Deck 8: Variable Costing and the Costs of Quality and Sustainability

Question 1

Income reported under absorption and variable costing can be reconciled by focusing on the effects of the five places where the two statements differ.

Answer 1

False

Question 2

Hidden private environmental costs are those that are caused by environmental issues but have not been so identified by the accounting system.

Answer 2

True

Question 3

Absorption costing is required for tax purposes.

Answer 3

True

Question 4

When discussing the costs of quality, the costs of determining whether defects exist are known as appraisal costs.

Question 5

On an absorption-costing income statement, fixed overhead costs are period costs.

Question 6

Cost-volume-profit analysis and break-even calculations account for fixed manufacturing overhead as a lump sum.

Question 7

Fixed manufacturing overhead is not inventoried under absorption costing.

Question 8

Many managers prefer to use absorption-costing data in cost-based pricing decisions.

Question 9

On a global scale, there are four primary environmental agreements addressing the atmosphere, hazardous substances, the marine environment, nature conservation, and nuclear power issues.

Question 10

Total quality management or TQM refers to the broad set of management and control processes designed to focus the entire organization and all of its employees on providing products or services that do the best possible job of satisfying the customer.

Question 11

When units sold exceed units produced, absorption-costing income will be lower than variable-costing income.

Question 12

Under variable costing, which of the following is not considered a product cost?

A)Fixed manufacturing overhead.
B)Variable manufacturing overhead.
C)Direct labor.
D)Direct materials.
E)Indirect materials.

Question 13

On a variable-costing income state ment, the cost of goods sold is measured at variable cost, which includes direct material, direct labor, and variable manufacturing overhead.

Question 14

An analytical method that aims at achieving near-perfect results in a production process is known as the zero- defect perspective.

Question 15

On a variable-costing income state ment, fixed overhead is not treated as a period cost.

Question 16

Absorption costing is inconsistent with CVP analysis.

Question 17

The quality of conformance refers to how well a product is conceived or designed for its intended use.

Question 18

Variable manufacturing overhead becomes part of a unit's cost when variable costing is used.

Question 19

For external-reporting purposes, generally accepted accounting principles require that net income be based on variable costing.

Question 20

Under variable costing, fixed manufacturing overhead is:

A)expensed immediately when incurred.
B)never expensed.
C)applied directly to Finished-Goods Inventory.
D)applied directly to Work-in-Process Inventory.
E)treated in the same manner as variable manufacturing overhead.

Question 21

Fort Smith Technologies incurred the following costs during the past year when planned production and actual production each totaled 20,000 units: Fort Smith's per-unit inventoriable cost under variable costing is:

A)$9.50.
B)$25.00.
C)$28.00.
D)$33.00.
E)$40.50.

Question 22

Vega Enterprises has computed the following unit costs for the year just ended: Under variable costing, each unit of the company's inventory would be carried at:

A)$35.
B)$55.
C)$65.
D)$84.
E)None of the answers is correct.

Question 23

The underlying difference between absorption costing and variable costing lies in the treatment of:

A)direct labor.
B)variable manufacturing overhead.
C)fixed manufacturing overhead.
D)variable selling and administrative expenses.
E)fixed selling and administrative expenses.

Question 24

Mallory Industries has the following cost information for the year just ended: During the year, Mallory produced 10,000 units, out of which 9,100 were sold for $50 each. What is net income under absorption costing?

A)$251,250.
B)$254,850.
C)$285,000.
D)$299,850.
E)None of the answers is correct.

Question 25

Cagney Industries has the following cost information for the year just ended: During the year, Cagney produced 6,000 units, out of which 5,400 were sold for $20 each. What is net income under absorption costing?

A)$26,000.
B)$35,000.
C)$29,000.
D)$23,000.
E)None of the answers is correct.

Question 26

Romano Corporation has computed the following unit costs for the year just ended: Under variable costing, each unit of the company's inventory would be carried at:

A)$49.
B)$54.
C)$72.
D)$104.
E)None of the answers is correct.

Question 27

Romano Corporation has computed the following unit costs for the year just ended: Under absorption costing, each unit of the company's inventory would be carried at:

A)$49.
B)$54.
C)$72.
D)$104.
E)None of the answers is correct.

Question 28

Cagney Industries has the following cost information for the year just ended: During the year, Cagney produced 6,000 units, out of which 5,400 were sold for $20 each. What is net income under variable costing?

