Deck 8: Absorption and Variable Costing, and Inventory Management

Question 1

A major advantage to the JIT inventory approach is that it decreases carrying costs.

Answer 1

True

Question 2

Inventory using the absorption costing method includes direct materials, direct labour, variable manufacturing overhead, and fixed manufacturing overhead.

Answer 2

True

Question 3

Absorption costing income statements and variable costing income statements may differ because of their treatment of fixed manufacturing overhead costs.

Answer 3

True

Question 4

Which of the following best defines variable costing?

A) a useful tool for external reporting purposes
B) a useful tool for management decision making
C) a good way to value inventories for the balance sheet
D) not a useful tool for companies with multiple segments

Question 5

All other things being equal, if the number of units produced in a period is larger than the number of units sold in a period, absorption costing income will be higher than variable costing income.

Question 6

Which cost is NOT included in inventory using the absorption costing method?

A) direct labour
B) direct materials
C) fixed selling expenses
D) fixed manufacturing overhead

Question 7

JIT relies on a push system to control Finished Goods Inventory.

Question 8

Which type of cost does NOT appear on a variable costing income statement?

A) direct labour
B) direct materials
C) opportunity cost
D) variable selling expense

Question 9

Which type of cost is NOT included in product cost?

A) direct materials
B) variable selling expense
C) manufacturing overhead
D) fixed manufacturing overhead

Question 10

On a segmented income statement, fixed costs are broken down into direct fixed costs and overall fixed costs.

Question 11

If the demand for a product is known, total inventory-related costs consist of ordering costs and carrying costs.

Question 12

Which of the following reflects the primary difference between variable and absorption costing?

A) inclusion of fixed selling expenses in period costs
B) inclusion of fixed selling expenses in product costs
C) inclusion of fixed manufacturing overhead in product costs
D) inclusion of variable manufacturing overhead in period costs

Question 13

All other things being equal, if the number of units produced in a period is smaller than the number of units sold in period, absorption costing income will be higher than variable costing income.

Question 14

Which accounting method is used for external reporting?

A) variable costing
B) absorption costing
C) transfer price costing
D) responsibility costing

Question 15

Direct fixed expenses are fixed expenses that are directly traceable to a segment.

Question 16

Inventory costs using the variable costing method include only direct materials, direct labour, and fixed manufacturing overhead.

Question 17

Direct fixed expenses are avoidable if a segment is eliminated.

Question 18

Common fixed expenses are avoidable if a segment is eliminated.

Question 19

Product cost includes all costs of the company.

Question 20

The costs of NOT having a product available when demanded by a customer are called setup costs.

Question 21

Which statement best reflects the relationship between absorption costing net income and variable costing net income?

A) Absorption costing net income exceeds variable costing net income when units produced and sold are equal.
B) Variable costing net income exceeds absorption costing net income when units produced exceed units sold.
C) Absorption costing net income exceeds variable costing net income when units produced are less than units sold.
D) Absorption costing net income exceeds variable costing net income when units produced are greater than units sold.

Question 22

Nute Corporation
The following information pertains to Nute Corporation (the per unit amounts apply to all years): $$\begin{array} { l l } \text { Beginning inventory } & 1,000 \text { units } \\\text { Ending Finished Goods Inventory } & 6,000 \text { units } \\\text { Direct labour per unit } & \$ 40 \\\text { Direct materials per unit } & 20 \\\text { Variable manufacturing overhead per unit } & 10 \\\text { Fixed manufacturing overhead per unit } & 30 \\\text { Variable selling and administrative costs per unit } & 6 \\\text { Fixed selling and administrative costs per unit } & 14\end{array}$$

-Refer to Nute Corporation. What is the relationship between absorption costing net income and variable costing net income?

A) Absorption costing net income is $150,000 less.
B) Absorption costing net income is $150,000 greater.
C) Absorption costing net income is $240,000 less.
D) Absorption costing net income is $240,000 greater.

Question 23

Ella Company
Last year, Ella Company produced 10,000 units and sold 9,000 units at a sales price of $9 per unit. Costs for last year were as follows: $$\begin{array} { |l | r | } \hline\text { Direct materials } & \$ 10,000 \\\hline \text { Direct labour } & 15,000 \\\hline \text { Variable manufacturing overhead } & 5,000 \\\hline \text { Fixed manufacturing overhead } & 20,000 \\\hline \text { Variable selling expense } & 7,200 \\\hline \text { Fixed selling expense } & 5,000 \\\hline \text { Fixed administrative expense } & 12,000 \\\hline\end{array}$$ Fixed manufacturing overhead is applied on the basis of expected production. Last year, the company expected to produce 10,000 units.The company had no beginning inventories.

