Deck 21: Variable Costing

Question 1

The traditional income statement format calculates operating income as gross profit minus selling and administrative expenses.

Answer 1

True

Question 2

Which of the following statements is true of absorption costing?

A)It considers variable selling and administrative costs as product costs.
B)It considers fixed selling and administrative costs as product costs.
C)It considers fixed manufacturing overhead cost as product costs.
D)It considers variable manufacturing overhead cost as period costs.

Answer 2

C

Question 3

Which of the following statements is true of variable costing?

A)It considers variable manufacturing overhead as period costs.
B)It considers fixed manufacturing overhead as product costs.
C)It considers variable selling and administrative costs as product costs.
D)It considers fixed selling and administrative costs as period costs.

Answer 3

D

Question 4

The contribution margin format of the income statement categorizes costs by their behavior.

Question 5

Following Generally Accepted Accounting Principles,the income statement issued to investors and creditors must ________.

A)be prepared in the traditional format
B)be prepared using variable costing
C)be prepared in the contribution margin format
D)show the value of contribution margin

Question 6

In absorption costing,all product costs are recorded first as assets in the inventory accounts.

Question 7

Unit product cost calculations using absorption costing does not include ________.

A)fixed manufacturing overhead
B)variable manufacturing overhead
C)variable selling and administrative costs
D)direct materials

Question 8

Variable costing considers only ________ costs when determining product costs.

A)fixed manufacturing
B)variable manufacturing
C)variable selling and administrative
D)fixed selling and administrative

Question 9

Variable costing is used for external reporting purposes,and absorption costing is used for internal decision-making purposes.

Question 10

Contribution margin is calculated by deducting the total cost of goods sold from sales revenue.

Question 11

Absorption costing is required by the Generally Accepted Accounting Principles (GAAP)for financial statements issued to investors,creditors,and other external users.

Question 12

Which of the following is true of the traditional format of the income statement?

A)It is prepared under the variable costing method.
B)It shows contribution margin as a line item.
C)It is not allowed under the US GAAP.
D)It is prepared under the absorption method.

Question 13

Variable costing prepares the income statement using the traditional format.

Question 14

Period costs under the variable costing method include ________.

A)variable manufacturing overhead
B)variable selling and administrative costs
C)direct materials
D)direct labor

Question 15

Variable costing considers direct materials,direct labor,variable manufacturing overhead,and fixed manufacturing overhead as product costs.

Question 16

Absorption costing considers direct materials,direct labor,variable manufacturing overhead,and fixed manufacturing overhead as product costs.

Question 17

The fixed manufacturing overhead is considered a product cost in variable costing and a period cost in absorption costing.

Question 18

The traditional income statement format is prepared under absorption costing.

Question 19

Fixed manufacturing overhead is considered a product cost under variable costing.

Question 20

Absorption costing considers fixed selling and administrative costs as product costs.

Question 21

Jupiter Inc.reports the following information for August: Calculate the operating income for August using variable costing.

A)$625,000
B)$450,000
C)$525,000
D)$420,000

Question 22

Which of the following is considered a period cost in absorption costing?

A)variable manufacturing overhead costs
B)fixed selling and administrative costs
C)fixed manufacturing overhead costs
D)semi-variable manufacturing overhead costs

Question 23

Which of the following is considered a period cost under variable costing but not under absorption costing?

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

Question 24

In variable costing,fixed manufacturing overhead is considered a period cost because ________.

A)these costs are indirectly related to production
B)these are not incurred in the period in which the units are produced
C)these costs are incurred whether or not the company manufactures any goods
D)these costs are direct costs incurred for production

Question 25

Zot-Ice Corp.has provided the following data for the current year.
Calculate the unit product cost using absorption costing and variable costing.

Question 26

Which of the following statements is true of absorption and variable costing systems?

A)Both costing methods consider selling and administrative costs to be period costs.
B)Variable costing considers variable selling and administrative costs to be product costs.
C)Absorption costing considers fixed manufacturing overhead to be period costs.
D)Both costing methods consider fixed manufacturing overhead to be product costs.

