Deck 21: Variable Costing

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

Variable costing prepares the income statement using the traditional format.

Question 6

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

Question 7

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.

Question 8

Following GAAP,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 9

Absorption costing considers ________ as product costs.

A)variable manufacturing overhead
B)sales salaries and commissions
C)administrative office salaries
D)advertising costs

Question 10

Under absorption costing,all product costs are first recorded as assets in inventory accounts,and later transferred to the Cost of Goods Sold account when sold.

Question 11

Answer the following absorption costing questions:

Question 12

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

Question 13

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

Question 14

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.

Question 15

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 16

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

Question 17

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 GAAP.
D)It is prepared under the absorption costing method.

Question 18

The traditional income statement format is prepared under absorption costing.

Question 19

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

Question 20

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

Question 21

Lilypad Hot Tubs,Inc.reports the following information for August:

Calculate the operating income for August using variable costing.

A)$430,000
B)$567,000
C)$357,000
D)$640,000

Question 22

Morwenna,Inc.reports the following information for August:

Calculate the operating income for August using absorption costing.

A)$520,000
B)$270,000
C)$1,100,000
D)$380,000

Question 23

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 24

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

Question 25

Llywelyn,Inc.reports the following information for July:

What is the total fixed cost using variable costing?

A)$850,000
B)$490,000
C)$250,000
D)$470,000

Question 26

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 27

Aqua Primavera,Inc.has provided the following information for the year.

What is the unit product cost using variable costing?

A)$75
B)$85
C)$130
D)$174

Question 28

Windspring Spas,Inc.reports the following information for August:

Calculate the contribution margin for August.

A)$110,000
B)$430,000
C)$380,000
D)$540,000

Question 29

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 30

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 31

Ceriweden,Inc.has provided the following financial data for the year:

There are no beginning inventories.Prepare an income statement for the year using the traditional format.

Question 32

Arianell,Inc.reports the following information for August:

Calculate the gross profit for August using absorption costing.

A)$730,000
B)$700,000
C)$690,000
D)$645,000

Question 33

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 34

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 35

Answer the following variable costing questions:

Question 36

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 37

The following data has been provided by Jestina,Inc.for the year.

There are no beginning inventories.Prepare an income statement using the contribution margin format.

Question 38

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

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 39

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 40

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 41

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 42

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 43

When all units produced are sold,there is no difference in operating income between absorption costing and variable costing.

Question 44

Last year,Adara Company produced 11,000 units and sold 9000 units.The company had no beginning inventory.They incurred the following costs:

Adara's product cost per unit under variable costing is

A)$45
B)$40
C)$46
D)$52

Question 45

Amarantha Corp.has provided the following data for the current year.

Calculate the unit product cost using absorption costing and variable costing.

Question 46

Sequoyah,Inc.reports the following information:

What is the unit product cost using variable costing?

A)$60
B)$82
C)$55
D)$105

Question 47

Last year,Adara Company produced 5000 units and sold 3000 units.The company had no beginning inventory.They incurred the following costs:

Adara's product cost per unit under absorption costing is

A)$28
B)$24
C)$31
D)$42

Question 48

Unit product cost calculations using absorption costing do NOT include ________.

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

Question 49

Petra,Inc.has collected the following data.(There are no beginning inventories. ):

What is the operating income using absorption costing? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

A)$39,400
B)$34,600
C)$24,600
D)$29,400

Question 50

In variable costing,the balance of ending Finished Goods Inventory includes fixed manufacturing overhead.

Question 51

When all the units produced are sold,the operating income calculated under absorption costing is higher when compared to the operating income calculated under variable costing.Assume that there is no beginning Finished Goods Inventory.

Question 52

When there are no beginning or ending balances in Finished Goods Inventory,variable and absorption costing will result in ________.

A)different amounts for ending Work-in-Process Inventory
B)the same operating income
C)different sales revenue
D)different amounts for cost of goods sold

Question 53

Yancey,Inc.reports the following information:

What is the amount of unit product cost that will be considered for external reporting purposes? (Round any intermediate calculations and your final answer to the nearest cent. )

A)$59.29
B)$69.29
C)$120.00
D)$99.29

Question 54

When all of the units produced are sold,the operating income is the same under both the absorption and variable costing methods.Assume no beginning and 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 Finished Goods Inventory account.
C)All selling and administrative expenses have been recorded as period costs.
D)Fixed manufacturing costs have not been considered when calculating the operating incomes.

Question 55

In the variable costing income statement,variable costs are reported separately from fixed costs.