A)$26,000.
B)$35,000.
C)$29,000.
D)$23,000.
E)None of the answers is correct.

Question 29

Which of the following statements is false regarding absorption costing?

A)Variable overhead is treated as a product cost.
B)Fixed overhead is treated as a product cost.
C)Fixed overhead is expensed in the period incurred.
D)Absorption costing is required for tax purposes.
E)Absorption costing is required for external financial statements prepared in accordance with generally

Question 30

All of the following are inventoried under variable costing except:

A)direct materials.
B)direct labor.
C)variable manufacturing overhead.
D)fixed manufacturing overhead.
E)variable manufacturing overhead and fixed manufacturing overhead.

Question 31

Mallory Industries has the following cost information for the year just ended: During the year, Mallory produced 10,000 units, out of which 9,100 were sold for $50 each. What is net income under variable costing?

A)$251,250.
B)$254,850.
C)$285,000.
D)$291,250.
E)None of the answers is correct.

Question 32

Which of the following descriptions would not be found on an income statement prepared using variable costing?

A)Sales.
B)Fixed Costs.
C)Cost of Goods Sold.
D)Net income.
E)All of these options are on the income statement prepared using variable costing.

Question 33

Under absorption costing, which of the following is not considered a product cost?

A)direct labor.
B)direct materials.
C)variable manufacturing overhead.
D)administrative costs.
E)fixed manufacturing overhead.

Question 34

Vega Enterprises has computed the following unit costs for the year just ended: Under absorption costing, each unit of the company's inventory would be carried at:

A)$35.
B)$55.
C)$65.
D)$84.
E)None of the answers is correct.

Question 35

Which of the following descriptions would not be found on an income statement prepared using absorption costing?

A)Sales.
B)Contribution Margin.
C)Cost of Goods Sold.
D)Net income.
E)All of these options are on the income statement prepared using absorption costing.

Question 36

Fort Smith Technologies incurred the following costs during the past year when planned production and actual production each totaled 20,000 units: If Fort Smith uses variable costing, the total inventoriable costs for the year would be:

A)$400,000.
B)$460,000.
C)$560,000.
D)$620,000.
E)$660,000.

Question 37

All of the following are expensed under variable costing except:

A)variable manufacturing overhead.
B)fixed manufacturing overhead.
C)variable selling and administrative costs.
D)fixed selling and administrative costs.
E)variable selling and administrative costs and fixed selling and administrative costs.

Question 38

All of the following costs are inventoried under absorption costing except:

A)direct materials.
B)direct labor.
C)variable manufacturing overhead.
D)fixed manufacturing overhead.
E)fixed administrative salaries.

Question 39

All of the following are inventoried under absorption costing except:

A)direct labor.
B)raw materials used in production.
C)utilities cost consumed in manufacturing.
D)sales commissions.
E)machine lubricant used in production.

Question 40

Montana Industries has the following costs for the year just ended: What is the difference between operating incomes under absorption costing and variable costing?

A)$15,000.
B)$30,750.
C)$750.
D)$7,500.
E)None of the answers is correct.

Question 41

Favaz began business at the start of this year and had the following costs: variable manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling and administrative costs per unit, $2; and fixed selling and administrative costs, $220,000.The company sells its units for $45 each.Additional data follow: There were no variances. The income (loss) under variable costing is:

A)$(7,500).
B)$9,000.
C)$15,000.
D)$18,000.
E)None of the answers is correct.

Question 42

Riverton Corp., which began business at the start of the current year, had the following data: Planned and actual production: 40,000 units Sales: 37,000 units at $15 per unit Production costs: Variable: $4 per unit Fixed: $260,000 Selling and administrative costs: Variable: $1 per unit Fixed: $32,000 The contribution margin that the company would disclose on a variable-costing income statement is:

A)$97,500.
B)$147,000.
C)$166,500.
D)$370,000.
E)None of the answers is correct.

Question 43

Riverton Corp., which began business at the start of the current year, had the following data: Planned and actual production: 40,000 units Sales: 37,000 units at $15 per unit Production costs: Variable: $4 per unit Fixed: $260,000 Selling and administrative costs: Variable: $1 per unit Fixed: $32,000 The gross margin that the company would disclose on an absorption-costing income statement is:

A)$97,500.
B)$147,000.
C)$166,500.
D)$370,000.
E)None of the answers is correct.

