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Questions
Q:
Nano, Inc. is preparing its budget for the second quarter. The following sales data have been forecasted: April
May
June
July
August Unit sales
640
720
780
620
660 Additional information follows: Inventory on March 31:
192 units Desired ending inventory each month:
30% of next month's sales How many units should be purchased in April, May, and June? How many units should be purchased in the second quarter in total?
Q:
In preparing a budget for the last three months of the current year, Urban Company is planning the units of merchandise it must order each month. The company's policy is to have 15% of the next month's sales in its inventory at the end of each month. Projected sales for October, November, and December are 27,000 units, 29,500 units, and 32,500 units, respectively. How many units must be ordered in November?
Q:
A department store has budgeted cost of goods sold for August of $60,000 for its women's coats. Management wants to have $12,000 of coats in inventory at the end of the month to prepare for the winter season. Beginning inventory in August was $8,000. What dollar amount of coats should be purchased to meet the above plans?
Q:
What is a manufacturing budget?
Q:
What is a cash budget? How can management use a cash budget?
Q:
Which of the following statements is true regarding variable costing?
A. It is a traditional costing approach.
B. Only manufacturing costs that change in total with changes in production level are included in product costs.
C. It is not permitted to be used for managerial reporting.
D. It treats overhead in the same manner as absorption costing.
E. It makes it easier to manipulate earnings with changes in production levels.
Q:
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.
Q:
Using a traditional costing approach, which of the following manufacturing costs are assigned to products?
A. Direct materials and direct labor.
B. Direct labor and variable manufacturing overhead.
C. Fixed manufacturing overhead, direct materials, and direct labor.
D. Variable manufacturing overhead, direct materials, and direct labor.
E. Variable manufacturing overhead, direct materials, direct labor, and fixed manufacturing overhead.
Q:
Which of the following is not a product cost?
A. Direct labor.
B. Indirect manufacturing costs.
C. Direct materials.
D. Manufacturing overhead.
E. Advertising costs.
Q:
To convert variable costing income to absorption costing income, management will need to change the way fixed overhead costs are treated.
Q:
It is not possible to convert reports prepared using variable costing to absorption costing reports.
Q:
Information presented in a variable costing format can assist management when making short-term pricing decisions.
Q:
Multiplying the contribution margin ratio by the expected change in sales equals the expected change in contribution margin.
Q:
Contribution margin ratio is the percent of each sales dollar used to cover variable costs.
Q:
Contribution margin divided by sales equals contribution margin ratio.
Q:
Variable costing is the only acceptable basis for both external reporting and tax reporting.
Q:
Reporting contribution margin by market segment is useful in assessing the profitability of each segment.
Q:
Income under absorption costing will always be different than income under variable costing.
Q:
When units produced are less than units sold, income under absorption costing is higher than income under variable costing.
Q:
When units produced exceed the units sold, income under absorption costing is higher than income under variable costing.
Q:
Sales less variable costs equals manufacturing margin.
Q:
When units produced equal units sold, reported income is identical under absorption costing and variable costing.
Q:
A variable costing income statement focuses attention on the relationship between costs and sales that is not evident from the absorption costing format.
Q:
Under a traditional income statement format expenses are grouped according to cost behavior.
Q:
The variable costing income statement classifies costs based on cost behavior rather than function.