Question 27

Isphase Inc.has provided the following financial data for 2014:
There are no beginning inventories.Prepare an income statement for the year using the traditional format.

Question 28

Jupiter Inc.reports the following information for August: Calculate the contribution margin for the month of August.

A)$450,000
B)$600,000
C)$700,000
D)$650,000

Question 29

Dentofax Inc.reports the following information for August: Calculate the operating income for August using absorption costing.

A)$275,000
B)$350,000
C)$425,000
D)$525,000

Question 30

Contribution margin is calculated by deducting ________ from sales revenue.

A)total product costs
B)total selling and administrative costs
C)total fixed costs
D)total variable costs

Question 31

Zertrax Inc.reports the following information for July: What is the total fixed cost as per variable costing?

A)$45,000
B)$110,000
C)$10,000
D)$135,000

Question 32

The level of inventory on hand at the end of the year does not affect the amount of operating income calculated under variable costing and absorption costing.

Question 33

In variable costing,the value of ending finished goods inventory includes fixed manufacturing overhead.

Question 34

The following data has been provided by Zimtex Inc.for the year 2015.
There are no beginning inventories.Prepare an income statement using the contribution margin format.

Question 35

Which of the following will appear as a line item in the income statement prepared under variable costing?

A)contribution margin
B)total cost of goods sold
C)work-in-process inventory
D)gross profit

Question 36

Nice Aqua Inc.has provided the following information for the year 2013.

- What is the unit product cost using variable costing?

A)$135
B)$100
C)$105
D)$165

Question 37

Gross profit is calculated by deducting ________ from sales revenue.

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

Question 38

Nice Aqua Inc.has provided the following information for the year 2013.

-What is the unit product cost using absorption costing?

A)$120
B)$165
C)$130
D)$105

Question 39

Which of the following will appear as a line item in the traditional format of an income statement?

A)contribution margin
B)total variable costs (manufacturing and non-manufacturing)
C)total fixed costs (manufacturing and non-manufacturing)
D)gross profit

Question 40

Nimtrans Inc.reports the following information for August: Calculate the gross profit for August using absorption costing?

A)$725,000
B)$650,000
C)$600,000
D)$500,000

Question 41

In variable costing,all fixed manufacturing costs are expensed in the period incurred.

Question 42

Greenlam Inc.started the year with 200 units in the Finished Goods Inventory account.It produced 600 units during the year and sold 800 units.If Greenlam uses variable costing:

A)its operating profit for the period will be higher than absorption costing.
B)its operating profit for the period will be lower than absorption costing.
C)its value of ending inventory reported in the balance sheet will be higher than absorption costing.
D)its operating profit will be the same under absorption costing.

Question 43

When there are no units in the beginning finished goods inventory and the units produced are more than the units sold,the operating income will be higher under absorption costing than variable costing.

Question 44

When all of the units produced are sold,the operating income will be the same under both the costing methods.(Assume no beginning inventories.)Which of the following gives the correct reason for the above statement?

A)all costs incurred have been recorded as expenses
B)a portion of the fixed manufacturing overhead is still in the Finished Goods Inventory account
C)all selling and administrative expenses have been recorded as period costs
D)fixed manufacturing costs have not been considered while calculating the operating profits

Question 45

When there are no units in the beginning finished goods inventory and the units produced are more than the units sold,the operating income will be higher under variable costing than absorption costing.

Question 46

Under variable costing,the units in the beginning finished goods inventory contain manufacturing fixed costs.

Question 47

Flexlux Inc.reports the following information: What is the unit product cost using variable costing?

A)$50
B)$55
C)$45
D)$65

Question 48

In its first year of business,Greenlam Inc.produced and sold 600 units.If Greenlam uses variable costing,________.

A)its operating profit for the period will be higher than absorption costing
B)its operating profit for the period will be lower than absorption costing
C)its value of ending inventory reported in the balance sheet will be higher than absorption costing
D)its operating profit will be the same under absorption costing

Question 49

Fasetech Inc.has collected the following data for November (there are no beginning inventories): What is the ending balance in finished goods inventory using variable costing if 450 units are sold?

