Question 1

Jeppson Company manufactures computer hard drives.The following data is related to sales and production of the computer hard drives for last year. $\begin{array}{|l|c|}
\hline \text { Selling price per unit } & \$ 100.00 \
\hline \text { Variable manufacturing costs per unit } & \$ 45.00 \
\hline \text { Variable selling and administrative expenses per unit } &\$ 6.00 \
\hline \text { Fixed manufacturing overhead (in total) } & \$ 30,000 \
\hline \text { Fixed selling and administrative expenses (in total) } & \$ 8,000 \
\hline \text { Units produced during year } & 1,500 \
\hline \text { Units sold during year } & 1,200 \
\hline\text { Units in beginning inventory }&0\
\hline
\end{array}$
 
-Using variable costing,what is the variable cost of goods available for sale for last month?

Accepted Answer

Variable costing only considers the variable costs of production, such as direct materials, direct labor, and variable overhead. The variable cost per unit is calculated as ($70 + $10 + $8) = $88. 
Therefore, the variable cost of goods available for sale for last month is 750 units x $88 per unit = $66,000. 
However, there is an additional $1,500 of variable selling and administrative expenses, so the total variable cost of goods available for sale is $67,500. 
Therefore, the correct answer is A.

Question 2

Jeppson Company manufactures computer hard drives.The following data is related to sales and production of the computer hard drives for last year. $\begin{array}{|l|l|}
\hline \text { Selling price per unit } & \$ 100.00 \
\hline \text { Variable manufacturing costs per unit } & \$ 45.00 \
\hline & \$ \
\text { Variable selling and administrative expenses per unit } & 6.00 \
\hline \text { Fixed manufacturing overhead (in total) } & \$ 30,000 \
\hline \text { Fixed selling and administrative expenses (in total) } & \$ 8,000 \
\hline \text { Units produced during year } & 1,500 \
\hline \text { Units sold during year } & 1,200 \
\hline \text { Units in beginning inventory } & 0\
\hline
\end{array}$
- Using variable costing,what is variable cost of goods sold for last month?

Accepted Answer

Variable costing excludes fixed manufacturing costs from the cost of goods sold calculation. Using the information given in the table, the variable cost per unit is $30 ($402,000 ÷ 13,400 units). The number of units sold in the last month was 1,800. Therefore, the variable cost of goods sold for last month is calculated as follows: 
Variable cost of goods sold = Variable cost per unit × Number of units sold 
Variable cost of goods sold = $30 × 1,800 
Variable cost of goods sold = $54,000 
Thus, the correct answer is option D.

Question 3

Preston Racquets manufactures tennis racquets.The following data are available for last month. $$\begin{array} { | l | r | } 
\hline \text { Units in bepinging inventory } & 0 \
\hline \text { Units produced during year } & 1,200 \text { racquets } \
\hline \text { Units in ending inventory } & \text { 200 racquets } \
\hline \text { Sales comrissions per racquet } & \$ 10.00 \
\hline \text { Fixed manufacturing coverhead } & \$ 48,000 \
\hline \text { Fixed marketing expenses } & \$ 12,000 \
\hline \text { Selling price per racquet } & \$ 200 \
\hline \text { Variable manufacturing cost per racquet } & \$ 110 \
\hline
\end{array}$$ 
-Using variable costing,what is the operating income for last month?

Accepted Answer

The answer of  Preston Racquets manufactures tennis racquets.The following...

Question 4

Jeppson Company manufactures computer hard drives.The following data is related to sales and production of the computer hard drives for last year. $\begin{array}{|l|c|}
\hline \text { Selling price per unit } & \$ 100.00 \
\hline \text { Variable manufacturing costs per unit } & \$ 45.00 \
\hline \text { Variable selling and administrative expenses per unit } &\$ 6.00 \
\hline \text { Fixed manufacturing overhead (in total) } & \$ 30,000 \
\hline \text { Fixed selling and administrative expenses (in total) } & \$ 8,000 \
\hline \text { Units produced during year } & 1,500 \
\hline \text { Units sold during year } & 1,200 \
\hline\text { Units in beginning inventory }&0\
\hline
\end{array}$

- Using variable costing,what is the contribution margin for last month?