Q:
Given the following data, total product cost per unit under absorption costing will be $400 greater than total product cost per unit under variable costing. Direct labor
$1.50 per unit Direct materials
$1.50 per unit Overhead Total variable overhead
$900,000 Total fixed overhead
$1,200,000 Expected units to be produced
3,000 units
Q:
Given the following data, total product cost per unit under absorption costing will be greater than total product cost per unit under variable costing. Direct labor
$9 per unit Direct materials
$7 per unit Overhead Total variable overhead
$45,000 Total fixed overhead
$27,000 Expected units to be produced
9,000 units
Q:
Given the following data, total product cost per unit under absorption costing is $11.40. Direct labor
$5 per unit Direct materials
$6 per unit Overhead Total variable overhead
$32,800 Total fixed overhead
$164,000 Expected units to be produced
82,000 units
Q:
Given the following data, total product cost per unit under absorption costing is $9.14. Direct labor
$0.72 per unit Direct materials
$0.80 per unit Overhead Total variable overhead
$202,500 Total fixed overhead
$140,400 Expected units to be produced
45,000 units
Q:
Given the following data, total product cost per unit under variable costing will be greater than total product cost under absorption costing. Direct labor
$2 per unit Direct materials
$8 per unit Overhead Total variable overhead
$37,500 Total fixed overhead
$249,000 Expected units to be produced
15,000 units
Q:
Given the following data, total product cost per unit under variable costing is $7.05. Direct labor
$3.50 per unit Direct materials
$1.25 per unit Overhead Total variable overhead
$41,400 Total fixed overhead
$150,000 Expected units to be produced
18,000 units
Q:
Given the following data, total product cost per unit under variable costing is $10.75. Direct labor
$7 per unit Direct materials
$1 per unit Overhead Total variable overhead
$20,000 Total fixed overhead
$90,000 Expected units to be produced
40,000 units
Q:
The data needed for cost-volume-profit analysis is readily available if the income statement is prepared using a contribution format.
Q:
The data needed for cost-volume-profit analysis is readily available if the income statement is prepared under absorption costing.
Q:
During a given year, if a company sells more units than it produces, then ending inventory units will be less than beginning inventory units.
Q:
During a given year, if a company produces more units than it sells, then ending inventory units will be less than beginning inventory units.
Q:
During a given year if a company produces and sells the same number of units, then beginning inventory units equal ending inventory units.
Q:
A company normally sells a product for $25 per unit. Variable per unit costs for this product are: $3 direct materials, $5 direct labor, and $2 variable overhead. The company is currently operating at 100% of capacity producing 30,000 units per year. Total fixed costs are $75,000 per year. The company should accept a special order for 1,000 units which would be sold for $13 per unit because the special order price exceeds variable costs.
Q:
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.
Q:
Variable costing separates the variable costs from fixed costs and therefore makes it easier to identify and assign control over costs.
Q:
Fixed costs change in the short run depending upon managements decision to accept or reject special orders.
Q:
If a company has excess capacity, increases in production level will increase variable production costs but not fixed production costs.
Q:
The traditional income statement format used for financial reporting is called the contribution margin format.
Q:
Absorption costing is useful because it reflects the full costs that sales must exceed for the company to be profitable.
Q:
Managers should accept special orders provided the special order price exceeds full cost.
Q:
Cost information from both absorption costing and variable costing can aid managers in pricing.
Q:
Assume a company had the following production costs: Direct labor
$20,000 Direct material
$30,000 Variable overhead
$40,000 Fixed overhead
$50,000 Under absorption costing, the total production cost per unit when 4,000 units are produced would be $22.50.
Q:
Many companies link manager bonuses to income computed under absorption costing because this is how income is reported to shareholders.
Q:
The biggest problems with producing too much are lost sales and customer dissatisfaction.
Q:
The use of absorption costing can result in misleading product cost information.
Q:
Absorption costing is not permitted under GAAP.
Q:
Manufacturing overhead costs are those that can be traced directly to the product.
Q:
_______________________ costing is the only acceptable basis for both external reporting and tax reporting.
Q:
_______________________ is the amount remaining from sales revenues after all variable production costs have been deducted.
Q:
Reported income is identical under absorption costing and variable costing when the units produced _______________ the units sold.
Q:
________________ is the amount remaining from sales revenues after cost of goods sold has been deducted.
Q:
_______________________ is the amount remaining from sales revenues after all variable expenses have been deducted.
Q:
On a contribution margin income statement, expenses are grouped according to _______________.
Q:
Under absorption costing, the product unit cost consists of direct labor, direct materials, variable overhead, and _______________________.
Q:
Under variable costing, the product unit cost consists of _______________________,direct materials, and variable overhead.
Q:
________________________ is the exact point where revenues equal expenses.
Q:
When excess capacity exists, managers should accept a special order if the special order price exceeds the ________________________.
Q:
A per unit cost that is constant at all production levels is a ________________________ cost per unit.
Q:
________________________ is a costing method that includes all manufacturing costs in unit product costs.
Q:
________________________ costing treats fixed overhead as a period cost.
Q:
Absorption costing is also called ________________________ costing.
Q:
A traditional product costing approach is referred to as ______________.
Q:
_______________ and _______________ are product costs that can be directly traced to the product.
Q:
Product costs consist of direct labor, direct materials, and _________________.
Q:
Fanelli Company had net income of $678,000 based on variable costing. Beginning and ending inventories were 5,000 units and 4,200 units, respectively. Assume the fixed overhead cost per unit was $.50 for both the beginning and ending inventory. What is net income under absorption costing?
Q:
Toth, Inc. had net income of $950,000 based on variable costing. Beginning and ending inventories were 60,000 units and 56,000 units, respectively. Assume the fixed overhead cost per unit was $.85 for both the beginning and ending inventory. What is net income under absorption costing?
Q:
Anchovy, Inc., a producer of frozen pizzas, began operations this year. During this year, the company produced 16,000 cases of pizza and sold 15,000. At year-end, the company reported the following income statement using absorption costing: Sales (15,000 x $48)
$720,000 Cost of goods sold (15,000 x $19)
285,000 Gross margin
$435,000 Selling and administrative expenses
79,000 Net income
$356,000 Production costs per case total $19, which consists of $15.50 in variable production costs and $3.50 in fixed production costs (based on the 16,000 units produced). Eight percent of total selling and administrative expenses are variable. Compute net income under variable costing.
Q:
Assume that the following information is available for Coldwrap, Inc.: Light-weight Down Comforter Medium-weight Down Comforter Heavy-weight Down Comforter Sales $525,000 $262,500 $660,000 Variable expenses Variable production $105,000 $28,875 $135,000 Variable advertising $15,750 $5,250 $33,000 Variable shipping $18,000 $21,000 $42,000 Compute contribution margin ratio for each product line.
Q:
Dataport Company reports the following annual cost data for its single product: Normal production and sales level
89,000 units Direct materials
$14.00 per unit Direct labor
$21.00 per unit Variable overhead
$27.00 per unit Fixed overhead
$3,738,000 in total This product is normally sold for $230 per unit. If Dataport increases its production to 100,000 units, while sales remain at the current 89,000 unit level, by how much would the companys gross margin increase or decrease under absorption costing? Assume the company has idle capacity to double current production.
Q:
Heather, Incorporated reports the following annual cost data for its single product: Normal production and sales level
60,000 units Direct materials
$9.00 per unit Direct labor
$6.50 per unit Variable overhead
$11.00 per unit Fixed overhead
$720,000 in total This product is normally sold for $56 per unit. If Heather increases its production to 80,000 units while sales remain at the current 60,000 unit level, by how much would the companys gross margin increase or decrease under absorption costing? Assume the company has idle capacity to double current production.
Q:
Countdown Inc. sold 17,000 units of its product at a price of $81 per unit. Total variable cost per unit is $72.09, consisting of $69.05 in variable production cost and $3.04 in variable selling and administrative cost. Compute the contribution margin for the company.
Q:
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.
Q:
32 Degrees, Inc., a manufacturer of frozen food, began operations on July 1 of the current year. During this time, the company produced 140,000 units and sold 140,000 units at a sales price of $125 per unit. Cost information for this period is shown in the following table: Production costs Direct materials
$13.00 per unit Direct labor
$6.00 per unit Variable overhead
$2,100,000 in total Fixed overhead
$3,220,000 in total Nonproduction costs Variable selling and administrative
$91,000 in total Fixed selling and administrative
$458,000 in total a. Prepare 32 Degrees December 31 income statement for the current year under absorption costing.
b. Prepare 32 Degrees December 31 income statement for the current year under variable costing.
Q:
Peapod Company, a manufacturer of slippers, began operations on May 1 of the current year. During this time, the company produced 200,000 units and sold 180,000 units at a sales price of $36 per unit. Cost information for this period is shown in the following table: Production costs Direct materials
$4.00 per unit Direct labor
$5.75 per unit Variable overhead
$286,000 in total Fixed overhead
$420,000 in total Non-production costs Variable selling and administrative
$8,000 in total Fixed selling and administrative
$30,000 in total a. Prepare Peapods December 31 income statement for the current year under absorption costing.
b. Prepare Peapods December 31 income statement for the current year under variable costing.
Q:
Planet Corporation sold 21,000 units of its product at a price of $250 per unit. Total variable cost per unit is $187, consisting of $104 in variable production cost and $83 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.