Variable vs Absorption Costing Exercises - To Prepare for Quiz

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Utah Valley University *

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Apr 3, 2024

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Question 1: aq.costflows.vac.003_1809 ‐ medium ‐ 4 Variable Costing versus Absorption Costing A company has the following information. Units produced 9,000 Units sold 7,500 Direct materials $49,000 Direct labor $52,000 Fixed manufacturing overhead $105,000 Variable manufacturing overhead 100% of direct labor Total selling expenses $40,000 Fixed administrative expenses $52,500 Variable administrative expenses $6 per unit sold Determine the variable cost of goods sold per unit under variable costing.
$20.40 $17.00 $28.67 $23.00
Question 2: tb.costflows.vac.028_1809 ‐ easy ‐ 2 Variable Costing versus Absorption Costing Which cost is responsible for the difference in total unit costs between full and variable costing income statements? Direct materials. Depreciation. Direct labor. Variable manufacturing overhead.
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Question 3: 1D1‐LS38 ‐ medium Variable Costing versus Absorption Costing Manchester Airlines is in the process of preparing a contribution margin income statement that will allow a detailed look at its variable costs and profitability of operations. Which one of the following cost combinations should be used to evaluate the variable cost per flight of the company's Boston−Las Vegas ϐlights? * Source: Retired ICMA CMA Exam Questions. Communication system operation, food service, and ramp personnel. Flight crew salary, fuel, and engine maintenance. Fuel, food service, and airport landing fees. Airplane depreciation, baggage handling, and airline marketing.
Question 4: aq.costflows.vac.001_1809 ‐ easy ‐ 2 Variable Costing versus Absorption Costing Which of the following would be considered product costs under absorption costing? I. Variable manufacturing overhead II. Fixed manufacturing overhead III. Selling and administrative expenses I, II, and III I and II I and III I
Question 5: tb.costflows.vac.005_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Product #71B sells for $75 per unit. Direct materials are $12, direct labor is $10, and variable manufacturing overhead is 80% of direct labor costs per unit. Variable selling and administrative expenses average $5 per unit sold. If fixed manufacturing overhead is $40,000 when fixed selling and administrative expenses total $50,000, determine net income when 7,500 units are produced and sold. $297,500 $300,000 $337,500 $210,000
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Question 6: 1D2‐CQ02 ‐ medium Variable Costing versus Absorption Costing A review of Plunkett Corporation's accounting records for last year disclosed the selected information: In addition, the company suffered a $27,700 uninsured factory fire loss during the year. What were Plunkett's product costs and period costs using absorption costing for last year? Product cost: $656,100, Period Cost: $493,000. Product cost: $497,500, Period Cost: $651,600. Product cost: $683,800, Period Cost: $465,300.
Product cost: $235,100, Period Cost: $914,000.
Question 7: aq.costflows.vac.004_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Rose Corporation produces a single product. Last year, the company had net operating income of $50,000 using variable costing. Beginning and ending inventories were 13,000 units and 18,000 units, respectively. If the fixed manufacturing overhead cost was $2.00 per unit, what would have been the net operating income using absorption costing (assume normal costing)? $40,000 $86,000 $24,000 $60,000
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Question 8: tb.costflows.vac.008_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Penn Company has accumulated the following costs in relation to the production and sales of 5,800 units during its first year of operations: Direct materials $35,000 Direct labor $7 per unit Variable manufacturing overhead 80% of direct labor Variable selling and administrative costs $5 per unit sold Fixed manufacturing overhead $40,000 Fixed selling and administrative costs $50,000 Using variable costing, determine Penn's total product costs for the year. $148,080 $108,080
$137,080 $75,600
Question 9: tb.costflows.vac.004_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Product #98B sells for $80 per unit. Direct materials are $18, direct labor is $8, and variable manufacturing overhead is 60% of direct labor costs per unit. Variable selling and administrative expenses average $5 per unit sold. If fixed manufacturing overhead is $50,000 and fixed selling and administrative expenses total $55,000, determine gross margin when 8,000 units are produced and sold. $393,600 $248,600 $343,600 $353,600
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Question 10: tb.costflows.vac.022_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Alene Company currently sells its only product for $95 per unit. Variable manufacturing cost per unit is $56 while fixed manufacturing overhead totals $50,000. Variable selling and administrative expenses are $15 per unit sold and fixed selling and administrative expenses total $28,000. What is the effect on contribution margin when production increases from 5,700 to 6,200 units if all units produced are sold each year? An increase of $12,000. An increase of $19,500. An increase of $47,500. An increase of $28,000.
