Deck 6: Variable Costing for Management Analysis

Question 1

On the variable costing income statement, deduction of the variable cost of goods sold from sales yields gross profit.

Answer 1

False

Question 2

On the variable costing income statement, variable selling and administrative expenses are deducted from manufacturing margin to yield contribution margin.

Answer 2

True

Question 3

Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable factory overhead.

Answer 3

False

Question 4

The absorption costing income statement does not distinguish between variable and fixed costs.

Question 5

Fixed factory overhead costs are included as part of the cost of products manufactured under the absorption costing concept.

Question 6

Variable costing is also known as direct costing.

Question 7

In the absorption costing income statement, deduction of the cost of goods sold from sales yields net profit.

Question 8

In the absorption costing income statement, deduction of the cost of goods sold from sales yields gross profit.

Question 9

On the variable costing income statement, all of the fixed costs are deducted from the contribution margin.

Question 10

The factory superintendent's salary would be included as part of the cost of products manufactured under the absorption costing concept.

Question 11

In determining cost of goods sold, two alternate costing concepts can be used: direct costing and variable costing.

Question 12

In variable costing, the cost of products manufactured is composed of only those manufacturing costs that increase or decrease as the volume of production rises or falls.

Question 13

In the absorption costing income statement, deduction of the cost of goods sold from sales yields contribution margin.

Question 14

The taxes on the factory superintendent's salary would be included as part of the cost of products manufactured under the variable costing concept.

Question 15

Electricity purchased to operate factory machinery would be included as part of the cost of products manufactured under the absorption costing concept.

Question 16

Under absorption costing, the cost of finished goods includes direct materials, direct labor, and all factory overhead.

Question 17

In variable costing, fixed costs do not become part of the cost of goods manufactured, but are considered an expense of the period.

Question 18

On the variable costing income statement, deduction of the variable cost of goods sold from sales yields manufacturing margin.

Question 19

In determining cost of goods sold, two alternate costing concepts can be used: absorption costing and variable costing.

Question 20

Property taxes on a factory building would be included as part of the cost of products manufactured under the absorption costing concept.

Question 21

For a period during which the quantity of product manufactured equals the quantity sold, income from operations reported under absorption costing will equal the income from operations reported under variable costing.

Question 22

On the variable costing income statement, variable costs are deducted from contribution margin to yield manufacturing margin.

Question 23

For an accounting period during which the quantity of inventory at the end was smaller than the quantity at the beginning, income from operations reported under variable costing will be larger than income from operations reported under absorption costing.

Question 24

For a period during which the quantity of product manufactured exceeded the quantity sold, income from operations reported under absorption costing will be larger than income from operations reported under variable costing.

Question 25

For a period during which the quantity of product manufactured was less than the quantity sold, income from operations reported under absorption costing will be larger than income from operations reported under variable costing.

Question 26

For a period during which the quantity of inventory at the end was smaller than that at the beginning, income from operations reported under variable costing will be smaller than income from operations reported under absorption costing.

Question 27

For a period during which the quantity of product manufactured was less than the quantity sold, income from operations reported under absorption costing will be smaller than income from operations reported under variable costing.

Question 28

Under absorption costing, which of the following costs would not be included in finished goods inventory?

A) hourly wages of assembly worker
B) straight-line depreciation on factory equipment
C) overtime wages paid to factory workers
D) the salaries for salespeople

Question 29

For a period during which the quantity of inventory at the end equals the inventory at the beginning, income from operations reported under variable costing will be smaller than income from operations reported under absorption costing.

Question 30

Another name for variable costing is:

A) indirect costing
B) process costing
C) direct costing
D) differential costing

Question 31

What term is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and variable factory overhead cost?

A) Absorption costing
B) Differential costing
C) Standard costing
D) Variable costing

Question 32

The contribution margin and the manufacturing margin are usually equal.

Question 33

What term is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and all factory overhead cost?

A) Standard costing
B) Variable costing
C) Absorption costing
D) Marginal costing

Question 34

For a period during which the quantity of inventory at the end was larger than that at the beginning, income from operations reported under variable costing will be smaller than income from operations reported under absorption costing.

Question 35

For a period during which the quantity of product manufactured equals the quantity sold, income from operations reported under absorption costing will be smaller than the income from operations reported under variable costing.

Question 36

For a period during which the quantity of product manufactured exceeded the quantity sold, income from operations reported under absorption costing will be smaller than income from operations reported under variable costing.

Question 37

For a period during which the quantity of inventory at the end equals the inventory at the beginning, income from operations reported under variable costing will equal income from operations reported under absorption costing.

Question 38

Under absorption costing, which of the following costs would not be included in finished goods inventory?