-Refer to Ella Company. What is the value of ending Finished Goods Inventory using the absorption costing method?

A) $2,000
B) $3,000
C) $3,720
D) $5,000

Question 24

Nute Corporation
The following information pertains to Nute Corporation (the per unit amounts apply to all years): $$\begin{array} { l l } \text { Beginning inventory } & 1,000 \text { units } \\\text { Ending Finished Goods Inventory } & 6,000 \text { units } \\\text { Direct labour per unit } & \$ 40 \\\text { Direct materials per unit } & 20 \\\text { Variable manufacturing overhead per unit } & 10 \\\text { Fixed manufacturing overhead per unit } & 30 \\\text { Variable selling and administrative costs per unit } & 6 \\\text { Fixed selling and administrative costs per unit } & 14\end{array}$$

-Refer to Nute Corporation. What is the value of the ending Finished Goods Inventory using the variable costing method?

A) $240,000
B) $350,000
C) $360,000
D) $420,000

Question 25

How will net income react using the variable costing method, assuming monthly production volume is constant but fewer items are sold during the period than are produced in that same period?

A) Net income will be equal to contribution margin per unit times units sold.
B) Net income will be equal to net income determined using the absorption costing method.
C) Net income will be less than net income determined using the absorption costing method.
D) Net income will be greater than net income determined using the absorption costing method.

Question 26

Ella Company
Last year, Ella Company produced 10,000 units and sold 9,000 units at a sales price of $9 per unit. Costs for last year were as follows: $$\begin{array} { |l | r | } \hline\text { Direct materials } & \$ 10,000 \\\hline \text { Direct labour } & 15,000 \\\hline \text { Variable manufacturing overhead } & 5,000 \\\hline \text { Fixed manufacturing overhead } & 20,000 \\\hline \text { Variable selling expense } & 7,200 \\\hline \text { Fixed selling expense } & 5,000 \\\hline \text { Fixed administrative expense } & 12,000 \\\hline\end{array}$$ Fixed manufacturing overhead is applied on the basis of expected production. Last year, the company expected to produce 10,000 units.The company had no beginning inventories.

-Refer to Ella Company. What is the operating income using the variable costing method?

A) $6,800
B) $9,000
C) $9,800
D) $11,800

Question 27

Nute Corporation
The following information pertains to Nute Corporation (the per unit amounts apply to all years): $$\begin{array} { l l } \text { Beginning inventory } & 1,000 \text { units } \\\text { Ending Finished Goods Inventory } & 6,000 \text { units } \\\text { Direct labour per unit } & \$ 40 \\\text { Direct materials per unit } & 20 \\\text { Variable manufacturing overhead per unit } & 10 \\\text { Fixed manufacturing overhead per unit } & 30 \\\text { Variable selling and administrative costs per unit } & 6 \\\text { Fixed selling and administrative costs per unit } & 14\end{array}$$

-Refer to Nute Corporation. What is the value of the ending Finished Goods Inventory using the absorption costing method?

A) $240,000
B) $360,000
C) $420,000
D) $600,000

Question 28

Ella Company
Last year, Ella Company produced 10,000 units and sold 9,000 units at a sales price of $9 per unit. Costs for last year were as follows: $$\begin{array} { |l | r | } \hline\text { Direct materials } & \$ 10,000 \\\hline \text { Direct labour } & 15,000 \\\hline \text { Variable manufacturing overhead } & 5,000 \\\hline \text { Fixed manufacturing overhead } & 20,000 \\\hline \text { Variable selling expense } & 7,200 \\\hline \text { Fixed selling expense } & 5,000 \\\hline \text { Fixed administrative expense } & 12,000 \\\hline\end{array}$$ Fixed manufacturing overhead is applied on the basis of expected production. Last year, the company expected to produce 10,000 units.The company had no beginning inventories.

-Refer to Ella Company. What is the operating income for using the absorption costing method?

A) $11,300
B) $11,800
C) $12,520
D) $36,000

Question 29

Westwood Company
Westwood Company has the following information the current year: $$\begin{array} { l l } \text { Selling sales price } & \$ 300 \text { per unit } \\\text { Variable production costs } & \$ 80 \text { per unit produced } \\\text { Variable selling and administrative expenses } &\$ 32 \text { per unit sold } \\\text { Fixed production costs } & \$ 400,000 \\\text { Fixed selling and administrative expenses } & \$ 280,000 \\\text { Units produced } & 20,000 \text { units } \\\text { Units sold } & 16,000 \text { units }\end{array}$$ The company had no beginning inventories

-Refer to Westwood Company. What is the cost of ending Finished Goods Inventory using the variable costing method?