Question 44

Consider the following comments about absorption- and variable-costing income statements: I.A variable-costing income statement discloses a firm's contribution margin. II.Cost of goods sold on an absorption-costing income statement includes fixed costs. III.The amount of variable selling and administrative cost is the same on absorption- and variable-costing income statements. Which of the above statements is (are) true?

A)I only.
B)II only.
C)I and II.
D)II and III.
E)I, II, and III.

Question 45

Jordan Manufacturing has the following cost information for year 20X9: During 20X9, Jordan produced 12,500 units, out of which 11,000 were sold for $60 each. What is Jordan's net income assuming the company uses absorption costing:

A)$421,600.
B)$412,000.
C)$425,000.
D)$457,600.
E)None of the answers is correct.

Question 46

ProTech began business at the start of the current year.The company planned to produce 40,000 units, and actual production conformed to expectations.Sales totaled 37,000 units at $42 each.Costs incurred were: If there were no variances, the company's absorption-costing income would be:

A)$155,000.
B)$230,000.
C)$240,500.
D)$592,000.
E)None of the answers is correct.

Question 47

Which of the following statements pertain to variable costing?

A)This method must be used for external financial reporting.
B)Fixed manufacturing overhead is attached to each unit produced.
C)The income statement not does disclose a company's contribution margin.
D)Variable manufacturing overhead becomes part of a unit's cost.
E)None of the answers is correct.

Question 48

Favaz began business at the start of this year and had the following costs: variable manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling and administrative costs per unit, $2; and fixed selling and administrative costs, $220,000.The company sells its units for $45 each.Additional data follow: There were no variances. The income (loss) under absorption costing is:

A)$(7,500).
B)$9,000.
C)$15,000.
D)$18,000.
E)None of the answers is correct.

Question 49

Variable costing of inventory and absorption costing of inventory is relevant for which of the following types of businesses?

A)Manufacturing firms.
B)Not-for-profit companies.
C)Governmental units.
D)Service firms.
E)All of the answers are correct.

Question 50

Sawyer Industries began business at the start of the current year.The company planned to produce 25,000 units, and actual production conformed to expectations.Sales totaled 22,000 units at $30 each.Costs incurred were: If there were no variances, the company's absorption-costing income would be:

A)$190,000.
B)$202,000.
C)$208,000.
D)$220,000.
E)None of the answers is correct.

Question 51

The following data relate to Lebeaux Corporation for the year just ended: Which of the following statements is correct?

A)Lebeaux's variable-costing income statement would show a gross margin of $270,000.
B)Lebeaux's variable-costing income statement would show a contribution margin of $330,000.
C)Lebeaux's absorption-costing income statement would show a contribution margin of $330,000.
D)Lebeaux's absorption-costing income statement would show a gross margin of $330,000.
E)Lebeaux's absorption-costing income statement would show a gross margin of $145,000.

Question 52

Which of the following statements pertain to both variable costing and absorption costing?

A)The income statement discloses the amount of gross margin generated during the reporting period.
B)Fixed selling and administrative expenses are treated in the same manner as fixed manufacturing
C)Both variable and absorption costing can be used for external financial reporting.
D)Variable selling costs are written-off as expenses of the accounting period.
E)Fixed manufacturing overhead is attached to each unit produced.

Question 53

Fort Smith Technologies incurred the following costs during the past year when planned production and actual production each totaled 20,000 units: Fort Smith's per-unit inventoriable cost under absorption costing is:

A)$9.50.
B)$25.00.
C)$28.00.
D)$33.00.
E)$40.50.

Question 54

Callaway Corp., which began business at the start of the current year, had the following data: Planned and actual production: 40,000 units Sales: 38,000 units at $15 per unit Production costs: Variable: $5 per unit Fixed: $260,000 Selling and administrative costs: Variable: $1 per unit Fixed: $32,000 The gross margin that the company would disclose on an absorption-costing income statement is:

A)$0.
B)$133,000.
C)$166,500.
D)$342,000.
E)None of the answers is correct.

Question 55

Which of the following product-costing systems is/are required for tax purposes?

A)Absorption costing.
B)Variable costing.
C)Throughput costing.
D)Either absorption or variable costing.
E)Absorption, variable costing, or throughput costing.