Question 56

When there is no beginning Finished Goods 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 57

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

A)its operating income for the period will be higher than under absorption costing
B)its operating income for the period will be lower than under absorption costing
C)its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing
D)its operating income will be the same as under absorption costing

Question 58

Emerald Pools,Inc.has provided the following information for the year.

What is the unit product cost using absorption costing? (Round any intermediate calculations and your final answer to the nearest dollar. )

A)$70
B)$154
C)$160
D)$120

Question 59

Mirabella Company assigns direct materials,direct labor and both variable and fixed overhead to its product costs.Mirabella Company is using ________.

A)absorption costing
B)variable costing
C)batch costing
D)composite costing

Question 60

Which of the following is NOT a product cost under variable costing?

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

Question 61

Mackenzie,Inc.has collected the following data.(There are no beginning inventories. )

What is the ending balance in Finished Goods Inventory using absorption costing if 400 units are sold? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

A)$7457
B)$15,600
C)$33,001
D)$23,058

Question 62

Comet Canisters,Inc.has collected the following data for the current year:

What is the unit product cost using absorption costing? (Round your answer to the nearest cent. )

A)$93.60
B)$43.00
C)$64.60
D)$48.60

Question 63

When production is greater than sales,the operating income will be higher under absorption costing than variable costing.Assume zero beginning and 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 under absorption costing.
C)All selling and administrative expenses have been recorded as period costs.
D)Fixed manufacturing costs have not been considered when calculating the operating profits.

Question 64

When units produced exceed units sold,how does operating income differ between variable costing and absorption costing? Assume no beginning Finished Goods Inventory.Explain your answer.

Question 65

Sutherland,Inc.reports the following information:

There are no beginning inventories.What is the ending balance in Finished Goods Inventory using absorption costing? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

A)$7218
B)$3148
C)$5500
D)$8648

Question 66

McFarlane,Inc.reports the following information:

There are no beginning inventories.What is the ending balance in Finished Goods Inventory using variable costing?

A)$9500
B)$6460
C)$10,450
D)$15,295

Question 67

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

A)its operating income for the period will be higher than under absorption costing
B)its operating income for the period will be lower than under absorption costing
C)its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing
D)its operating income will be the same as under absorption costing

Question 68

Bethel,Inc.has collected the following data.(There are no beginning inventories. )

What is the operating income using variable costing if 500 units are sold?

A)$15,800
B)$45,000
C)$60,000
D)$4200

Question 69

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 70

In absorption costing,the manufacturing costs expensed are greater than the amount expensed in variable costing when units produced are less than sold because the units in beginning inventory under absorption costing were assigned a greater cost in the previous accounting period.

Question 71

Alltech Inc.has collected the following data.(There are no beginning inventories. )

What is the operating income using absorption costing if 500 units are sold? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

A)$6600
B)$5715
C)$11,171
D)$19,015

Question 72

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 73

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

The operating income calculated using variable costing and absorption costing amounted to $9800 and $11,000,respectively.There were no beginning inventories.Determine the total number of units produced during the year.

A)600 units
B)648 units
C)10 units
D)48 units

Question 74

Under variable costing,the units in the beginning Finished Goods Inventory contain fixed manufacturing overhead costs.

Question 75

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

The operating income calculated using variable costing and absorption costing amounted to $9300 and $11,400,respectively.There were no beginning inventories.Determine the total fixed manufacturing overhead that will be expensed under variable costing for the year 2016.

A)$20,700
B)$18,600
C)$34,720
D)$30,380

Question 76

Cinnabar,Inc.has provided the following data for the year:

Requirements:
a)Compute Cinnabar's unit product cost under absorption costing and variable costing.
b)Prepare income statements for Cinnabar using absorption costing and variable costing.
c)Calculate the balance in Finished Goods Inventory using absorption costing and variable costing.
Assume that the production level,costs,and sales prices were the same in the previous year.

Question 77

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

Question 78

Iagan,Inc.has collected the following data.(There are no beginning inventories. )

What is the ending balance in Finished Goods Inventory using variable costing if 500 units are sold?

A)$4000
B)$4700
C)$1700
D)$3000

Question 79

Anatase,Inc.reports the following information:

Assume that the production costs and sales prices were the same in the previous year.Assume no beginning inventories.
Requirements:
a)Calculate unit product cost using absorption costing and variable costing.
b)Calculate the operating income using absorption costing and variable costing.

Question 80

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

The operating income calculated using variable costing and absorption costing amounted to $10,000 and $12,700,respectively.There were no beginning inventories.Determine the total fixed manufacturing overhead that will be expensed under absorption costing for the year.

A)$10,140
B)$7440
C)$24,800
D)$30,380