A) $80,000
B) $180,000
C) $320,000
D) $380,000

Question 30

Triple M Company
Triple M Company had the following data for the month: $$\begin{array}{l}\text { Variable costs per unit: }\\\begin{array} { l r } \text { Direct materials } & \$ 4.00 \\\text { Direct labour } & 3.20 \\\text { Variable manufacturing overhead } & 1.00 \\\text { Variable selling expenses } & 0.40\end{array}\end{array}$$ Fixed manufacturing overhead is $4,000 per month, which is applied to production on the basis of normal activity of 2,000 units. During the month, 2,000 units were produced. The company started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at sales price of $14 per unit. Selling and administrative expense for the month, all fixed, totalled $3,600.

-Refer to Triple M Company. What is the operating income using the variable costing method?

A) ($540)
B) $3,540
C) $3,740
D) $7,980

Question 31

Triple M Company
Triple M Company had the following data for the month: $$\begin{array}{l}\text { Variable costs per unit: }\\\begin{array} { l r } \text { Direct materials } & \$ 4.00 \\\text { Direct labour } & 3.20 \\\text { Variable manufacturing overhead } & 1.00 \\\text { Variable selling expenses } & 0.40\end{array}\end{array}$$ Fixed manufacturing overhead is $4,000 per month, which is applied to production on the basis of normal activity of 2,000 units. During the month, 2,000 units were produced. The company started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at sales price of $14 per unit. Selling and administrative expense for the month, all fixed, totalled $3,600.

-Refer to Triple M Company. What is the unit product cost using the variable costing method?

A) $7.20
B) $8.20
C) $8.60
D) $10.20

Question 32

Assuming more items are sold during a period than are produced in that same period, which of the following will result?

A) Net income using the absorption costing method will be equal to net income using the variable costing method.
B) Net income using the absorption costing method will be less than net income using the variable costing method.
C) Net income using the absorption costing method will be greater than net income using the variable costing method.
D) Net income using the absorption costing method will be randomly different from net income using the variable costing method.

Question 33

Which statement best describes the general relationship between inventory values calculated using the variable costing method and inventory values calculated using the absorption costing method?

A) They will be equal.
B) Inventory values calculated using the variable costing method will be less.
C) Inventory values calculated using the variable costing method will be greater.
D) Inventory values calculated using the variable costing method will be twice as much.

Question 34

Triple M Company
Triple M Company had the following data for the month: $$\begin{array}{l}\text { Variable costs per unit: }\\\begin{array} { l r } \text { Direct materials } & \$ 4.00 \\\text { Direct labour } & 3.20 \\\text { Variable manufacturing overhead } & 1.00 \\\text { Variable selling expenses } & 0.40\end{array}\end{array}$$ Fixed manufacturing overhead is $4,000 per month, which is applied to production on the basis of normal activity of 2,000 units. During the month, 2,000 units were produced. The company started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at sales price of $14 per unit. Selling and administrative expense for the month, all fixed, totalled $3,600.

-Refer to Triple M Company. What is the unit product cost using the absorption costing method?

A) $7.20
B) $8.20
C) $8.60
D) $10.20

Question 35

Westwood Company
Westwood Company has the following information the current year: $$\begin{array} { l l } \text { Selling sales price } & \$ 300 \text { per unit } \\\text { Variable production costs } & \$ 80 \text { per unit produced } \\\text { Variable selling and administrative expenses } &\$ 32 \text { per unit sold } \\\text { Fixed production costs } & \$ 400,000 \\\text { Fixed selling and administrative expenses } & \$ 280,000 \\\text { Units produced } & 20,000 \text { units } \\\text { Units sold } & 16,000 \text { units }\end{array}$$ The company had no beginning inventories

-Refer to Westwood Company. What is the net income using the variable costing method?

A) $480,000
B) $600,000
C) $1,200,000
D) $2,328,000

Question 36

Ella Company
Last year, Ella Company produced 10,000 units and sold 9,000 units at a sales price of $9 per unit. Costs for last year were as follows: $$\begin{array} { |l | r | } \hline\text { Direct materials } & \$ 10,000 \\\hline \text { Direct labour } & 15,000 \\\hline \text { Variable manufacturing overhead } & 5,000 \\\hline \text { Fixed manufacturing overhead } & 20,000 \\\hline \text { Variable selling expense } & 7,200 \\\hline \text { Fixed selling expense } & 5,000 \\\hline \text { Fixed administrative expense } & 12,000 \\\hline\end{array}$$ Fixed manufacturing overhead is applied on the basis of expected production. Last year, the company expected to produce 10,000 units.The company had no beginning inventories.