A) direct labor cost
B) direct materials cost
C) variable and fixed factory overhead cost
D) variable and fixed selling and administrative expenses

Question 39

For a period during which the quantity of inventory at the end was larger than that at the beginning, income from operations reported under variable costing will be larger than income from operations reported under absorption costing.

Question 40

On the variable costing income statement, the amounts representing the difference between the contribution margin and income from operations is the fixed manufacturing costs and fixed selling and administrative expenses.

Question 41

Which of the following statements is correct using the direct costing concept?

A) All manufacturing costs are included in the calculation of cost of goods manufactured.
B) Only fixed costs are included in the calculation of cost of goods manufactured while variable costs are considered period costs.
C) Only variable manufacturing costs are included in the calculation of cost of goods manufactured while fixed costs are considered period costs.
D) All manufacturing costs are considered period costs.

Question 42

Fixed costs are $50 per unit and variable costs are $125 per unit.  Production was 130,000 units, while sales were 125,000 units. Determine (a) whether variable costing income from operations is less than or greater than absorption costing income from operations, and (b) the difference in variable costing and absorption costing income from operations.

Question 43

Under variable costing, which of the following costs would not be included in finished goods inventory?

A) wages of machine operator
B) steel costs for a machine tool manufacturer
C) salary of factory supervisor
D) electricity used by factory machinery

Question 44

Under variable costing, which of the following costs would be included in finished goods inventory?

A) salary of salesperson
B) salary of vice-president of finance
C) wages of carpenters in a furniture factory
D) straight-line depreciation on factory equipment

Question 45

In the variable costing income statement, deduction of variable selling and administrative expenses from manufacturing margin yields:

A) differential margin
B) contribution margin
C) gross profit
D) marginal expenses

Question 46

On the variable costing income statement, the figure representing the difference between manufacturing margin and contribution margin is the:

A) fixed manufacturing costs
B) variable cost of goods sold
C) fixed selling and administrative expenses
D) variable selling and administrative expenses

Question 47

Philadelphia Company has the following information for March:
Determine the March
(a) manufacturing margin
(b) contribution margin
(c) income from operations for Philadelphia Company.

Question 48

The amount of income under absorption costing will be more than the amount of income under variable costing when units manufactured:

A) exceed units sold
B) equal units sold
C) are less than units sold
D) are equal to or greater than units sold

Question 49

Under variable costing, which of the following costs would not be included in finished goods inventory?

A) direct labor cost
B) direct materials cost
C) variable factory overhead cost
D) fixed factory overhead cost

Question 50

Which of the following would be included in the cost of a product manufactured according to variable costing?

A) sales commissions
B) office supply costs
C) interest expense
D) direct materials

Question 51

Fixed costs are $10 per unit and variable costs are $25 per unit. Production was 13,000 units, while sales were 12,000 units. Determine (a) whether variable costing income from operations is less than or greater than absorption costing income from operations, and (b) the difference in variable costing and absorption costing income from operations.

Question 52

On January 1 of the current year, Townsend Co. commenced operations. It operated its plant at 100% of capacity during January. The following data summarized the results for January:
(a) Prepare an income statement using absorption costing.
(b) Prepare an income statement using variable costing.

Question 53

The beginning inventory is 5,000 units. All of the units manufactured during the period and 3,000 units of the beginning inventory were sold. The beginning inventory fixed costs are $25 per unit, and variable costs are $55 per unit. Determine (a) whether variable costing income from operations is less than or greater than absorption costing income from operations, and (b) the difference in variable costing and absorption income from operations.

Question 54

The amount of income under absorption costing will equal the amount of income under variable costing when units manufactured:

A) exceed units sold
B) equal units sold
C) are less than units sold
D) are equal to or greater than units sold

Question 55

Under variable costing, which of the following costs would be included in finished goods inventory?

A) neither variable nor fixed factory overhead cost
B) both variable and fixed factory overhead cost
C) only variable factory overhead cost
D) only fixed factory overhead cost

Question 56

Which of the following would be included in the cost of a product manufactured according to absorption costing?

A) advertising expense
B) sales salaries
C) depreciation expense on factory building
D) office supplies costs

Question 57

At EOM Inc., the beginning inventory is 20,000 units.  All of the units manufactured during the period and 16,000 units of the beginning inventory were sold. The beginning inventory fixed costs are $50 per unit, and variable costs are $300 per unit. Determine (a) whether variable costing income from operations is less than or greater than absorption costing income from operations, and (b) the difference in variable costing and absorption income from operations.

Question 58

On October 31, the end of the first month of operations, Morristown & Co. prepared the following income statement based on absorption costing:
If the fixed manufacturing costs were $42,900 and the variable selling and administrative expenses were $14,600, prepare an income statement using variable costing.

