Question 1

Louie's Music produces harmonicas that it sells for $12 each.The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of harmonicas to be produced that month.Assume all costs and production levels are exactly as planned.The following data are from Louie's Music's first month in business:
 $$\begin{array} { | l | r | } 
\hline \textbf { January 2019 } & \
\hline \text { Sales in unoduced and sold: } & \
\hline \text { Production in units } & 1200 \
\hline \text { Variable manufacturing cost per harmonica } & 1400 \
\hline \text { Sales commission cost per harmonica } & \$ 4 \
\hline \text { Total fixed manufacturing overhead } & \$ 1 \
\hline \text { Total fixed selling and administrative costs } & \$ 2,800 \
\hline
\end{array}$$ Requirements
1.Compute the product cost per harmonica produced under variable costing.
2.Prepare an income statement for January,2019

Accepted Answer

The answer of Louie's Music produces harmonicas that it sells...

Question 2

Marshall,Inc.has collected the following data for the current year: $$\begin{array} { | l | r | l | } 
\hline \text { Beginning Finished Goods Inventory } & 50 & \text { units } \
\hline \text { Units produced } & 510 & \text { units } \
\hline \text { Units sold } & 560 & \text { units } \
\hline \text { Sales price } & \$ 160 & \text { per unit } \
\hline \text { Direct materials } & \$ 25 & \text { per unit } \
\hline \text { Direct labor } & \$ 14 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 17 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 12,000 & \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 4 & \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 13,000 & \text { per year } \
\hline
\end{array}$$ The beginning Finished Goods Inventory costs were $3400 under absorption costing and $3000 under variable costing.What is the operating income using absorption costing? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)

Accepted Answer

The answer of Marshall,Inc.has collected the following data for the...

Question 3

Absorption costing is more appropriate when determining the product costs for long-term production planning.

Accepted Answer

Absorption costing takes into account all manufacturing costs, both fixed and variable, and assigns them to each unit of product. This method provides a more accurate picture of the true cost of producing a unit and is therefore more appropriate for long-term planning decisions such as pricing strategies, product mix analysis, and capacity utilization.

Question 4

When more units are sold than produced,operating income is higher under absorption costing than variable costing.

Accepted Answer

The answer of When more units are sold than produced,operating...

Question 5

McMillan,Inc.has the following cost data:
 $$\begin{array} { | l | r | l | } 
\hline \text { Direct materials } & \$ 38 & \text { per unit } \
\hline \text { Direct labor } & 52 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & 15 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & 10,000 & \text { per year } \
\hline
\end{array}$$ Calculate the unit product cost using absorption costing when production is 200 units,400 units,and 800 units.

Accepted Answer

The answer of McMillan,Inc.has the following cost data:
 \[\begin{array} {...

Question 6

McIntosh,Inc.reports the following information: $$\begin{array} { | l | r | l | } 
\hline \text { Beginning Finished Goods Inventory } & 50 & \text { units } \
\hline \text { Units produced } & 570 & \text { units } \
\hline \text { Units sold } & 620 & \text { units } \
\hline \text { Sales price } & \$ 120 & \text { per unit } \
\hline \text { Direct materials } & \$ 24 & \text { per unit } \
\hline \text { Direct labor } & \$ 15 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 19 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 15,500 & \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 5 & \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 13,500 & \text { per year } \
\hline
\end{array}$$ What is the unit product cost using variable costing? (Round your answer to the nearest cent.)

Accepted Answer

The answer of McIntosh,Inc.reports the following information: \[\begin{array} { |...

Question 7

The ________ method allows managers to increase operating income through production by producing more products than needed.

Accepted Answer

Absorption costing includes both fixed and variable manufacturing costs in the cost of a product, which means that producing more units can spread the fixed costs over more units, potentially increasing operating income as more products are produced and sold. This method encourages production of additional units to absorb fixed costs.

Question 8

Circetrax,Inc.has provided the following financial information for the year: $$\begin{array} { | l | r | } 
\hline \text { Finished Goods Inventory: } & \
\hline \text { Beginning balance, in units } & 600 \
\hline \text { Units produced } & 2800 \
\hline \text { Units sold } & 2900 \
\hline \text { Ending balance, in units } & 500 \
\hline \text { Production costs: } & \
\hline \text { Variable manufacturing costs per } & \
\text { unit } & \$ 60 \
\hline \text { Total fixed manufacturing costs } & \$ 42,000 \
\hline
\end{array}$$ What is the unit product cost for the year using absorption costing?

Accepted Answer

The unit product cost using absorption costing is calculated by dividing the total manufacturing costs by the number of units produced. The total manufacturing costs include both variable and fixed manufacturing costs. In this case, the variable manufacturing cost per unit is $60 and the total fixed manufacturing costs are $42,000. The number of units produced is 2800. Therefore, the unit product cost is ($60 x 2800 + $42,000) / 2800 = $75.