-Refer to Ella Company. What is the value of ending Finished Goods Inventory using the variable costing method?

A) $2,000
B) $3,000
C) $3,720
D) $5,000

Question 37

Westwood Company
Westwood Company has the following information the current year: $$\begin{array} { l l } \text { Selling sales price } & \$ 300 \text { per unit } \\\text { Variable production costs } & \$ 80 \text { per unit produced } \\\text { Variable selling and administrative expenses } &\$ 32 \text { per unit sold } \\\text { Fixed production costs } & \$ 400,000 \\\text { Fixed selling and administrative expenses } & \$ 280,000 \\\text { Units produced } & 20,000 \text { units } \\\text { Units sold } & 16,000 \text { units }\end{array}$$ The company had no beginning inventories

-Refer to Westwood Company. What is the ending Finished Goods Inventory using the absorption costing method?

A) $80,000
B) $120,000
C) $180,000
D) $400,000

Question 38

Gross margin is to absorption costing as which of the following is to variable costing?

A) net income
B) gross profit
C) territory margin
D) contribution margin

Question 39

Triple M Company
Triple M Company had the following data for the month: $$\begin{array}{l}\text { Variable costs per unit: }\\\begin{array} { l r } \text { Direct materials } & \$ 4.00 \\\text { Direct labour } & 3.20 \\\text { Variable manufacturing overhead } & 1.00 \\\text { Variable selling expenses } & 0.40\end{array}\end{array}$$ Fixed manufacturing overhead is $4,000 per month, which is applied to production on the basis of normal activity of 2,000 units. During the month, 2,000 units were produced. The company started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at sales price of $14 per unit. Selling and administrative expense for the month, all fixed, totalled $3,600.

-Refer to Triple M Company. What is the operating income using the absorption costing method?

A) ($540)
B) $3,540
C) $3,740
D) $7,980

Question 40

Westwood Company
Westwood Company has the following information the current year: $$\begin{array} { l l } \text { Selling sales price } & \$ 300 \text { per unit } \\\text { Variable production costs } & \$ 80 \text { per unit produced } \\\text { Variable selling and administrative expenses } &\$ 32 \text { per unit sold } \\\text { Fixed production costs } & \$ 400,000 \\\text { Fixed selling and administrative expenses } & \$ 280,000 \\\text { Units produced } & 20,000 \text { units } \\\text { Units sold } & 16,000 \text { units }\end{array}$$ The company had no beginning inventories

-Refer to Westwood Company. What is the net income using the absorption costing method?

A) $452,000
B) $480,000
C) $642,000
D) $2,408,000

Question 41

Stosho Company
Stosho Company incurred the following costs in manufacturing desk calculators: $$\begin{array} { l r } \text { Direct materials } & \$ 28 \\\text { Indirect materials (variable) } & 8 \\\text { Direct labour } & 16 \\\text { Indirect labour (variable) } & 12 \\\text { Other variable manufacturing overhead } & 20 \\\text { Fixed manufacturing overhead } & 56 \\\text { Variable selling expenses } & 40 \\\text { Fixed selling expenses } & 28\end{array}$$ During the period, the company produced and sold 2,000 units.

-Refer to Stosho Company. What is the inventory cost per unit using the variable costing method?

A) $42
B) $52
C) $62
D) $84

Question 42

Green Bluff
Assume the following information for the #1 Product Line for Green Bluff: $$\begin{array} { l r } \text { Sales } & \$ 600,000 \\\text { Variable manufacturing expenses } & 120,000 \\\text { Direct fixed manufacturing expenses } & 75,000 \\\text { Variable selling and administrative expenses } & 65,000 \\\text { Direct fixed selling and administrative expenses } & 60,000\end{array}$$

-Refer to Green Bluff. What is the segment margin of the product line?

A) $280,000
B) $325,000
C) $350,000
D) $400,000

Question 43

Prairie Inc. mines three products. Gold ore sells for $1,000 per ton, variable costs are $600 per ton, and fixed mining costs are $250,000. The segment margin for the year was ($100,000). The management of Prairie Mining was considering dropping the mining of gold ore. Only one-half of the fixed expenses are direct and would be eliminated if the segment was dropped. What were the sales in tons for the year?