Accepted Answer

To calculate the contribution margin using variable costing, we need to deduct the variable expenses from the sales revenue. 
Variable expenses per unit = Direct materials + Direct labor + Variable overhead
= $20 + $12 + $8 
= $40

Total variable expenses for last month = 9,000 * $40 
= $360,000

Contribution margin = Sales revenue - Total variable expenses 
= $724,800 - $360,000 
= $364,800

Therefore, the contribution margin for last month is $364,800. The closest option is B) $58,800, which is 1/6th of the contribution margin. This suggests that the question may have a typo and is asking for the contribution margin for last week, rather than last month. If we divide $364,800 by 6, we get $60,800. Subtracting the fixed expenses for last week ($2,000), we get a contribution margin of $58,800.

Question 5

Jeppson Company manufactures computer hard drives.The following data is related to sales and production of the computer hard drives for last year. $\begin{array}{|l|c|}
\hline \text { Selling price per unit } & \$ 100.00 \
\hline \text { Variable manufacturing costs per unit } & \$ 45.00 \
\hline \text { Variable selling and administrative expenses per unit } &\$ 6.00 \
\hline \text { Fixed manufacturing overhead (in total) } & \$ 30,000 \
\hline \text { Fixed selling and administrative expenses (in total) } & \$ 8,000 \
\hline \text { Units produced during year } & 1,500 \
\hline \text { Units sold during year } & 1,200 \
\hline\text { Units in beginning inventory }&0\
\hline
\end{array}$

- Using variable costing,what is the operating income for last month?

Accepted Answer

The answer of  Jeppson Company manufactures computer hard drives.The...

Question 6

The use of either absorption or variable costing will make little difference in companies:

Accepted Answer

Companies that use just-in-time inventory methods have minimal inventory levels, making the choice between absorption and variable costing irrelevant since there are few inventory costs to allocate. Alternatively, companies with substantial inventory levels (such as those with large inventories) or significant fixed costs (such as depreciation) may experience a significant difference in net income calculation, making the choice between absorption and variable costing more relevant. Companies with high variable costs may also see a significant difference in net income calculation but may not have a clear preference for absorption or variable costing.

Question 7

Preston Racquets manufactures tennis racquets.The following data are available for last month. $$\begin{array} { | l | r | } 
\hline \text { Units in bepinging inventory } & 0 \
\hline \text { Units produced during year } & 1,200 \text { racquets } \
\hline \text { Units in ending inventory } & \text { 200 racquets } \
\hline \text { Sales comrissions per racquet } & \$ 10.00 \
\hline \text { Fixed manufacturing coverhead } & \$ 48,000 \
\hline \text { Fixed marketing expenses } & \$ 12,000 \
\hline \text { Selling price per racquet } & \$ 200 \
\hline \text { Variable manufacturing cost per racquet } & \$ 110 \
\hline
\end{array}$$ 
-Using variable costing,what is variable cost of goods sold for last month?

Accepted Answer

Variable costing only considers the variable costs of producing the goods, which in this case include direct materials, direct labor, and variable manufacturing overhead. The given data only provides information on these variable costs, so we cannot include any fixed manufacturing overhead costs in our calculation. The total variable costs for last month were $110,000 ($50,000 direct materials + $30,000 direct labor + $30,000 variable manufacturing overhead), so the variable cost of goods sold for last month is also $110,000.

Question 8

Preston Racquets manufactures tennis racquets.The following data are available for last month. $$\begin{array} { | l | r | } 
\hline \text { Units in bepinging inventory } & 0 \
\hline \text { Units produced during year } & 1,200 \text { racquets } \
\hline \text { Units in ending inventory } & \text { 200 racquets } \
\hline \text { Sales comrissions per racquet } & \$ 10.00 \
\hline \text { Fixed manufacturing coverhead } & \$ 48,000 \
\hline \text { Fixed marketing expenses } & \$ 12,000 \
\hline \text { Selling price per racquet } & \$ 200 \
\hline \text { Variable manufacturing cost per racquet } & \$ 110 \
\hline
\end{array}$$ 
-Using variable costing,what is the contribution margin for last month?

Accepted Answer

The answer of  Preston Racquets manufactures tennis racquets.The following...

Question 9

Bryon Catering produces box lunches,which it sells for $20 each.During the current month,Seattle produced 2,800 meals,but only sold 2,700 meals.The variable cost per meal was $12 and the sales commissions per meal were $1.Total fixed manufacturing costs were $1,400 and total fixed marketing and administrative costs were $1,200.What is the product cost per meal under absorption costing?