Question 59

Tony's Company has the following information for March:
Determine the March
(a) manufacturing margin
(b) contribution margin
(c) income from operations for Tony's Company.

Question 60

The amount of income under absorption costing will be less than the amount of income under variable costing when units manufactured:

A) exceed units sold
B) equal units sold
C) are less than units sold
D) are equal to or greater than units sold

Question 62

A business operated at 100% of capacity during its first month and incurred the following costs: If 1,600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

A) $64,000
B) $56,000
C) $66,400
D) $78,400

Question 63

In which of the following types of firms would it be appropriate to prepare contribution margin reporting and analysis?

A) boat manufacturing
B) a chain of beauty salons
C) home building
D) all of the above

Question 64

Which of the following causes the difference between the planned and actual contribution margin?

A) an increase or decrease in the amount of sales
B) an increase in the amount of variable costs and expenses
C) a decrease in the amount of variable costs and expenses
D) all of the above

Question 65

The level of inventory of a manufactured product has increased by 8,000 units during a period. The following data are also available: What would be the effect on income from operations if variable costing is used rather than absorption costing?

A) $80,000 decrease
B) $80,000 increase
C) $104,000 decrease
D) $104,000 increase

Question 66

A business operated at 100% of capacity during its first month and incurred the following costs: If 1,500 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

A) $62,500
B) $73,500
C) $60,000
D) $52,500

Question 67

Service firms can only have one activity base for analyzing changes in costs.

Question 68

Under absorption costing, the amount of income reported from operations can be increased by producing more units than are sold.

Question 69

Changes in the quantity of finished goods inventory, caused by differences in the levels of sales and production, directly affect the amount of income from operations reported under absorption costing.

Question 70

If the variable selling and administrative expenses totaled $120,000 for the year (80,000 units at $1.50 each) and the planned variable selling and administrative expenses totaled $136,500 (78,000 units at $1.75 each), the effect of the unit cost factor on the change in contribution margin is:

A) $19,500 decrease
B) $19,500 increase
C) $20,000 decrease
D) $20,000 increase

Question 71

The level of inventory of a manufactured product has increased by 4,000 units during a period. The following data are also available: What would be the effect on income from operations if absorption costing is used rather than variable costing?

A) $44,000 decrease
B) $44,000 increase
C) $64,000 increase
D) $64,000 decrease

Question 72

Under absorption costing, increases or decreases in income from operations due to changes in inventory levels could be misinterpreted to be the result of operating efficiencies or inefficiencies.

Question 73

The level of inventory of a manufactured product has increased by 7,000 units during a period. The following data are also available: What would be the effect on income from operations if absorption costing is used rather than variable costing?

A) $42,000 decrease
B) $42,000 increase
C) $52,500 increase
D) $52,500 decrease

Question 74

S&P Enterprises sold 10,000 units of inventory during a given period.  The level of inventory of the manufactured product remained unchanged. The manufacturing costs were as follows: Which of the following statements is true?

A) Net income will be the same under both variable and absorption costing.
B) Net income under variable costing will be $45,000 less than net income under absorption costing.
C) Net income under absorption costing will be $40,000 more than under variable costing.
D) The difference in net income cannot be determined.

Question 75

The level of inventory of a manufactured product has increased by 5,000 units during a period. The following data are also available: What would be the effect on income from operations if variable costing is used rather than absorption costing?

A) $50,000 decrease
B) $50,000 increase
C) $65,000 increase
D) $65,000 decrease

Question 76

A business operated at 100% of capacity during its first month and incurred the following costs: If 1,000 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the absorption costing balance sheet?

A) $38,000
B) $40,500
C) $34,000
D) $47,000

Question 77

The level of inventory of a manufactured product has increased by 8,000 units during a period. The following data are also available: What would be the effect on income from operations if absorption costing is used rather than variable costing?

A) $80,000 decrease
B) $80,000 increase
C) $104,000 increase
D) $104,000 decrease

Question 78

In a service firm, it may be necessary to have several activity bases to properly match the change in costs with the changes in various activities.

Question 79

If the variable cost of goods sold totaled $80,000 for the year (16,000 units at $5.00 each) and the planned variable cost of goods sold totaled $86,250 (15,000 units at $5.75 each), the effect of the quantity factor on the change in contribution margin is:

A) $5,000 decrease
B) $5,000 increase
C) $5,750 increase
D) $5,750 decrease

Question 80

If sales totaled $800,000 for the year (80,000 units at $10.00 each) and the planned sales totaled $799,500 (78,000 units at $10.25 each), the effect of the quantity factor on the change in sales is:

A) $20,500 increase
B) $20,000 decrease
C) $20,500 decrease
D) $20,000 increase