Question 56

Fort Smith Technologies incurred the following costs during the past year when planned production and actual production each totaled 20,000 units: If Fort Smith uses absorption costing, the total inventoriable costs for the year would be:

A)$400,000.
B)$460,000.
C)$560,000.
D)$620,000.
E)$660,000.

Question 57

ProTech began business at the start of the current year.The company planned to produce 40,000 units, and actual production conformed to expectations.Sales totaled 37,000 units at $42 each.Costs incurred were: If there were no variances, the company's variable-costing income would be:

A)$155,000.
B)$212,000.
C)$240,500.
D)$592,000.
E)None of the answers is correct.

Question 58

Callaway Corp., which began business at the start of the current year, had the following data: Planned and actual production: 40,000 units Sales: 38,000 units at $15 per unit Production costs: Variable: $5 per unit Fixed: $260,000 Selling and administrative costs: Variable: $1 per unit Fixed: $32,000 The contribution margin that the company would disclose on a variable-costing income statement is:

A)$0.
B)$120,000.
C)$166,500.
D)$342,000.
E)None of the answers is correct.

Question 59

Jordan Manufacturing has the following cost information for year 20X9: During 20X9, Jordan produced 12,500 units, out of which 11,000 were sold for $60 each. What is Jordan's net income assuming the company uses variable costing:

A)$421,600.
B)$412,000.
C)$425,000.
D)$513,000.
E)None of the answers is correct.

Question 60

Consider the following comments about absorption- and variable-costing income statements: I.A variable-costing income statement discloses a firm's gross margin. II.Cost of goods sold on an absorption-costing income statement includes fixed costs. III.The amount of variable selling and administrative cost is the same on absorption- and variable-costing income statements. Which of the above statements is (are) true?

A)I only.
B)II only.
C)I and II.
D)II and III.
E)I, II, and III.

Question 61

Which of the following formulas can often reconcile the difference between absorption- and variable-costing income?

A)Change in inventory units × predetermined variable-overhead rate per unit.
B)Change in inventory units ÷ predetermined variable-overhead rate per unit.
C)Change in inventory units × predetermined fixed-overhead rate per unit.
D)Change in inventory units ÷ predetermined fixed-overhead rate per unit.
E)(Absorption-costing income − variable-costing income) × fixed-overhead rate per unit.

Question 62

The optimum level of product quality is where:

A)external failure costs are at a minimum.
B)total quality costs are at a minimum.
C)prevention costs are at a minimum.
D)internal failure costs are at a minimum.
E)all of the answers are correct.

Question 63

Consider the following statements about absorption- and variable-costing income: I.Yearly income reported under absorption costing will differ from income reported under variable costing if production and sales volumes differ. II.In the long-run, total income reported under absorption costing will often be close to that reported under variable costing. III.Differences in income under absorption and variable costing can often be reconciled by multiplying the change in inventory (in units) by the variable manufacturing overhead cost per unit. Which of the above statements is (are) true?

A)I only.
B)II only.
C)III only.
D)I and II.
E)II and III.

Question 64

Foxtrot reported $65,000 of income for the year by using absorption costing.The company had no beginning inventory, planned and actual production of 20,000 units, and sales of 18,000 units.Standard variable manufacturing costs were $20 per unit, and total budgeted fixed manufacturing overhead was $100,000.If there were no variances, income under variable costing would be:

A)$15,000.
B)$55,000.
C)$65,000.
D)$75,000.
E)$115,000.

Question 65

Chu Enterprise's inventory increased during the year.On the basis of this information, income reported under absorption costing:

A)will be the same as that reported under variable costing.
B)will be higher than that reported under variable costing.
C)will be lower than that reported under variable costing.
D)will differ from that reported under variable costing, the direction of which cannot be determined from
E)will be less than that reported in the previous period.

Question 66

Fallows Manufacturing produces a single product.During 20X9, the company incurred the following costs: Fallows had no units in beginning inventory.During 20X9, 6,000 units were produced and 5,000 units were sold.Which of the following statements is true when comparing net income using absorption versus variable costing?

A)Net income will be $3,500 higher using absorption costing rather than variable costing.
B)Net income will be $3,500 lower using absorption costing rather than variable costing.
C)Net income will be equal for both absorption costing and variable costing.
D)Net income will be $4,200 higher using absorption costing rather than variable costing.
E)Net income will be $4,200 lower using absorption costing rather than variable costing.

