Chapter 9 Accounting 308

Peggys Pillows What is cost of goods sold per unit using variable costing? a. $20 b. $23 c. $30 d. $45

a. $20, only variable manufacturing costs are included when using variable costing.

Peggys Pillows What is cost of goods sold using variable costing? a. $35,000 b. $40,000 c. $47,250 d. $54,000

a. $35,000 found by: $20 x 1,750 units = $35,000

Heinrich Corporation incurred fixed manufacturing costs of $6,000 during 20x4. Other information for 20x4 includes: The budgeted denominator level is 1,000 units. Units produced total 750 units. Units sold total 600 units. Beginning inventory was zero. The company uses ABSORPTION COSTING and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. The production-volume variance is a. $2,000. b. $1,500. c. $2,400. d. zero.

b. $1,500 found by: $6,000 / 1,000 units = $6 x 250 = $1,500

Gabes auto What is the inventoriable cost per unit using variable costing? a. $14.25 b. $15.00 c. $18.00 d. $21.75

b. $15.00 found by: $12.00 + $2.25 + $0.75 = $15.00

Andrea's Hobbies produces and sells a luxury animal pillow for $40.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: Variable manufacturing costs $19 per unit Variable marketing costs $ 1 per unit Fixed manufacturing costs $30,000 per month Administrative expenses, all fixed $6,000 per month Ending inventories: Direct materials -0- WIP -0- Finished goods 750 units Andrea's Hobbies What is operating income when using absorption costing? a. $4,000 b. $16,500 c. ($11,750) d. $18,750

b. $16,500 found by: [$40 - $19 - ($30,000/3,000)] x 2,250 units = gross margin - ($1 x 2,250) - $6,000 = $16,500

Peggys Pillows What is contribution margin using variable costing? a. $96,250 b. $91,000 c. $104,000 d. $110,000

b. $91,000 found by: ($75 x 1,750) - [($20 + $3) x 1,750 units] = $91,000

Which of the following statements is FALSE? a. Absorption costing allocates fixed manufacturing overhead to actual units produced during the period. b. Nonmanufacturing costs are expensed in the future under variable costing. c. Fixed manufacturing costs in ending inventory are expensed in the future under absorption costing. d. Operating income under absorption costing is higher than operating income under variable costing when production units exceed sales units.

b. Nonmanufacturing costs are expensed in the future under variable costing.

__________ method(s) include(s) fixed manufacturing overhead costs as inventoriable costs. a. Variable costing b. Absorption costing c. Throughput costing d. All of the above

b. absorption costing

__________ method(s) is required for tax reporting purposes. a. Variable costing b. Absorption costing c. Throughput costing d. All of the above

b. absorption costing

One possible means of determining the difference between operating incomes for absorption costing and variable costing is a. by subtracting sales of the previous period from sales of this period. b. by subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory. c. by multiplying the number of units produced by the budgeted fixed manufacturing cost rate. d. by adding fixed manufacturing costs to the production-volume variance.

b. by subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory.

Absorption costing is required for all EXCEPT a. generally accepted accounting principles. b. determining a competitive selling price. c. external reporting to shareholders. d. income tax reporting.

b. determining a competitive selling price

The difference between operating incomes under variable costing and absorption costing centers on how to account for a. direct materials costs. b. fixed manufacturing costs. c. variable manufacturing costs. d. both (b) and (c).

b. fixed manufacturing costs.

The contribution-margin format of the income statement a. is used with absorption costing. b. highlights the lump sum of fixed manufacturing costs. c. distinguishes manufacturing costs from nonmanufacturing costs. d. calculates gross margin.

b. highlights the lump sum of fixed manufacturing costs.

If the unit level of inventory increases during an accounting period, then a. less operating income will be reported under absorption costing than variable costing. b. more operating income will be reported under absorption costing than variable costing. c. operating income will be the same under absorption costing and variable costing. d. the exact effect on operating income cannot be determined.

b. more operating income will be reported under absorption costing than variable costing.

An unfavorable production-volume variance occurs when a. production exceeds the denominator level. b. the denominator level exceeds production. c. production exceeds unit sales. d. unit sales exceed production.

b. the denominator level exceeds production.

Variable costing a. expenses administrative costs as cost of goods sold. b. treats direct manufacturing costs as a product cost. c. includes fixed manufacturing overhead as an inventoriable cost. d. is required for external reporting to shareholders.

b. treats direct manufacturing costs as a product cost.

Advocates of throughput costing maintain that: both variable and fixed are necessary to produce goods; therefore, both types of costs should be inventoried all manufacturing costs plus some design costs should be inventoried fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units Both both variable and fixed are necessary to produce goods; therefore, both types of costs should be inventoried and fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units are correct.

fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units

It is most difficult to estimate _____ because of the need to predict demand for the next few years. theoretical capacity practical capacity Master-budget capacity utilization normal capacity utilization

normal capacity utilization

It is most difficult to estimate ________ because of the need to predict demand for the next few years. practical capacity theoretical capacity master-budget capacity utilization normal capacity utilization

normal capacity utilization

All of the following are examples of drawbacks of using absorption costing EXCEPT: management has the ability to manipulate operating income via production schedules manipulation of operating income may ultimately increase the company's costs incurred over the long run operating income solely reflects income from the sale of units and excludes the effects of manipulating production schedules decreasing maintenance activities and increasing production result in increased operating income

operating income solely reflects income from the sale of units and excludes the effects of manipulating production schedules

Variable costing regards fixed manufacturing overhead as a(n): administrative cost inventoriable cost period cost product cost

period cost

______ reduces theoretical capacity for unavoidable operating interruptions. Practical capacity Theoretical capacity Master-budget capacity utilization Normal capacity utilization

practical capacity

________ reduces theoretical capacity for unavoidable operating interruptions. Practical capacity Theoretical capacity Master-budget capacity utilization Normal capacity utilization

practical capacity

Throughput contribution equals: variable costs minus fixed costs revenues minus all direct labor costs revenues minus all direct material cost of goods sold revenues minus manufacturing overhead

revenues minus all direct material cost of goods sold

Which of the following approaches spreads underallocated or overallocated overhead among ending balances in work-in-process control, finished goods control, and cost of goods sold? the write-off variances to cost of goods sold approach the reinstatement approach the adjusted allocation-rate approach the proration approach

the proration approach

______ is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs. Mixed costing absorption costing fixed costing variable costing

variable costing

Tall Statues Inc. produces wood statues. Management has provided the following information: What is the total throughput contribution? $897,000 $1,069,500 $1,173,000 $759,000

$1,173,000 found by actual sales x selling price less direct material costs x actual sales= 30,000 x $46 - 30,000 x $6.90

Heinrich Corporation incurred fixed manufacturing costs of $6,000 during 20x4. Other information for 20x4 includes: The budgeted denominator level is 1,000 units. Units produced total 750 units. Units sold total 600 units. Beginning inventory was zero. The company uses ABSORPTION COSTING and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total a. $3,600. b. $4,800. c. $6,000. d. zero.

$3,600 found by: $6,000 / 1,000 units = $6 x 600 = $3,600

Answer the following questions using the information below: Kory's Auto produces and sells an auto part for $60.00 per unit. In 2011, 100,000 parts were produced and 75,000 units were sold. Other information for the year includes: What is the inventoriable cost per unit using absorption costing? $30.00 $36.00 $37.50 $43.50

$37.50 Found by: first find the fixed overhead allocation rate: $750,000/100,000= 7.5, add direct materials, direct mfg labor, variable mfg costs and fixed mfg costs together: 24 + 4.5 +1.5 + 7.5

Answer the following questions using the information below: Tunney Corporation incurred fixed manufacturing costs of $7,200 during 2011. Other information for 2011 includes: The fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. Operating income using absorption costing will be ________ operating income if using variable costing. $450 higher than $900 higher than $1,350 lower than the same as

$450 higher than $$$$$found by: Units produced less units sold= 2,000-1900=100 times (fixed manufacturing costs/denominator level)= 100 times (7200/1600)=100x4.5=450

Answer the following questions using the information below: Peggy's Pillows produces and sells a decorative pillow for $75.00 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: What is operating income using variable costing? $52,500 $78,750 $65,750 $47,000

$47,000 found by: ... ($75 x 1,750) - [($20 + $3) x 1,750 units] = $91,000 then $91,000 - [($7 + $15) x 2,000 units] = $47,000

Answer the following questions using the information below: Barry's Hobbies produces and sells a luxury animal pillow for $80.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: What is cost of goods sold per unit when using absorption costing? $38 $40 $58 $64

$58 Found by: variable manufacturing cost per unit + fixed manufacturing cost per unit= $60,000/3000 units produced= $20+$38= $58

Heinrich Corporation incurred fixed manufacturing costs of $6,000 during 20x4. Other information for 20x4 includes: The budgeted denominator level is 1,000 units. Units produced total 750 units. Units sold total 600 units. Beginning inventory was zero. The company uses ABSORPTION COSTING and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. Fixed manufacturing costs included in ending inventory total a. $1,200. b. $1,500. c. $900. d. zero.

