Deck 7: Variable Costing: a Tool for Management

Question 1

A cost that would be included in product costs under both absorption costing and variable costing would be:

A) supervisory salaries.
B) equipment depreciation.
C) variable manufacturing costs.
D) variable selling expenses.

Answer 1

C

Question 2

Suppose fewer units are sold in year 2 than in year 1. If production exceeds sales in year 2, net operating income under absorption costing could be higher in year 2 than in year 1.

Answer 2

True

Question 3

Which of the following statements is true for a company that uses variable costing?

A) The unit product cost changes as a result of changes in the number of units manufactured.
B) Both variable selling costs and variable production costs are included in the unit product cost.
C) Net operating income moves in the same direction as sales.
D) Net operating income is greatest in periods when production is highest.

Answer 3

C

Question 4

Under variable costing, product cost contains some fixed manufacturing overhead cost.

Question 5

Which of the following costs at a manufacturing company would be treated as a product cost under the absorption costing method?

A) sales commissions
B) fire insurance cost on factory building
C) advertising costs
D) All of these

Question 6

Which of the following statements is true for a company that uses variable costing?

A) The unit product cost changes because of changes in the number of units manufactured.
B) Profit fluctuates with sales.
C) Any underapplied overhead is included in the product cost.
D) Product costs include variable administration costs.

Question 7

Under the absorption costing method, a company can increase profits by increasing production rather than by increasing sales.

Question 8

Profits move in the same direction as sales when variable costing is used if selling prices, the sales mix, and the cost structure remain the same.

Question 9

Direct labor is always considered to be a product cost under variable costing.

Question 10

When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs released from inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income.

Question 11

When sales exceeds production for a period, absorption costing net operating income will generally be greater than variable costing net operating income.

Question 12

In a manufacturing company using absorption costing, the fixed costs associated with idle production capacity are commonly included as part of the product cost.

Question 13

If production exceeds sales for the period, variable costing net operating income will typically be greater than absorption costing net operating income.

Question 14

Which of the following costs at a sofa manufacturing company would be treated as a period cost under the variable costing method?

A) the cost of glue used to assemble the wood frame of each sofa produced
B) depreciation on sales vehicles
C) the salary of a factory manager
D) both B and C above

Question 15

Net operating income is not affected by changes in production when absorption costing is used.

Question 16

Since variable costing emphasizes costs by behavior, it works well with cost-volume-profit analysis.

Question 17

Variable selling and administrative expenses are part of product costs under the variable costing approach.

Question 18

The costs assigned to units in inventory are typically lower under absorption costing than under variable costing.

Question 19

Net operating income is affected by changes in production under both variable costing and absorption costing.

Question 20

Which of the following statements is true?

A) When production exceeds sales, a manufacturing company's variable costing net operating income will usually be greater than its absorption costing net operating income.
B) The variable costing method is usually not used for external reporting purposes.
C) The absorption costing method treats fixed production costs as period costs.
D) All of these.

Question 21

The costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques is:

A) variable costing.
B) absorption costing.
C) process costing.
D) job-order costing.

Question 22

Assuming that direct labor is a variable cost, product costs under variable costing include only:

A) direct materials and direct labor.
B) direct materials, direct labor, and variable manufacturing overhead.
C) direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative expenses.
D) direct material, variable manufacturing overhead, and variable selling and administrative expenses.

Question 23

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
The total gross margin for the month under absorption costing is:

A) $163,800
B) $7,800
C) $170,800
D) $312,000

Question 24

Indiana Corporation produces a single product that it sells for $9 per unit. During the first year of operations, 100,000 units were produced and 90,000 units were sold. Manufacturing costs and selling and administrative expenses for the year were as follows:
What was Indiana Corporation's net operating income for the year using variable costing?

A) $181,000
B) $271,000
C) $281,000
D) $371,000

Question 25

Gallipeau Inc., which produces a single product, has provided the following data for its most recent month of operations:
There were no beginning or ending inventories. The absorption costing unit product cost was:

A) $219
B) $151
C) $150
D) $300

Question 26

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
The total contribution margin for the month under variable costing is:

A) $83,900
B) $221,400
C) $135,000
D) $270,000

Question 27

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the total period cost for the month under variable costing?

A) $151,800
B) $51,800
C) $100,000
D) $125,900

Question 28

Weber Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that:

A) variable manufacturing costs were less than fixed manufacturing costs.
B) more units were produced during the year than were sold.
C) more units were sold during the year than were produced.
D) common costs were greater than variable costs for the year.

Question 29

Baylor Inc., which produces a single product, has provided the following data for its most recent month of operations:
There were no beginning or ending inventories. The variable costing unit product cost was:

A) $91
B) $67
C) $69
D) $61

Question 30

Silver Company produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true?

A) Under variable costing, the units in the ending inventory will be costed at $4 each.
B) The net operating income under absorption costing for the year will be $900 lower than the net operating income under variable costing.
C) The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.
D) Under absorption costing, the units in ending inventory will be costed at $2.50 each.

Question 31

Which of the following statements is true?

A) Expenses are not usually separated into variable and fixed elements in externally reported income statements.
B) Even if there is no change in units sold, selling price, or cost structure, a company can increase its absorption costing net operating income from one year to the next just by producing more units.
C) When finished goods inventory decreases during a period, a manufacturing company's absorption costing net operating income for that period will usually be greater than its variable costing net operating income.
D) Both A and B above.

Question 32

Yoshihara Corporation produces a single product and has the following cost structure:
The absorption costing unit product cost is:

A) $140
B) $197
C) $133
D) $227

Question 33

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the total period cost for the month under absorption costing?

A) $48,000
B) $275,100
C) $86,400
D) $188,700

Question 34

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the absorption costing unit product cost for the month?

A) $107
B) $94
C) $87
D) $114

Question 35

Charrd Corporation manufactures a gas operated barbecue grill. The following information relates to Charrd's operations for last year:
What is Charrd's variable costing unit product cost?

A) $29
B) $34
C) $58
D) $63

Question 36

Net operating income computed using variable costing would exceed net operating income computed using absorption costing if:

A) units sold exceed units produced.
B) units sold are less than units produced.
C) units sold equal units produced.
D) the average fixed cost per unit is zero.

Question 37

The gross margin for a manufacturing company is the excess of sales over:

A) cost of goods sold, excluding fixed manufacturing overhead.
B) all variable costs, including variable selling and administrative expenses.
C) cost of goods sold, including fixed manufacturing overhead.
D) variable costs, excluding variable selling and administrative expenses.

Question 38

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the variable costing unit product cost for the month?

A) $97
B) $90
C) $68
D) $75

Question 39

What is the cause of the difference between absorption costing net operating income and variable costing net operating income?

A) Absorption costing deducts all manufacturing costs from net operating income; variable costing deducts only prime costs.
B) Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs to be period costs.
C) Absorption costing includes variable manufacturing costs in product costs; variable costing considers variable manufacturing costs to be period costs.
D) Absorption costing includes fixed administrative costs in product costs; variable costing considers fixed administrative costs to be period costs.

Question 40

Sharko Corporation produces a single product and has the following cost structure:
The variable costing unit product cost is:

A) $89
B) $86
C) $164
D) $87

Question 41

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the net operating income for the month under absorption costing?

A) $(15,900)
B) $19,200
C) $10,200
D) $9,000

Question 42

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the unit product cost for the month under variable costing?

A) $73
B) $44
C) $79
D) $38

Question 43

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows: Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.
The contribution margin per unit was:

A) $17.50
B) $32.50
C) $27.30
D) $25.70

Question 44

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the total period cost for the month under the absorption costing approach?

A) $32,500
B) $71,500
C) $302,500
D) $231,000

Question 45

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

-The total contribution margin for the month under the variable costing approach is:

A) $273,000
B) $42,000
C) $84,500
D) $312,000

Question 46

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the unit product cost for the month under absorption costing?

A) $38
B) $73
C) $44
D) $79

Question 47

Atlantic Company produces a single product. For the most recent year, the company's net operating income computed by the absorption costing method was $7,400, and its net operating income computed by the variable costing method was $10,100. The company's unit product cost was $17 under variable costing and $22 under absorption costing. If the ending inventory consisted of 1,460 units, the beginning inventory must have been:

A) 920 units
B) 1,460 units
C) 2,000 units
D) 12,700 units

Question 48

Lee Company produces a single product. At the end of last year, the company had 30,000 units in its ending inventory. Lee's variable production costs are $10 per unit and its fixed manufacturing overhead costs are $5 per unit every year. The company's net operating income for the year was $12,000 higher under variable costing than under absorption costing. Given these facts, the number of units of product in inventory at the beginning of the year must have been:

A) 28,800 units
B) 27,600 units
C) 32,400 units
D) 42,000 units

Question 49

Ben Company produces a single product. Last year, the company's net operating income under absorption costing was $4,400 lower than under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing. How many units did the company produce during the year?

A) 12,400 units
B) 3,600 units
C) 7,120 units
D) 7,450 units

Question 50

Roberts Company produces a single product. During the year just ended, the company's net operating income under absorption costing was $3,000 lower than under variable costing. The company sold 9,000 units during the year, and its variable costs were $9 per unit, of which $3 was variable selling expense. If production cost is $11 per unit under absorption costing every year, then how many units did the company produce during the year?