Question 67

Which of the following is not a type of quality cost?

A)External failure costs.
B)Internal failure costs.
C)Prevention costs.
D)Appraisal costs.
E)All of the answers are correct.

Question 68

Assuming that the number of units produced is less than the number of units sold, which of the following statements is true when comparing net income using absorption and variable costing?

A)Absorption costing will yield a higher net income.
B)Net income will be the same under both methods.
C)Variable costing will yield a higher net income.
D)The sales price per unit will be less using absorption costing.
E)None of these statements is true.

Question 69

Which of the following statements about environmental costs is false?

A)Remediation costs include offsite, but not onsite, remediation costs.
B)Abatement costs include costs to reduce or eliminate pollution.
C)Monitoring costs include the costs of monitoring the regulatory environment as well as monitoring the
D)Private environmental costs are those borne by a company or individual.
E)Social environmental costs are those borne by the public at large.

Question 70

Razor Technologies reported $106,000 of income for the year by using variable costing.The company had no beginning inventory, planned and actual production of 50,000 units, and sales of 47,000 units.Standard variable manufacturing costs were $15 per unit, and total budgeted fixed manufacturing overhead was $150,000.If there were no variances, income under absorption costing would be:

A)$52,000.
B)$97,000.
C)$106,000.
D)$115,000.
E)$160,000.

Question 71

Consider the following statements about absorption costing and variable costing: I.Variable costing is consistent with contribution reporting and cost-volume-profit analysis. II.Absorption costing must be used for external financial reporting. III.A number of companies use both absorption costing and variable costing. Which of the above statements is (are) true?

A)I only.
B)II only.
C)III only.
D)I and II.
E)I, II, and III.

Question 72

Which of the following situations would cause variable-costing income to be higher than absorption-costing income?

A)Units sold equaled 39,000 and units produced equaled 42,000.
B)Units sold and units produced were both 42,000.
C)Units sold equaled 55,000 and units produced equaled 49,000.
D)Sales prices decreased by $7 per unit during the accounting period.
E)Selling expenses increased by 10% during the accounting period.

Question 73

Which of the following conditions would cause absorption-costing income to be lower than variable-costing income?

A)Units sold exceeded units produced.
B)Units sold equaled units produced.
C)Units sold were less than units produced.
D)Sales prices decreased.
E)Selling expenses increased.

Question 74

Costs of determining whether defects exist are called:

A)appraisal costs.
B)external failure costs.
C)internal failure costs.
D)prevention costs.
E)defects costs.

Question 75

Which of the following conditions would cause absorption-costing income to be higher than variable-costing income?

A)Units sold exceeded units produced.
B)Units sold equaled units produced.
C)Units sold were less than units produced.
D)Sales prices decreased.
E)Selling expenses increased.

Question 76

For external-reporting purposes, generally accepted accounting principles require that net income be based on:

A)absorption costing.
B)variable costing.
C)direct costing.
D)semivariable costing.
E)activity-based costing.

Question 77

Consider the following statements about absorption costing and variable costing: I.Variable costing is consistent with contribution reporting and cost-volume-profit analysis. II.Variable costing must be used for external financial reporting. III.A number of companies use both absorption costing and variable costing. Which of the above statements is (are) true?

A)I only.
B)II only.
C)III only.
D)I and II.
E)I and III.

Question 78

Which of the following situations would cause variable-costing income to be lower than absorption-costing income?

A)Units sold equaled 39,000 and units produced equaled 42,000.
B)Units sold and units produced were both 42,000.
C)Units sold equaled 55,000 and units produced equaled 49,000.
D)Sales prices decreased by $7 per unit during the accounting period.
E)Selling expenses increased by 10% during the accounting period.

Question 79

Income reported under absorption costing and variable costing is:

A)always the same.
B)typically different.
C)always higher under absorption costing.
D)always higher under variable costing.
E)always the same or higher under absorption costing.

Question 80

Assuming the number of units sold and produced are the same, which of the following statements is true when comparing net income using absorption and variable costing?

A)Net income will be the same under both methods.
B)Variable costing will yield a higher net income.
C)Variable costing will have higher sales revenue.
D)Absorption costing will yield a higher net income.
E)None of these statements is true.