A) 62.5 tons
B) 250 tons
C) 375 tons
D) 1,000 tons

Question 44

Theele Corporation
Theele Corporation has the following information for April, May, and June: $\begin{array}{llll}&\text { April}&\text { May}&\text { June }\\\text { Units produced } & 10,000 & 10,000 & 10,000 \\\text { Units sold } & 7,000 & 8,500 & 10,500\end{array}$ Production costs per unit (based on 10,000 units) are as follows: $$\begin{array} { l l } \text { Direct materials } & \$ 13 \\\text { Direct labour } & 9 \\\text { Variable manufacturing overhead } & 7 \\\text { Fixed manufacturing overhead } & 5 \\\text { Variable selling and administrative expenses } & 10 \\\text { Fixed selling and administrative expenses } & 4\end{array}$$ The company had no beginning inventories for April, and all units were sold for $55 per unit. Costs are stable over the three months.

-Refer to Theele Corporation. What is the May contribution margin using the variable costing method?

A) $136,000
B) $170,000
C) $204,000
D) $240,000

Question 45

Raymond Company
Raymond Company reported the following units of production and sales for June and July: $$\begin{array} { l r r } & \text { Units } & \text { Units } \\\text { Month } & \text { Produced } & \text { Sold } \\\text { June } & 100,000 & 90,000 \\\text { July } & 100,000 & 105,000\end{array}$$ Net income using the absorption costing method for June was $40,000; net income using the variable costing method for July was $50,000. Fixed manufacturing costs were $600,000 for each month.

-Refer to Raymond Company. What was the net income for July using the absorption costing method?

A) $20,000
B) $40,000
C) $50,000
D) $80,000

Question 46

Shark Corporation
The following information pertains to Shark Corporation: $$\begin{array} { l l } \text { Beginning inventory } & 0 \text { units } \\\text { Ending Finished Goods Inventory } & 6,000 \text { units } \\\text { Direct labour per unit } & \$ 22 \\\text { Direct materials per unit } & 18 \\\text { Variable manufacturing overhead per unit } & 6 \\\text { Fixed manufacturing overhead per unit } & 12 \\\text { Variable selling costs per unit } & 14 \\\text { Fixed selling costs per unit } & 16\end{array}$$

-Refer to Shark Corporation. What is the value of ending Finished Goods Inventory using the variable costing method?

A) $276,000
B) $320,000
C) $250,000
D) $390,000

Question 47

Which of the following would NOT be considered a segment?

A) a division
B) a corporation
C) a product line
D) a sales territory

Question 48

Operating Company
Operating Company has the following information pertaining to its two divisions for the current year: $\begin{array}{lrr}&\text { North }\\&\text { Division }&\text { South Division }\\\text { Variable selling and administrative expenses } & \$ 70,000 & \$ 90,000 \\\text { Direct fixed manufacturing expenses } & 35,000 & 100,000 \\\text { Sales } & 300,000 & 500,000 \\\text { Direct fixed selling and administrative expenses } & 30,000 & 70,000 \\\text { Variable manufacturing expenses } & 40,000 & 100,000\end{array}$ Common expenses are $50,000 for the current year.

-Refer to Operating Company. What is the net income?

A) $41,000
B) $65,000
C) $215,000
D) $325,000

Question 49

Shark Corporation
The following information pertains to Shark Corporation: $$\begin{array} { l l } \text { Beginning inventory } & 0 \text { units } \\\text { Ending Finished Goods Inventory } & 6,000 \text { units } \\\text { Direct labour per unit } & \$ 22 \\\text { Direct materials per unit } & 18 \\\text { Variable manufacturing overhead per unit } & 6 \\\text { Fixed manufacturing overhead per unit } & 12 \\\text { Variable selling costs per unit } & 14 \\\text { Fixed selling costs per unit } & 16\end{array}$$

-Refer to Shark Corporation. What is the relationship between absorption costing net income and variable costing net income?

A) Absorption costing net income is $72,000 less.
B) Absorption costing net income is $70,000 less.
C) Absorption costing net income is $72,000 greater.
D) Absorption costing net income is $70,000 greater.

Question 50

Green Bluff
Assume the following information for the #1 Product Line for Green Bluff: $$\begin{array} { l r } \text { Sales } & \$ 600,000 \\\text { Variable manufacturing expenses } & 120,000 \\\text { Direct fixed manufacturing expenses } & 75,000 \\\text { Variable selling and administrative expenses } & 65,000 \\\text { Direct fixed selling and administrative expenses } & 60,000\end{array}$$

-Refer to Green Bluff. What is the contribution margin of the product line?