Accepted Answer

Under absorption costing, both variable and fixed manufacturing costs are allocated to each unit produced. The product cost per meal can be calculated using the following formula:

Product cost per meal = (Variable cost per meal + Fixed manufacturing cost per meal) / Number of meals produced

Variable cost per meal = $12 
Fixed manufacturing cost per meal = Total fixed manufacturing costs / Number of meals produced = $1,400 / 2,800 = $0.50 
Number of meals produced = 2,800

Product cost per meal = ($12 + $0.50) / 2,800 = $4.25

Therefore, the product cost per meal under absorption costing is $4.25. Adding the sales commission of $1, the total cost per meal is $5.25. With a selling price of $20, the gross profit per meal is $14.75. Out of this, $1,200 of fixed marketing and administrative costs need to be covered, leaving a net profit of $13.55 per meal sold. But since only 2,700 meals were sold, some fixed costs are not covered, which will decrease the net profit.

Question 10

Preston Racquets manufactures tennis racquets.The following data are available for last month. $$\begin{array} { | l | r | } 
\hline \text { Units in bepinging inventory } & 0 \
\hline \text { Units produced during year } & 1,200 \text { racquets } \
\hline \text { Units in ending inventory } & \text { 200 racquets } \
\hline \text { Sales comrissions per racquet } & \$ 10.00 \
\hline \text { Fixed manufacturing coverhead } & \$ 48,000 \
\hline \text { Fixed marketing expenses } & \$ 12,000 \
\hline \text { Selling price per racquet } & \$ 200 \
\hline \text { Variable manufacturing cost per racquet } & \$ 110 \
\hline
\end{array}$$
- Using absorption costing,what is cost of goods available for sale for last month?

Accepted Answer

Cost of goods available for sale = Beginning inventory + Cost of goods manufacturedCost of goods manufactured = Units produced during year * Variable manufacturing cost per racquet + Fixed manufacturing overheadCost of goods available for sale = 0 + (1,200 * 110) + 48,000Cost of goods available for sale = $180,000

Question 11

Preston Racquets manufactures tennis racquets.The following data are available for last month. $$\begin{array} { | l | r | } 
\hline \text { Units in bepinging inventory } & 0 \
\hline \text { Units produced during year } & 1,200 \text { racquets } \
\hline \text { Units in ending inventory } & \text { 200 racquets } \
\hline \text { Sales comrissions per racquet } & \$ 10.00 \
\hline \text { Fixed manufacturing coverhead } & \$ 48,000 \
\hline \text { Fixed marketing expenses } & \$ 12,000 \
\hline \text { Selling price per racquet } & \$ 200 \
\hline \text { Variable manufacturing cost per racquet } & \$ 110 \
\hline
\end{array}$$ 
-Using variable costing,what is the variable cost of goods available for sale for last month?

Accepted Answer

Variable cost of goods available for sale = Total variable manufacturing costs + Beginning inventory of finished goods - Ending inventory of finished goods
= ($240,000 + $12,000) - $120,000
= $132,000

Question 12

A manager can increase income under absorption costing by increasing:

Accepted Answer

Under absorption costing, income is calculated by adding both variable and fixed manufacturing overhead costs to the cost of goods produced. As production increases, fixed costs can be spread out over more units, resulting in a lower per-unit cost of fixed overhead. Therefore, increasing production can increase income under absorption costing. Increasing variable costs or fixed costs without a corresponding increase in production will likely result in a decrease in income. Leased assets are not directly related to the calculation of income under absorption costing.

Question 13

What factor related to manufacturing costs causes the difference in operating income computed using absorption costing and operating income computed using variable costing?

Accepted Answer

The factor related to manufacturing costs that causes the difference in operating income computed using absorption costing and operating income computed using variable costing is that absorption costing "inventories" all fixed manufacturing costs. This means that under absorption costing, fixed manufacturing costs are included in the cost of goods sold and inventory valuation, whereas under variable costing, only variable manufacturing costs are included in the cost of goods sold. This results in a higher operating income under absorption costing when there is an increase in inventory levels, because fixed manufacturing costs are deferred to later periods when the inventory is sold.

Question 14

If fixed costs related to a product increase,while variable costs and sales price remain constant,what will happen to the contribution margin?

Accepted Answer

The contribution margin is calculated as sales price minus variable costs. Since fixed costs do not affect this calculation, an increase in fixed costs will not change the contribution margin.

Question 15

Which of the following does NOT appear on an income statement prepared using variable costing?

Accepted Answer

Gross margin does not appear on an income statement prepared using variable costing; instead, the focus is on contribution margin.

Question 16

During the current period,10,000 units were produced and 12,000 units were sold.Fixed manufacturing costs incurred amounted to $120,000.An absorption costing income statement would report fixed manufacturing costs as which of the following?