Question 11: aq.costflows.vac.006_1809 ‐ medium ‐ 4 Variable Costing versus Absorption Costing The following cost information is for a sales volume of 6,300 units. Direct materials per unit $8 Total direct labor $54,000 Fixed manufacturing overhead $30,000 Variable manufacturing overhead 120% of direct labor Fixed selling and administrative costs $50,000 Variable selling and administrative costs $5 per unit Calculate cost of goods sold using absorption (full) costing. $169,200
$280,700 $200,700 $199,200
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Question 12: aq.costflows.vac.007_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Last year, Welk Company had 16,000 units in its beginning inventory. During the year, the company's variable production costs were $6 per unit and its fixed manufacturing overhead costs were $4 per unit. The company's net income for the year was $24,000 higher under absorption costing than it was under variable costing. Given these facts, what was the number of units in the ending inventory? 16,000 units 20,000 units 22,000 units 6,000 units
Question 13: tb.costflows.vac.001_1809 ‐ easy ‐ 2 Variable Costing versus Absorption Costing When managers produce more units than can be sold, full costing can: Increase unit costs. Deflate income. Inflate income. Decrease taxes.
Question 14: tb.costflows.vac.007_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Hinkle Furniture Company has accumulated the following costs in relation to the production and sales of 7,500 units during its first year of operations: Direct materials $375,000 Direct labor $25 per unit Variable manufacturing overhead 110% of direct labor Variable selling and administrative costs $20 per unit sold Fixed manufacturing overhead $250,000 Fixed selling and administrative costs $75,000 Using full costing, determine Hinkle's total period costs for the year. $225,000 $75,000
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$325,000 $768,750
Question 15: tb.costflows.vac.021_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Clary Company currently sells its only product for $54 per unit. Variable manufacturing cost per unit is $24 while fixed manufacturing overhead totals $50,000. Variable selling and administrative expenses are $4 per unit sold. Fixed selling and administrative expenses total $23,000. What is the effect on gross margin when production increases from 5,000 to 5,500 units if all units produced are sold each year? $13,000 increase. $27,000 increase. $12,000 increase. $15,000 increase.
Question 16: tb.costflows.vac.012_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing A company has the following cost information: Units produced and sold 10,000 Direct materials $75,000 Direct labor hours per unit 1.0 Direct labor rate $10 per hour Variable manufacturing overhead 40% of direct labor Fixed manufacturing overhead $25,000 Variable selling and administrative expenses $6 per unit Fixed selling and administrative expenses $20,000 Calculate total period costs using full costing.
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$105,000 $145,000 $80,000 $175,000
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Question 17: tb.costflows.vac.003_1809 ‐ easy ‐ 2 Variable Costing versus Absorption Costing Which of the following is a product cost under full costing? CEO's salary. Depreciation of office equipment. Depreciation of manufacturing equipment. Selling expenses.
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Question 18: tb.costflows.vac.020_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Gage Company has accumulated the following costs in relation to the production and sales of 6,400 units during its first year of operations: Direct materials $25,600 Direct labor $6 per unit Variable manufacturing overhead 75% of direct labor Variable selling and administrative expenses $3 per unit sold Fixed manufacturing overhead $25,000 Fixed selling and administrative expenses $40,000 Using variable costing, determine Gage's total product costs for the year. $117,800 $112,000
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$64,000 $92,800
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Question 19: tb.costflows.vac.015_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Royalty Manufacturing has accumulated the following cost information related to the production and sale of 6,000 units of product #35BR: Direct labor hours 4,500 Average labor rate $9 per hour Direct materials $25,000 Unit selling price $28.50 Variable manufacturing overhead 110% of direct materials Variable selling and administrative expenses $3 per unit Fixed selling and administrative expenses $32,000 Fixed manufacturing overhead $27,000 Calculate Royalty's gross profit using variable costing related to product #35BR. $51,000
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$78,000 $1,000 $60,000
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Question 20: tb.costflows.vac.009_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Salmon's Custom Draperies has accumulated the following costs in relation to the production and sales of 7,200 units during its first year of operations: Direct materials $145,000 Direct labor $12 per unit Variable manufacturing overhead 70% of direct labor Variable selling and administrative costs $7 per unit sold Fixed manufacturing overhead $80,000 Fixed selling and administrative expenses $60,000 Using variable costing, determine Salmon's total period costs for the year. $140,000 $110,400
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$190,400 $231,400
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Question 21: aq.costflows.vac.009_1809 ‐ easy ‐ 2 Variable Costing versus Absorption Costing Under what situation will variable costing yield a higher operating income than absorption (full) costing? When units sold are less than units produced. When units produced are less than units sold. When units produced equal units sold. Variable costing will always yield the same operating income as absorption (full) costing.