$900 found by: $6,000 / 1,000 units = $6 x 150 = $900

Heinrich Corporation incurred fixed manufacturing costs of $6,000 during 20x4. Other information for 20x4 includes: The budgeted denominator level is 1,000 units. Units produced total 750 units. Units sold total 600 units. Beginning inventory was zero. The company uses ABSORPTION COSTING and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. Operating income using absorption costing will be __________ than operating income if using variable costing. a. $2,400 higher b. $2,400 lower c. $900 higher d. $3,600 lower

$900 higher found by: Different operating incomes are reported because the unit level of inventory increased during the accounting period by 150 units x $6 denominator rate = $900. Therefore, operating income is $900 higher under absorption costing because $900 of fixed manufacturing costs remains in inventory.

Answer the following questions using the information below: Veach Corporation incurred fixed manufacturing costs of $6,000 during 2011. Other information for 2011 includes: The company uses variable costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. Operating income using variable costing will be ________ than operating income if using absorption costing. $2,400 higher $2,400 lower $3,600 higher $900 lower

$900 lower

Answer the following questions using the information below: Greene Manufacturing incurred the following expenses during 2011: What will be the breakeven point if variable costing is used? 1,334 units 1,125 units 1,000 units 563 units

1,000 units

Answer the following questions using the information below: Ms. Janice Meyers, the company president, has heard that there are multiple breakeven points for every product. She does not believe this and has asked you to provide the evidence of such a possibility. Some information about the company for 2011 is as follows: What are breakeven sales in units using absorption costing if the production units are actually 25,000? 5,625 units 6,667 units 7,667 units 7,931 units

7,931 units

Which of the following cost(s) are inventoried when using absorption costing? direct manufacturing costs variable marketing costs fixed manufacturing costs Both direct manufacturing costs and fixed manufacturing costs are correct.

Both direct manufacturing costs and fixed manufacturing costs are correct.

Veach Corporation Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total a. $3,600. b. $4,800. c. $6,000. d. zero.

C. $6,000 found by $6,000 of fixed manufacturing costs is expensed as a lump sum

__________ method(s) expense(s) variable marketing costs in the period incurred. a. Variable costing b. Absorption costing c. Throughput costing d. All of the above

D. all of the above

Helton Company has the following information for the current year. Beginning fixed manufacturing overhead in inventory $95,000 Fixed manufacturing overhead in production 375,000 Ending fixed manufacturing overhead in inventory 25,000 Beginning variable manufacturing overhead in inventory $10,000 Variable manufacturing overhead in production 50,000 Ending variable manufacturing overhead in inventory 15,000 What is the difference between operating incomes under absorption costing and variable costing? a. $70,000 b. $50,000 c. $40,000 d. $5,000

a. $70,000 found by: $95,000 - $25,000 = $70,000

48. Which of the following cost(s) are inventoried when using variable costing? a. Direct manufacturing costs b. Variable marketing costs c. Fixed manufacturing costs d. Both (a) and (b)

a. direct manufacturing costs

The gross-margin format of the income statement a. distinguishes between manufacturing and nonmanufacturing costs. b. distinguishes variable costs from fixed costs. c. is used with variable costing. d. calculates contribution margin.

a. distinguishes between manufacturing and nonmanufacturing costs.

Which of the following inventory costing methods shown below is most likely to cause undesirable incentives for managers to build up finished goods inventory? variable costing absorption costing throughput costing direct costing

absorption costing

Which of the following inventory costing methods shown below is required by GAAP (Generally Accepted Accounting Principles) for external financial reporting? absorption costing variable costing throughput costing direct costing

absorption costing

________ method(s) expense(s) direct material costs as cost of goods sold. Variable costing Absorption costing Throughput costing All of these answers are correct.

all of these answers are correct

Capacity costs: are difficult to estimate don't provide a useful planning tool for nonmanufacturing firms cannot be used with activity-based costing All of these answers are correct.