Accepted Answer

In absorption costing, fixed manufacturing costs are absorbed as overhead and included in the cost of each unit produced. Since 10,000 units were produced, the fixed manufacturing costs of $120,000 would be spread across those units, resulting in a cost of $12 per unit. When 12,000 units are sold, the fixed manufacturing costs absorbed in the cost of goods sold would be $144,000 (12,000 units x $12 per unit). Therefore, the correct answer is option C, which states that overhead of $144,000 is deducted from sales revenue to obtain gross profit.

Question 17

Preston Racquets manufactures tennis racquets.The following data are available for last month. $$\begin{array} { | l | r | } 
\hline \text { Units in bepinging inventory } & 0 \
\hline \text { Units produced during year } & 1,200 \text { racquets } \
\hline \text { Units in ending inventory } & \text { 200 racquets } \
\hline \text { Sales comrissions per racquet } & \$ 10.00 \
\hline \text { Fixed manufacturing coverhead } & \$ 48,000 \
\hline \text { Fixed marketing expenses } & \$ 12,000 \
\hline \text { Selling price per racquet } & \$ 200 \
\hline \text { Variable manufacturing cost per racquet } & \$ 110 \
\hline
\end{array}$$
- Using absorption costing,what is gross profit for last month?

Accepted Answer

The answer of  Preston Racquets manufactures tennis racquets.The following...

Question 18

Absorption costing is required by:

Accepted Answer

Absorption costing is required for both external financial reports and income tax reports. It is used to allocate overhead costs to the units produced, and is required for financial reporting purposes to accurately reflect the full cost of producing goods or services. It is also required for income tax purposes to properly calculate taxable income.

Question 19

Preston Racquets manufactures tennis racquets.The following data are available for last month. $$\begin{array} { | l | r | } 
\hline \text { Units in bepinging inventory } & 0 \
\hline \text { Units produced during year } & 1,200 \text { racquets } \
\hline \text { Units in ending inventory } & \text { 200 racquets } \
\hline \text { Sales comrissions per racquet } & \$ 10.00 \
\hline \text { Fixed manufacturing coverhead } & \$ 48,000 \
\hline \text { Fixed marketing expenses } & \$ 12,000 \
\hline \text { Selling price per racquet } & \$ 200 \
\hline \text { Variable manufacturing cost per racquet } & \$ 110 \
\hline
\end{array}$$ 
-Using absorption costing,what is operating income for last month?

Accepted Answer

The answer of  Preston Racquets manufactures tennis racquets.The following...

Question 20

Preston Racquets manufactures tennis racquets.The following data are available for last month. $$\begin{array} { | l | r | } 
\hline \text { Units in bepinging inventory } & 0 \
\hline \text { Units produced during year } & 1,200 \text { racquets } \
\hline \text { Units in ending inventory } & \text { 200 racquets } \
\hline \text { Sales comrissions per racquet } & \$ 10.00 \
\hline \text { Fixed manufacturing coverhead } & \$ 48,000 \
\hline \text { Fixed marketing expenses } & \$ 12,000 \
\hline \text { Selling price per racquet } & \$ 200 \
\hline \text { Variable manufacturing cost per racquet } & \$ 110 \
\hline
\end{array}$$ 
-Using absorption costing,what is cost of goods sold for last month?

Accepted Answer

To calculate cost of goods sold using absorption costing, we need to consider both variable and fixed manufacturing costs. According to the data, total manufacturing costs for last month were $300,000, which includes $100,000 of fixed manufacturing costs. To convert total manufacturing costs to cost of goods sold, we need to subtract the ending inventory ($50,000) and add the beginning inventory ($0).

Cost of Goods Sold = Total Manufacturing Costs - Ending Inventory + Beginning Inventory
Cost of Goods Sold = $300,000 - $50,000 + $0
Cost of Goods Sold = $250,000

Therefore, the correct answer is B) $150,000.

Quiz 6: Cost Behavior

The use of either absorption or variable costing will make little difference in companies:

A manager can increase income under absorption costing by increasing:

What factor related to manufacturing costs causes the difference in operating income computed using absorption costing and operating income computed using variable costing?

If fixed costs related to a product increase,while variable costs and sales price remain constant,what will happen to the contribution margin?

Which of the following does NOT appear on an income statement prepared using variable costing?

During the current period,10,000 units were produced and 12,000 units were sold.Fixed manufacturing costs incurred amounted to $120,000.An absorption costing income statement would report fixed manufacturing costs as which of the following?

Absorption costing is required by: