and the variable costs per unit are $90 per unit. Assuming no ending inventory, what is the difference in operating income between variable and absorption costing? a. Variable costing operating income is $540,000 less than under absorption costing. b. Variable costing operating income is $600,000 greater than under absorption costing. c. Variable costing operating income is $120,000 less than under absorption costing. d. Variable costing operating income is $120,000 greater than under absorption costing.

d 6000 units x $20 *Answer c is incorrect because variable costing operating income will be greater than absorption costing operating income when units manufactured are less than units sold.

Which of the following statements regarding service companies is true? a. A service company's variable costing income statement includes manufacturing margin. b. A service company would have no need to prepare a contribution margin report segmented by its various markets. c. Service companies use absorption costing to allocate fixed costs. d. A service company's variable costing income statement includes contribution margin.

d A service company's variable costing income statement includes contribution margin, but does not report cost of goods sold, inventory, or manufacturing margin.

EBITDA represents earnings before which of the following have been deducted? a. Interest b. Income taxes c. Depreciation and amortization d. All of these choices

d EBITDA represents earnings before interest, taxes, depreciation, and amortization.