A)$2,000
B)$2,250
C)$3,750
D)$2,850

Question 50

When production is less than sales,the operating income will be lower under absorption costing than variable costing.Assume zero ending inventories.Which of the following gives the correct reason for the above statement?

A)all costs incurred have been recorded as expenses
B)a portion of the fixed manufacturing overhead is still in the ending Finished Goods Inventory account
C)the units in the beginning finished goods inventory have manufacturing fixed costs assigned to them
D)fixed manufacturing costs have not been considered while calculating the operating profits

Question 51

When all the units produced are sold,the profit calculated under absorption costing is higher when compared to the profit calculated under variable costing.

Question 52

Which of the following costing methods charges all the manufacturing costs to the products?

A)variable costing
B)direct costing
C)absorption costing
D)contribution costing

Question 53

Fasetech Inc.has collected the following data for November (there are no beginning inventories): What is the operating income using absorption costing if 450 units are sold?

A)$2,570
B)$3,500
C)$3,650
D)$3,250

Question 54

When production is more than sales,the operating income will be higher under absorption costing than variable costing.Assume zero beginning inventories.Which of the following gives the correct reason for the above statement?

A)all costs incurred have been recorded as expenses
B)a portion of the fixed manufacturing overhead is still in the ending Finished Goods Inventory account
C)all selling and administrative expenses have been recorded as period costs
D)fixed manufacturing costs have not been considered while calculating the operating profits

Question 55

Kaycom Inc.reports the following information: What is the amount of unit product cost that will be considered for external reporting purposes?

A)$45
B)$65
C)$85
D)$75

Question 56

Medbam Inc.has collected the following data for November (there are no beginning inventories): What is the operating income using absorption costing?

A)$6,000
B)$3,500
C)$5,000
D)$4,500

Question 57

A variable costing income statement is used for ________.

A)filing income tax returns
B)external reporting purposes
C)determining the amount of gross profit
D)internal decision making purposes

Question 58

In its first year of business,Greenlam Inc.produced 600 units and sold 400 units.If Greenlam uses variable costing,________.

A)its operating profit for the period will be higher than absorption costing
B)its operating profit for the period will be lower than absorption costing
C)its value of ending inventory reported in the balance sheet will be higher than absorption costing
D)its operating profit will be the same under absorption costing

Question 59

When there are no beginning or ending finished goods inventories,________.

A)variable and absorption costing will result in different values for ending finished goods inventories
B)variable and absorption costing will result in the same operating profits
C)variable and absorption costing will result in different sales revenue
D)variable and absorption costing will result in different values for cost of goods sold

Question 60

SailFind Inc.has collected the following data for November (there are no beginning inventories): What is the operating income using variable costing if 450 units are sold?

A)$2,000
B)$3,500
C)$3,000
D)$2,500

Question 61

In absorption costing,fixed manufacturing overhead is expensed ________.

A)when all the other non-manufacturing fixed costs are expensed
B)when the product is sold
C)at the end of the period in which it is paid
D)when the units are produced

Question 62

Under absorption costing,operating profit can be ________.

A)increased by increasing production without increasing sales
B)decreased by increasing production without decreasing sales
C)decreased by increasing the level of ending Finished Goods Inventory
D)increased by decreasing sales and keeping production equal to sales

Question 63

E-trax Inc.has provided the following financial information for the year 2015: What is the unit product cost for 2015 using variable costing?

A)$72
B)$75
C)$60
D)$65

Question 64

Danby Inc.has the following cost data:
Calculate the unit product cost using absorption costing when production is 200 units,400 units,and 800 units.

Question 65

The ________ method allows managers to manipulate operating profits through production.