are difficult to estimate

The following information pertains to Brian Stone Corporation: Beginning fixed manufacturing overhead in inventory $60,000 Ending fixed manufacturing overhead in inventory 45,000 Beginning variable manufacturing overhead in inventory $30,000 Ending variable manufacturing overhead in inventory 14,250 Fixed selling and administrative costs $724,000 Units produced 5,000 units Units sold 4,800 units What is the difference between operating incomes under absorption costing and variable costing? a. $750 b. $7,500 c. $15,000 d. $30,750

c. $15,000 found by: $60,000 - $45,000 = $15,000

Gabes Auto What is the inventoriable cost per unit using absorption costing? a. $15.00 b. $18.00 c. $18.75 d. $21.75

c. $18.75 found by $12.00 + $2.25 + $0.75 + ($375,000 / 100,000) = $18.75

Andrea's Hobbies produces and sells a luxury animal pillow for $40.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: Variable manufacturing costs $19 per unit Variable marketing costs $ 1 per unit Fixed manufacturing costs $30,000 per month Administrative expenses, all fixed $6,000 per month Ending inventories: Direct materials -0- WIP -0- Finished goods 750 units Andrea's Hobbies What is cost of goods sold per unit when using absorption costing? a. $19 b. $20 c. $29 d. $32

c. $29 found by: $19 + ($30,000 / 3,000 units) = $29

Variable costing regards fixed manufacturing overhead as a. an administrative cost. b. an inventoriable cost. c. a period cost. d. a product cost.

c. a period cost

The only difference between variable and absorption costing is the expensing of a. direct manufacturing costs. b. variable marketing costs. c. fixed manufacturing costs. d. both (a) and (c).

c. fixed manufacturing costs

Absorption costing a. expenses marketing costs as cost of goods sold. b. treats direct manufacturing costs as a period cost. c. includes fixed manufacturing overhead as an inventoriable cost. d. is required for internal reports to managers.

c. includes fixed manufacturing overhead as an inventoriable cost.

Normal capacity utilization: represents real capacity available to the company can result in setting selling prices that are not competitive when used for product costing results in the lowest cost estimate of the four capacity options represents the maximum units of production intended for current capacity

can result in setting selling prices that are not competitive

Andrea's Hobbies produces and sells a luxury animal pillow for $40.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: Variable manufacturing costs $19 per unit Variable marketing costs $ 1 per unit Fixed manufacturing costs $30,000 per month Administrative expenses, all fixed $6,000 per month Ending inventories: Direct materials -0- WIP -0- Finished goods 750 units Andrea's Hobbies What is gross margin when using absorption costing? a. $45,000 b. $54,750 c. $77,250 d. $24,750

d. $24,750 found by: [$40 - $19 - ($30,000/3,000)] x 2,250 units = $24,750

Veach Corporation Operating income using variable costing will be __________ than operating income if using absorption costing. a. $2,400 higher b. $2,400 lower c. $3,600 higher d. $900 lower

d. $900 lower found by Different operating incomes are reported because the unit level of inventory increased during the accounting period by 150 units x $6 denominator rate = $900. Therefore, operating income is $900 lower under variable costing because $900 of fixed manufacturing costs remains in inventory under absorption.

__________ method(s) expense(s) direct material costs as cost of goods sold. a. Variable costing b. Absorption costing c. Throughput costing d. All of the above

d. all of the above

__________ is(are) subtracted from sales to calculate contribution margin. a. Variable manufacturing costs b. Variable marketing costs c. Fixed manufacturing costs d. Both (a) and (b)

d. both a and b

Which of the following cost(s) are inventoried when using absorption costing? a. Direct manufacturing costs b. Variable marketing costs c. Fixed manufacturing costs d. Both (a) and (c)

d. both a and c

__________ is(are) subtracted from sales to calculate gross margin. a. Variable manufacturing costs b. Variable marketing costs c. Fixed manufacturing costs d. Both (a) and (c)

d. both a and c

When comparing the operating incomes between absorption costing and variable costing and beginning finished inventory exceeds ending finished inventory, it may be assumed that a. sales increased during the period. b. variable cost per unit is less than fixed cost per unit. c. there is an unfavorable production-volume variance. d. variable costing operating income exceeds absorption costing operating income.

d. variable costing operating income exceeds absorption costing operating income.

Veach Corporation Fixed manufacturing costs included in ending inventory total a. $1,200. b. $1,500. c. $900. d. zero.

d. zero found by: Under variable costing no fixed manufacturing costs are included in inventory, and all are expensed on the income statement as a lump sum.

Veach Corporation The production-volume variance totals a. $2,000. b. $1,500. c. $2,400. d. zero.

d. zero found by: Variable costing has no production-volume variance.

Absorption costing is required for all of the following except: generally accepted accounting principles determining a competitive selling price external reporting to shareholders income tax reporting

determining a competitive selling price

Which of the following cost(s) are inventoried when using variable costing? direct manufacturing costs variable marketing costs fixed manufacturing costs Both direct manufacturing costs and variable marketing costs are correct.

direct manufacturing costs