Question 9

Barrett,Inc.reports the following information for the year ended December 31: $$\begin{array} { | l | r | l | } 
\hline \text { Beginning Finished Goods Inventory } & 60 & \text { units } \
\hline \text { Units produced } & 400 & \text { units } \
\hline \text { Units sold } & 460 & \text { units } \
\hline \text { Sales price } & \$ 160 & \text { per unit } \
\hline \text { Direct materials } & \$ 30 & \text { per unit } \
\hline \text { Direct labor } & \$ 12 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 15 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 15,900 & \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 10 & \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 12,500 & \text { per year } \
\hline
\end{array}$$ The beginning Finished Goods Inventory costs were $3300 under absorption costing and $3420 under variable costing.
What is the operating income using variable costing?

Accepted Answer

The answer of Barrett,Inc.reports the following information for the year...

Question 10

Betsy's Pies,Inc.has provided the following financial information for the year: $$\begin{array} { | l | r | } 
\hline \text { Finished Goods Inventory: } & \
\hline \text { Beginning balance, in units } & 620 \
\hline \text { Units produced } & 2100 \
\hline \text { Units sold } & 2200 \
\hline \text { Ending balance, in units } & 520 \
\hline \text { Production Costs: } & \
\hline \text { Variable manufacturing costs per } & \
\text { unit } & \$ 50 \
\hline \text { Total fixed manufacturing costs } & \$ 42,000 \
\hline
\end{array}$$ What is the unit product cost for the year using variable costing?

Accepted Answer

The answer of Betsy's Pies,Inc.has provided the following financial information...

Question 11

The use of variable costing to determine managers' bonuses does not give the incentive to produce more products than needed.

Accepted Answer

Variable costing only includes variable production costs, which means that managers are not incentivized to produce excessive products that will increase fixed costs and decrease profits.

Question 12

When units produced are less than units sold,how does operating income differ between variable costing and absorption costing? Explain your answer.

Accepted Answer

The answer of When units produced are less than units...

Question 13

Under absorption costing,the more fixed manufacturing overhead in ending Finished Goods Inventory,the larger the Cost of Goods Sold.

Accepted Answer

Under absorption costing, the more fixed manufacturing overhead in ending Finished Goods Inventory, the smaller the Cost of Goods Sold, because these costs are allocated to the inventory and not expensed in the period.

Question 14

Louie's Music produces harmonicas that it sells for $12 each.The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of harmonicas to be produced that month.Assume all costs and production levels are exactly as planned.The following data are from Louie's Music's first month in business:
 $$\begin{array} { | l | r | } 
\hline \textbf { January 2019} & \
\hline \text { Sales in uroduced and sold: } & 1,200\
\hline \text { Production in units } &  1,400\
\hline \text { Variable manufacturing cost per harmonica } & \$ 4 \
\hline \text { Sales commission cost per harmonica } & \$ 1  \
\hline \text { Total fixed manufacturing overhead } & \$ 2,800 \
\hline \text { Total fixed selling and administrative costs } & \$ 2,100 \
\hline
\end{array}$$ Requirements
1.Compute the product cost per harmonica produced under absorption costing.
2.Prepare an income statement for January,2019

Accepted Answer

The answer of Louie's Music produces harmonicas that it sells...

Question 15

In absorption costing,fixed manufacturing overhead is expensed ________.

Accepted Answer

In absorption costing, fixed manufacturing overhead is included in the cost of the product and expensed when the product is sold. This method assigns a portion of the fixed costs to each unit produced, regardless of whether it is sold or remains in inventory. Therefore, it is not expensed solely when all other non-manufacturing fixed costs are expensed, at the end of the period in which it is paid, or when the units are produced.

Question 16

Under absorption costing,the more units added to ending Finished Goods Inventory,the less fixed manufacturing overhead is '"hidden" in ending Finished Goods Inventory at the end of the accounting period.

Accepted Answer

Under absorption costing, the more units added to ending Finished Goods Inventory, the more fixed manufacturing overhead is allocated to these units and thus "hidden" in ending Finished Goods Inventory at the end of the accounting period.

Question 17

When more units are sold than produced,operating income is less under absorption costing than variable costing.

Accepted Answer

Under absorption costing, the fixed manufacturing costs are allocated to the units produced and are included in the cost of goods sold, while under variable costing, fixed manufacturing costs are treated as a period expense and are not included in the cost of goods sold. Therefore, when more units are sold than produced, more fixed manufacturing costs are allocated to the units sold under absorption costing, resulting in a lower operating income compared to variable costing.

Question 18

Kertas,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 Kertas?

Accepted Answer

Under just-in-time inventory systems, inventory levels are minimized, reducing the difference between absorption and variable costing. Therefore, the operating income will vary little between the two costing methods.

Question 19

Feldspar,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 Feldspar uses variable costing,________.

Accepted Answer

The answer of Feldspar,Inc.started the year with 200 units in...

Question 20

For every unit that is produced but not sold,absorption costing "hides" some of the fixed manufacturing overhead in ending Finished Goods Inventory.

Accepted Answer

Absorption costing includes fixed manufacturing overhead as a cost of production, which is allocated to units produced and unsold and therefore "hidden" in inventory.

Quiz 21: Variable Costing