A)absorption costing
B)variable costing
C)direct costing
D)marginal costing

Question 66

Groovelex Inc.reports the following information for the year ended December 31,2014:

- The operating profit calculated using variable costing and absorption costing amounted to $9,270 and $11,250,respectively.There were no beginning inventories.Determine the total number of units produced during 2014.

A)500 units
B)620 units
C)513 units
D)120 units

Question 67

Groovelex Inc.has collected the following data for the current year: What is the unit product cost for the current year using absorption costing?

A)$70
B)$65
C)$80
D)$55

Question 68

Silver Rex Inc.has provided the following data for the year 2015:
Requirements:
a)What is Silver Rex's product cost under absorption costing and variable costing?
b)Prepare income statements for Silver Rex using absorption costing and variable costing.
c)Calculate the balance in Finished Goods Inventory using absorption costing and variable costing.
Assume that the production and prices were the same in the previous year.

Question 69

Groovelex Inc.reports the following information for the year ended December 31,2014:

-The operating profit calculated using variable costing and absorption costing amounted to $9,270 and $11,250,respectively.There were no beginning inventories.Determine the total fixed manufacturing overhead that will be expensed under variable costing for the year 2014.

A)$10,230
B)$8,250
C)$20,750
D)$25,000

Question 70

Volplex Inc.produces paper and office supplies and uses the just-in-time inventory system.Currently,the company is using variable costing.Which of the following is true of the effect of costing systems on the financial results of Volplex?

A)Its operating profit will be significantly higher if the company uses absorption costing instead of variable costing.
B)Its operating profit will be significantly lower if the company uses absorption costing instead of variable costing.
C)Its operating profit will vary a little if the company uses absorption costing instead of variable costing.
D)Its operating profit will be negative if the company uses absorption costing instead of variable costing.

Question 71

Oxygen Inc.reports the following information:
Assume that the production and prices were the same in the previous year.Assume no beginning inventories.
Requirements:
a)Calculate unit cost of product using absorption costing and variable costing.
b)Calculate the operating income using absorption costing and variable costing.

Question 72

Groovelex Inc.reports the following information: The beginning inventory costs $3,750 under absorption costing and $2,500 under variable costing.
What is the operating income using variable costing?

A)$4,200
B)$2,000
C)$3,750
D)$3,000

Question 73

When there is no beginning inventory and all the goods that are produced are sold,the operating income ________.

A)will be higher under absorption costing than variable costing
B)will be lower under absorption costing than variable costing
C)will be higher than the gross profit under variable costing
D)will be the same for both absorption costing and variable costing

Question 74

Groovelex Inc.reports the following information for the year ended December 31,2014:

-The operating profit calculated using variable costing and absorption costing amounted to $9,270 and $11,250,respectively.There were no beginning inventories.Determine the total fixed manufacturing overhead that will be expensed under absorption costing for the year 2014.

A)$10,230
B)$8,250
C)$20,750
D)$25,000

Question 75

Fasetech Inc.has collected the following data for November (there are no beginning inventories): What is the ending balance in finished goods inventory using absorption costing if 450 units are sold?

A)$2,850
B)$2,250
C)$3,550
D)$3,750

Question 76

Groovelex Inc.has collected the following data for the current year: The beginning inventory costs $3,750 under absorption costing and $2,500 under variable costing.
What is the operating income using absorption costing?

A)$3,950
B)$2,500
C)$4,750
D)$3,750

Question 77

E-trax Inc.has provided the following financial information for the year 2015:
What is the unit product cost for 2015 using absorption costing?

A)$72
B)$60
C)$65
D)$56

Question 78

Groovelex Inc.reports the following information:

- There are no beginning inventories.What is the ending balance in finished goods inventory using variable costing?

A)$2,500
B)$7,000
C)$5,000
D)$6,000

Question 79

Groovelex Inc.reports the following information:

-There are no beginning inventories.What is the ending balance in finished goods inventory using absorption costing?

A)$8,500
B)$8,000
C)$6,000
D)$4,000

Question 80

Groovelex Inc.reports the following information: What is the unit product cost using variable costing?

A)$45
B)$50
C)$65
D)$55