A) $215,000
B) $325,000
C) $415,000
D) $480,000

Question 51

Consider the following portion of a segmented income statement for the year just ended. Assume fixed expenses of Division A include $60,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments or reduce the common expenses. $\begin{array}{lr}\text { Division } A\\\text { Sales } & \$ 200,000 \\\text { Variable manufacturing costs } & 120,000 \\\text { Gross profit } & \$ 80,000 \\\text { Fixed expenses (direct and allocated) } & 100,000\\\text { Operating income (loss) }&\$(20,000)\end{array}$ What is A's divisional segment margin?

A) $20,000 net loss
B) $20,000 net income
C) $40,000 net income
D) $80,000 net income

Question 52

Theele Corporation
Theele Corporation has the following information for April, May, and June: $\begin{array}{llll}&\text { April}&\text { May}&\text { June }\\\text { Units produced } & 10,000 & 10,000 & 10,000 \\\text { Units sold } & 7,000 & 8,500 & 10,500\end{array}$ Production costs per unit (based on 10,000 units) are as follows: $$\begin{array} { l l } \text { Direct materials } & \$ 13 \\\text { Direct labour } & 9 \\\text { Variable manufacturing overhead } & 7 \\\text { Fixed manufacturing overhead } & 5 \\\text { Variable selling and administrative expenses } & 10 \\\text { Fixed selling and administrative expenses } & 4\end{array}$$ The company had no beginning inventories for April, and all units were sold for $55 per unit. Costs are stable over the three months.

-Refer to Theele Corporation. What is the April ending Finished Goods Inventory using the variable costing method?

A) $87,000
B) $90,000
C) $108,000
D) $260,000

Question 53

Shedding Company has two divisions with the following segment margins for the current year: Northern, $400,000; Southern, $800,000. Common expenses of the company are $100,000. What is Shedding Company's net income?

A) $300,000
B) $350,000
C) $700,000
D) $1,100,000

Question 54

Segment sales revenue minus which of the following sets of costs is equal to segment margin?

A) variable Cost of Goods Sold, total selling expense, and direct fixed costs
B) variable Cost of Goods Sold, variable selling expense, and direct fixed costs
C) variable selling expense, variable Cost of Goods Sold, and common fixed costs
D) variable selling & administrative expense, variable Cost of Goods Sold, and direct fixed costs

Question 55

Theele Corporation
Theele Corporation has the following information for April, May, and June: $\begin{array}{llll}&\text { April}&\text { May}&\text { June }\\\text { Units produced } & 10,000 & 10,000 & 10,000 \\\text { Units sold } & 7,000 & 8,500 & 10,500\end{array}$ Production costs per unit (based on 10,000 units) are as follows: $$\begin{array} { l l } \text { Direct materials } & \$ 13 \\\text { Direct labour } & 9 \\\text { Variable manufacturing overhead } & 7 \\\text { Fixed manufacturing overhead } & 5 \\\text { Variable selling and administrative expenses } & 10 \\\text { Fixed selling and administrative expenses } & 4\end{array}$$ The company had no beginning inventories for April, and all units were sold for $55 per unit. Costs are stable over the three months.

-Refer to Theele Corporation. What is the June ending Finished Goods Inventory using the variable costing method?

A) $15,000
B) $116,000
C) $120,000
D) $260,000

Question 56

Shark Corporation
The following information pertains to Shark Corporation: $$\begin{array} { l l } \text { Beginning inventory } & 0 \text { units } \\\text { Ending Finished Goods Inventory } & 6,000 \text { units } \\\text { Direct labour per unit } & \$ 22 \\\text { Direct materials per unit } & 18 \\\text { Variable manufacturing overhead per unit } & 6 \\\text { Fixed manufacturing overhead per unit } & 12 \\\text { Variable selling costs per unit } & 14 \\\text { Fixed selling costs per unit } & 16\end{array}$$

-Refer to Shark Corporation. What is the value of ending Finished Goods Inventory using the absorption costing method?

A) $200,000
B) $348,000
C) $368,000
D) $390,000

Question 57

Operating Company
Operating Company has the following information pertaining to its two divisions for the current year: $\begin{array}{lrr}&\text { North }\\&\text { Division }&\text { South Division }\\\text { Variable selling and administrative expenses } & \$ 70,000 & \$ 90,000 \\\text { Direct fixed manufacturing expenses } & 35,000 & 100,000 \\\text { Sales } & 300,000 & 500,000 \\\text { Direct fixed selling and administrative expenses } & 30,000 & 70,000 \\\text { Variable manufacturing expenses } & 40,000 & 100,000\end{array}$ Common expenses are $50,000 for the current year.

-Refer to Operating Company. What is the segment margin for the South Division?

A) $140,000
B) $210,000
C) $240,000
D) $310,000

Question 58

Theele Corporation
Theele Corporation has the following information for April, May, and June: $\begin{array}{llll}&\text { April}&\text { May}&\text { June }\\\text { Units produced } & 10,000 & 10,000 & 10,000 \\\text { Units sold } & 7,000 & 8,500 & 10,500\end{array}$ Production costs per unit (based on 10,000 units) are as follows: $$\begin{array} { l l } \text { Direct materials } & \$ 13 \\\text { Direct labour } & 9 \\\text { Variable manufacturing overhead } & 7 \\\text { Fixed manufacturing overhead } & 5 \\\text { Variable selling and administrative expenses } & 10 \\\text { Fixed selling and administrative expenses } & 4\end{array}$$ The company had no beginning inventories for April, and all units were sold for $55 per unit. Costs are stable over the three months.

-Refer to Theele Corporation. What is the May ending Finished Goods Inventory using the absorption costing method?

A) $39,000
B) $45,000
C) $153,000
D) $300,000

Question 59

Raymond Company
Raymond Company reported the following units of production and sales for June and July: $$\begin{array} { l r r } & \text { Units } & \text { Units } \\\text { Month } & \text { Produced } & \text { Sold } \\\text { June } & 100,000 & 90,000 \\\text { July } & 100,000 & 105,000\end{array}$$ Net income using the absorption costing method for June was $40,000; net income using the variable costing method for July was $50,000. Fixed manufacturing costs were $600,000 for each month.

-Refer to Raymond Company. What was the net income for June using the variable costing method?

A) $20,000 net loss
B) $20,000 net income
C) $40,000 net loss
D) $40,000 net income

Question 60

Stosho Company
Stosho Company incurred the following costs in manufacturing desk calculators: $$\begin{array} { l r } \text { Direct materials } & \$ 28 \\\text { Indirect materials (variable) } & 8 \\\text { Direct labour } & 16 \\\text { Indirect labour (variable) } & 12 \\\text { Other variable manufacturing overhead } & 20 \\\text { Fixed manufacturing overhead } & 56 \\\text { Variable selling expenses } & 40 \\\text { Fixed selling expenses } & 28\end{array}$$ During the period, the company produced and sold 2,000 units.

-Refer to Stosho Company. What is the inventory cost per unit using the absorption costing method?

A) $32
B) $84
C) $104
D) $140

Question 61

How does a JIT system achieve the objective of minimizing purchase costs without carrying inventory?

A) by ensuring that sufficient inventory is on hand to prevent stockouts
B) by purchasing extra raw materials when purchase price discounts are offered
C) by negotiating long-term contracts with supplier to lock in low purchase prices
D) by selecting an inventory level that minimizes the total of ordering and carrying costs

Question 62

Lauren Company orders 250 units at a time and places 15 orders per year. Total ordering cost is $1,600, and total carrying cost is $1,250. Which statement best describes the economic order quantity?

A) The economic order quantity (EOQ) is 15.
B) The economic order quantity (EOQ) is 250.
C) The economic order quantity (EOQ) is less than 250.
D) The economic order quantity (EOQ) is more than 250.

Question 63

Cara Company
Cara Company has the following information pertaining to its two divisions for the current year: $\begin{array}{lrr}&\text { european division}&\text { american division}\\\text { Variable selling and administrative expenses } & \$ 40,000 & \$ 55,000 \\\text { Direct fixed manufacturing expenses } & 22,000 & 60,000 \\\text { Sales } & 120,000 & 220,000 \\\text { Direct fixed selling and administrative expenses } & 18,000 & 45,000 \\\text { Wariable manufacturing expenses } & 25,000 & 55,000\end{array}$ Common expenses are $18,000 for the current year.

-Refer to Cara Company. What is the segment margin for the American Division?

A) $5,000
B) $55,000
C) $105,000
D) $155,000

Question 64

Which inventory cost can include processing costs, cost of insurance for shipping, and unloading?

A) the setup cost
B) the carrying cost
C) the ordering cost
D) the stockout cost

Question 65

Refer to Carmel Company. What is the EOQ?

A) 20
B) 30
C) 45
D) 64

Question 66

The variable costing income statement for Kilem Company for this year is as follows: $\begin{array}{crr}\text { Sales ( } 6,000 \text { units) }&&\$120,000\\\text { variable expenses: }\\\text { Cost of Goods Sold } & \$ 36,000 & \\\text { Selling (10\% of sales) } & 12,000 & 48,000 \\\text { Contribution margin } & & \$ 72,000\\\text { Fixed expenses: }\\\text { Manufacturing overhead } & \$ 32,000 \\\text { Administrative } & 14,400 & 38,400\\\text { Net income }&&\$25,600\end{array}$ Selected data for this year concerning the operations of the company are as follows: $\begin{array}{lr}\text { Beginning inventory } & -0 \text { - units } \\\text { Units produced } & 8,000 \text { units }\\\\\text { Manufacturing costs: } & \\\text { Direct labour } &\$ 3.00 \text { per unit } \\\text { Direct materials } & 1.40 \text { per unit }\\\text { Variable manufacturing overhead } & 1.60 \text { per unit } \end{array}$ Required: Prepare an absorption costing income statement for this year.

Question 67

Cara Company
Cara Company has the following information pertaining to its two divisions for the current year: $\begin{array}{lrr}&\text { european division}&\text { american division}\\\text { Variable selling and administrative expenses } & \$ 40,000 & \$ 55,000 \\\text { Direct fixed manufacturing expenses } & 22,000 & 60,000 \\\text { Sales } & 120,000 & 220,000 \\\text { Direct fixed selling and administrative expenses } & 18,000 & 45,000 \\\text { Wariable manufacturing expenses } & 25,000 & 55,000\end{array}$ Common expenses are $18,000 for the current year.

-Refer to Cara Company. What is the net income for Cara Company?

A) $2,000
B) $32,500
C) $150,000
D) $300,000

Question 68

Which of the following occurs under a JIT system?

A) Stockouts are never a problem.
B) Safety stock is set at relatively high levels.
C) Inventory levels are set at 10% of total production levels.
D) Customer demand pulls units through the production line.

Question 69

What is the formula to calculate total carrying cost?

A) number of orders per year/cost of placing an order
B) number of orders per year × cost of placing an order
C) average number of units in inventory / cost of carrying one unit in inventory
D) average number of units in inventory × cost of carrying one unit in inventory

Question 70

Refer to Carmel Company. The company has decided to begin ordering 60 units at a time. What is the average annual carrying cost of this new policy?

A) $5
B) $30
C) $120
D) $180

Question 71

What is characteristic of the economic order quantity (EOQ)?

A) the quantity that maximizes total profit
B) the quantity that maximizes carrying costs
C) the quantity that minimizes total ordering cost
D) the quantity that minimizes total inventory-related costs

Question 72

Which inventory cost can include insurance, inventory taxes, and obsolescence?

A) the setup cost
B) the carrying cost
C) the ordering cost
D) the stockout cost

Question 73

Refer to Carmel Company. The company has decided to begin ordering 60 units at a time. What is the average annual ordering cost of this new policy?

A) $60
B) $135
C) $150
D) $185

Question 74

2L1S Company orders 250 units at a time and places 15 orders per year. Total ordering cost is $1,100, and total carrying cost is $1,750. Which statement best describes the economic order quantity?

A) The economic order quantity (EOQ) is 15.
B) The economic order quantity (EOQ) is 250.
C) The economic order quantity (EOQ) is less than 250.
D) The economic order quantity (EOQ) is more than 250.

Question 75

Which of the following reflects the two major costs associated with inventory assuming demand is known with certainty?

A) ordering costs and setup costs
B) setup costs and stockout costs
C) ordering costs and carrying costs
D) stockout costs and carrying costs

Question 76

Which inventory cost can include lost sales, cost of expediting, and cost of interrupted production?

A) the setup cost
B) the carrying cost
C) the ordering cost
D) the stockout cost

Question 77

LaTiffa Company orders 250 units at a time and places 15 orders per year. Total ordering cost is $1,100, and total carrying cost is $1,100. Which statement best describes the economic order quantity?

A) The economic order quantity (EOQ) is 15.
B) The economic order quantity (EOQ) is 250.
C) The economic order quantity (EOQ) is less than 250.
D) The economic order quantity (EOQ) is more than 250.

Question 78

Which of the following is NOT a traditional reason for carrying inventory?

A) to satisfy customer demand
B) to hedge against future cost increases
C) to support a reliable production process
D) to avoid shutting down manufacturing facilities

Question 79

Which of the following reflects the formula to calculate ordering cost?

A) number of orders per year / cost of placing an order
B) number of orders per year × cost of placing an order
C) average number of units in inventory / cost of carrying one unit in inventory
D) average number of units in inventory × cost of carrying one unit in inventory

Question 80

Which type of cost reflects the ordering costs when the economic order quantity (EOQ) model is applied to units produced within the company?

A) the setup cost
B) the carrying cost
C) the ordering cost
D) the stockout cost