A) 8,000
B) 10,000
C) 9,600
D) 8,400

Question 51

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows: Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.
Under variable costing, the company's net operating income for the year would be:

A) $60,000 higher than under absorption costing
B) $108,000 higher than under absorption costing
C) $108,000 lower than under absorption costing
D) $60,000 lower than under absorption costing

Question 52

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

-The total gross margin for the month under the absorption costing approach is:

A) $13,000
B) $91,800
C) $273,000
D) $84,500

Question 53

Mcferrin Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $53,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $32,900. What was the absorption costing net operating income last year?

A) $86,100
B) $20,300
C) $32,900
D) $53,200

Question 54

Schrick Inc. manufactures a variety of products. Variable costing net operating income was $86,800 last year and ending inventory increased by 1,900 units. Fixed manufacturing overhead cost was $6 per unit. What was the absorption costing net operating income last year?

A) $86,800
B) $75,400
C) $98,200
D) $11,400

Question 55

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the total period cost for the month under the variable costing approach?

A) $263,500
B) $71,500
C) $302,500
D) $231,000

Question 56

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the net operating income for the month under variable costing?

A) $15,800
B) $5,000
C) $20,800
D) $3,800

Question 57

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the net operating income for the month under variable costing?

A) $13,000
B) $5,700
C) $9,500
D) $3,500

Question 58

Last year, Wardrup Corporation's variable costing net operating income was $67,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $600. What was the absorption costing net operating income last year?

A) $67,800
B) $66,600
C) $67,200
D) $600

Question 59

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows: Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.
Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year would be:

A) $190,800
B) $170,000
C) $230,800
D) $0

Question 60

Last year, Gransky Corporation's variable costing net operating income was $52,100 and its ending inventory increased by 400 units. Fixed manufacturing overhead cost was $7 per unit. What was the absorption costing net operating income last year?

A) $52,100
B) $2,800
C) $54,900
D) $49,300

Question 61

Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows: Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.
Under variable costing, the total amount of fixed manufacturing cost in the ending inventory would be:

A) $0
B) $9,000
C) $14,400
D) $27,000

Question 62

Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations:
What is the unit product cost for the month under absorption costing?

A) $99
B) $131
C) $122
D) $108

Question 63

Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations:
What is the unit product cost for the month under variable costing?

A) $122
B) $108
C) $99
D) $131

Question 64

Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations: The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.
What is the unit product cost for the month under absorption costing?

A) $78
B) $73
C) $105
D) $110

Question 65

Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows: Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.
Under absorption costing, the unit product cost would be:

A) $9.00
B) $12.00
C) $13.40
D) $14.00

Question 66

Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations:
What is the net operating income for the month under variable costing?

A) $2,300
B) $(600)
C) $9,300
D) $11,600

Question 67

Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows: Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.
The net operating income under variable costing would be:

A) $2,000
B) $21,000
C) $12,000
D) $9,000

Question 68

Ilford Company, which has only one product, has provided the following data concerning its most recent month of operations:
What is the unit product cost for the month under variable costing?

A) $87
B) $64
C) $68
D) $83

Question 69

Hackney Company, which has only one product, has provided the following data concerning its most recent month of operations:
The total contribution margin for the month under the variable costing approach is:

A) $47,000
B) $117,500
C) $12,600
D) $84,600

Question 70

Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations: The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.
What is the net operating income for the month under variable costing?

A) $4,500
B) $10,900
C) $25,500
D) $12,800

Question 71

Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations:
What is the net operating income for the month under absorption costing?

A) $11,600
B) $2,300
C) $(600)
D) $9,300

Question 72

Hackney Company, which has only one product, has provided the following data concerning its most recent month of operations:
What is the net operating income for the month under variable costing?

A) $4,700
B) $(5,300)
C) $1,500
D) $3,200

Question 73

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:

-What is the net operating income for the month under absorption costing?

A) $9,500
B) $3,500
C) $5,700
D) $13,000

Question 74

Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows: Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.
The net operating income under absorption costing would be:

A) $9,000
B) $12,000
C) $2,000
D) $21,000

Question 75

Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations: The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.
What is the net operating income for the month under absorption costing?

A) $4,500
B) $12,800
C) $25,500
D) $10,900

Question 76

Hackney Company, which has only one product, has provided the following data concerning its most recent month of operations:
What is the unit product cost for the month under variable costing?

A) $92
B) $107
C) $100
D) $85

Question 77

Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows: Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.
The contribution margin per unit would be:

A) $15.00
B) $11.00
C) $8.00
D) $6.00

Question 78

Hackney Company, which has only one product, has provided the following data concerning its most recent month of operations:
What is the total period cost for the month under the variable costing approach?

A) $42,300
B) $81,400
C) $114,300
D) $72,000

Question 79

Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations: The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.
What is the unit product cost for the month under variable costing?

A) $78
B) $105
C) $73
D) $110

Question 80

Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows: Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.
Under absorption costing, the gross margin would be:

A) $176,000
B) $242,000
C) $66,000
D) $21,000