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Exam 19: Variable Costing and Performance Reporting

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Question 81

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Which of the following statements is true regarding absorption costing?

A) It is a not the traditional costing approach.
B) It is not permitted to be used for financial reporting.
C) It is not permitted to be used for tax reporting.
D) It assigns all manufacturing costs to products.
E) It requires only variable costs to be treated as product costs.

F) D) and E)
G) B) and E)

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Question 82

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Reference: 19_03 Scavenger Company, a manufacturer of recycling bins, began operations on January 1 of the current year. During this time, the company produced 60,000 units and sold 55,000 units at a sales price of $15 per unit. Cost information for this year is shown in the following table: $\begin{array}{ll}\text { Production costs } & \\\quad \text { Direct materials } & \$ 2.50 \text { per unit } \\\text { Direct labor } & \$ 3.00 \text { per unit } \\\text { Variable overhead } & \$ 45,000 \text { in total } \\\quad \text { Fixed overhead } & \$ 240,000 \text { in total } \\\text { Nonproduction costs } & \\\quad \text { Variable selling and administrative } & \$ 10,000 \text { in total } \\\text { Fixed selling and administrative } & \$ 50,000 \text { in total }\end{array}$ -Given the Scavenger Company data,what is net income using variable costing?

A) $201,250
B) $181,250
C) $150,000
D) $177,600
E) $276,250

F) All of the above
G) B) and E)

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Question 83

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Which of the following statements is true regarding variable costing?

Materials Corporation sold 12,000 units of its product at a price of $67 per unit.Total variable cost per unit is $54.94,consisting of $45.05 in variable production cost and $9.89 in variable selling and administrative cost.Compute the contribution margin for the company.

The use of absorption costing can result in misleading product cost information.

Under variable costing,the product unit cost consists of _______________________,direct materials,and variable overhead.

Which of the following statements is true?

_______________________ is the amount remaining from sales revenues after all variable production costs have been deducted.

What are the limitations of using variable costing?

Under absorption costing,a company had the following unit costs when 8,000 units were produced. $\begin{array}{ll}\text { Direct labor } & \$ 8.50 \text { per unit } \\\text { Direct material } & \$ 9.00 \text { per unit } \\\text { Variable overhead } & \$ 6.75 \text { per unit } \\\text { Fixed overhead }(\$ 60,000 / 8,000 \text { units) } & \$ 7.50 \text { per unit } \\\quad \text { Total production cost } & \$ 31.75 \text { per unit }\end{array}$ Compute the total production cost per unit under absorption costing if 30,000 units had been produced.

Reported income is identical under absorption costing and variable costing when the units produced _______________ the units sold.

Cost information from both absorption costing and variable costing can aid managers in pricing.

Assume a company sells a given product for $18 per unit.Variable selling costs are $0.70 per unit and variable production costs are $5.30 per unit.If the company breaks even when selling 4,000,000 units,what are total fixed costs?

Many companies link manager bonuses to income computed under absorption costing because this is how income is reported to shareholders.

A company normally sells a product for $20 per unit.Variable per unit costs for this product are: $2 direct materials,$4 direct labor,and $1.50 variable overhead.The company is currently operating at 70% of capacity producing 14,000 units per year.Total fixed costs are $42,000 per year.The company should not accept a special order for 2,000 units which would be sold for $10 per unit because there would be an incremental loss on the order.

How can the use of absorption costing result in overproduction?

What is the formula to compute break-even volume in units?

Assume a company sells a given product for $33.28 per unit.How many units must the company sell to break-even if variable selling costs are $1.40 per unit,variable production costs are $23.56 per unit,and total fixed costs are $2,080,000?

Blackbird,Incorporated reports the following information regarding its production cost: $\begin{array}{ll}\text { Units produced } & 39,000 \text { units } \\\text { Direct labor } & \$ 13 \text { per unit } \\\text { Direct materials } & \$ 17 \text { per unit } \\\text { Variable overhead } & \$ 7,800,000 \text { in total } \\\text { Fixed overhead } & \$ 9,750,000 \text { in total }\end{array}$ a.Compute production cost per unit under variable costing. b.Compute production cost per unit under absorption costing.

Under absorption costing,a company had the following unit costs when 8,000 units were produced. $\begin{array}{ll}\text { Direct labor } & \$ 8.50 \text { per unit } \\\text { Direct material } & \$ 9.00 \text { per unit } \\\text { Variable overhead } & \$ 6.75 \text { per unit } \\\text { Fixed overhead }(\$ 60,000 / 8,000 \text { units) } &\underline{ \$ 7.50 \text { per unit} } \\\quad \text { Total production cost } &\underline{ \$ 31.75 \text { per unit }}\end{array}$ Compute the total production cost per unit under variable costing if 25,000 units had been produced.