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Question 22: tb.costflows.vac.026_1809 ‐ easy ‐ 2 Variable Costing versus Absorption Costing Full costing would include which of the following costs in finished goods inventory? Depreciation of manufacturing equipment Depreciation of office equipment Depreciation of machinery used in the sales department Variable selling expenses
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Question 23: tb.costflows.vac.025_1809 ‐ easy ‐ 2 Variable Costing versus Absorption Costing When is operating income equal under full and variable costing? When units produced equal units sold. When units produced exceed units sold. When units sold exceed units produced. When all inventory from the previous period is sold.
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Question 24: 1D3‐AT31 ‐ medium Variable Costing versus Absorption Costing Huron Industries has recently developed two new products, a cleaning unit for laser discs and a tape duplicator for reproducing home movies taken with a video camera. However, Huron has only enough plant capacity to introduce one of these products during the current year. The company controller has gathered the following data to assist management in deciding which product should be selected for production. Huron's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to products. The costs included in Huron's fixed overhead are: joint costs. prime costs.
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opportunity costs. indirect costs.
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Question 25: 1D1‐LS14 ‐ medium Variable Costing versus Absorption Costing Assuming that a management accountant wants to maximize reported net income, which of the following costing methods would show the greatest net income when the company increases its ending inventory? Normal costing. Standard costing. Variable costing. Absorption costing.
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Question 26: 1D2‐CQ01 ‐ medium Variable Costing versus Absorption Costing Kimber Company has the following unit cost for the current year: Fixed manufacturing cost is based on an annual activity level of 8,000 units. Based on these data, the total manufacturing cost expected to be incurred to manufacture 9,000 units in the current year is: $630,000. $575,000. $615,000. $560,000.
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Question 27: 1D1‐LS54 ‐ medium Variable Costing versus Absorption Costing Which one of the following is the best reason for using variable costing? * Source: Retired ICMA CMA Exam Questions. Variable costing is acceptable for income tax reporting purposes. Fixed factory overhead is more closely related to the capacity to produce than to the production of specific units. All costs are variable in the long term. Variable costing usually results in higher operating income than if a company uses absorption costing.
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Question 28: tb.costflows.vac.014_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Royalty Manufacturing has accumulated the following cost information related to the production and sale of 6,000 units of product #35BR: Direct labor hours 4,500 Average labor rate $9 per hour Direct materials $25,000 Unit selling price $28.50 Variable manufacturing overhead 110% of direct materials Variable selling and administrative expenses $3 per unit Fixed selling and administrative expenses $32,000 Fixed manufacturing overhead $27,000 Calculate Royalty's gross margin related to product #35BR. $51,000
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$78,000 $1,000 $60,000
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Question 29: aq.costflows.vac.008_1809 ‐ medium ‐ 3 Variable Costing versus Absorption Costing Last year, Blake Company's income under absorption costing was $3,600 lower than its income under variable costing. The company sold 10,000 units during the year, and its variable costs were $9 per unit, of which $1 was variable selling expense. If total production cost was $11 per unit under absorption costing, then how many units did the company produce during the year? 11,200 units produced 10,000 units produced 8,800 units produced 1,200 units produced
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Question 30: 1D1‐LS37 ‐ medium Variable Costing versus Absorption Costing A manufacturing company has a tennis ball manufacturing machine that had maintenance, direct labor, and depreciation costs during a period. Which of the following is true for this situation? Maintenance and depreciation are period costs, while direct labor is a product cost. Maintenance, direct labor, and depreciation are all product costs. Depreciation is a period cost, while maintenance and direct labor are product costs. Maintenance and direct labor are period costs, while depreciation is a product cost.
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