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Exam 19: Variable Costing and Performance Reporting

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Question 21

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Front Company had net income of $72,500 based on variable costing.Beginning and ending inventories were 800 units and 1,200 units,respectively.Assume the fixed overhead per unit was $7.90 for both the beginning and ending inventory.What is net income under absorption costing?

A) $69,340
B) $75,660
C) $88,300
D) $56,700
E) $72,900

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

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Question 22

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Castaway Company reports the following first year production cost information: $\begin{array} { l l } \text { Units produced } & 53,000 \mathrm { units } \\\text { Units sold } & 51,000 \mathrm { units } \\\text { Sales price } & \$ 150 \mathrm { per } \text { unit } \\\text { Direct labor } & \$ 8 \mathrm { per } \text { unit } \\\text { Direct materials } & \$ 4 \text { per unit } \\\text { Variable overhead } & \$ 2,173,000 \text { in total } \\\text { Fixed overhead } & \$ 3,339,000 \text { in total } \\\text { Operating expenses } & \$ 1,000,000 \text { in total }\end{array}$ a.Determine the net income using variable costing. b.Determine the net income using absorption costing.

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a.Product cost: $8 DL + $4 DM + ($2,173,...

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Question 23

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Castaway Company reports the following first year production cost information: $\begin{array} { l l } \text { Units produced } & 53,000 \text { units } \\\text { Units sold } & 51,000 \text { units } \\\text { Direct labor } & \$ 8 \text { per unit } \\\text { Direct materials } & \$ 4 \text { per unit } \\\text { Variable overhead } & \$ 2,173,000 \text { in total } \\\text { Fixed overhead } & \$ 3,339,000 \text { in total }\end{array}$ a.Compute production cost per unit under variable costing. b.Compute production cost per unit under absorption costing. c.Determine the cost of ending inventory using variable costing. d.Determine the cost of ending inventory using absorption costing.

Given the following data,total product cost per unit under variable costing will be greater than total product cost under absorption costing. $\begin{array}{|l|l|}\hline \text { Direct labor } & \$ 2 \text { per unit } \\\hline \text { Direct materials } & \$ 8 \text { per unit } \\\hline \text { Overhead } & \\\hline \text { Total variable overhead } & \$ 37,500 \\\hline \text { Total fixed overhead } & \$ 249,000 \\\hline & \\\hline \text { Expected units to be produced } & 15,000 \text { units } \\\hline\end{array}$

Sales less variable costs equals manufacturing margin.

Assume that the following information was available for Daylight Enterprises,Inc.Which of the following statements is(are) true with regard to contribution margin ratio? $\begin{array} { | l | c | c | r | } \hline & \begin{array} { c } \text { Ceiling } \\\text { Lights }\end{array} & \begin{array} { c } \text { Tabletop } \\\text { Lights }\end{array} & \begin{array} { c } \text { Stand-Alone } \\\text { Lights }\end{array} \\\hline \text { Sales } & \$ 350,000 & \$ 175,000 & \$ 440,000 \\\hline \text { Variable expenses } & & & \\\hline \text { Variable production } & \$ 70,000 & \$ 19,250 & \$ 90,000 \\\hline \text { Variable advertising } & \$ 10,500 & \$ 3,500 & \$ 22,000 \\\hline \text { Variable shipping } & \$ 12,000 & \$ 14,000 & \$ 28,000 \\\hline\end{array}$

Reference: 19_01 Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year. $\begin{array} { l l } \text { Units produced this year } & 25,000 \text { units } \\\text { Units sold this year } & 15,000 \text { units } \\ \text { Direct materials } & \$ 9 \text { per unit } \\\text { Direct labor } & \$ 11 \text { per unit } \\\text { Variable overhead } & \$ 75,000 \mathrm { in } \text { total } \\\text { Fixed overhead } & \$ 137,500 \mathrm { in } \text { total }\end{array}$ -Given Advanced Company's data,compute cost of finished goods in inventory under absorption costing.

Product costs consist of direct labor,direct materials,and _________________.

The biggest problems with producing too much are lost sales and customer dissatisfaction.

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

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 Star Services Inc.data,what is net income using variable costing?

When evaluating a special order,management should:

Managers should accept special orders provided the special order price exceeds full cost.

The traditional income statement format used for financial reporting is called the contribution margin format.

Which of the following best describes costs assigned to the product under the absorption costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative Variable manufacturing overhead Fixed selling and administrative Fixed manufacturing overhead

Assume a company sells a given product for $90 per unit.How many units must be sold to break even if variable selling costs are $2 per unit,variable production costs are $31 per unit,and total fixed costs are $1,799,946?

Sea Company reports the following information regarding its production cost. $\begin{array}{ll}\text { Units produced } & 42,000 \text { units } \\\text { Direct labor } & \$ 35 \text { per unit } \\\text { Direct materials } & \$ 28 \text { per unit } \\\text { Variable overhead } & \$ 17 \text { per unit } \\\text { Fixed overhead } & \$ 105,000 \text { in total }\end{array}$ Compute production cost per unit under variable costing.

Cloudy Company reports the following information for the current year: $\begin{array}{ll}\text { Units produced this year } & 51,000 \text { units } \\\text { Units sold this year } & 53,000 \text { units } \\\text { Direct materials } & \$ 6 \text { per unit } \\\text { Direct labor } & \$ 3 \text { per unit } \\\text { Variable overhead } & \$ 255,000 \text { in total } \\\text { Fixed orerhead } & ? \text { in total }\end{array}$ If the company's cost per unit of finished goods using absorption costing is $18,what is total fixed overhead?

Under absorption costing,a company had the following unit costs when 10,000 units were produced: $\begin{array}{ll}\text { Direct labor } & \$ 2 \text { per unit } \\\text { Direct material } & \$ 3 \text { per unit } \\\text { Variable overhead } & \$ 4 \text { per unit } \\\cline { 2 - 2 } \text { Total variable } & \$ 9 \text { per unit } \\\text { Fixed overhead }(\$ 50,000 / 10,000 \text { units) } & \$ 5 \text { per unit } \\\text { Total production cost } & \$ 14 \text { per unit }\end{array}$ The total production cost per unit under absorption costing if 25,000 units had been produced would be $11.

Reference: 19_04 Cool Pools, a manufacturer of above ground pools, began operations on January 1 of the current year. During this time, the company produced 45,000 units and sold 44,000 units at a sales price of $60 per unit. Cost information for this year is shown in the following table: $\begin{array}{ll}\text { Production costs } & \\\quad \text { Direct materials } & \$ 11.25 \text { per unit } \\\text { Direct labor } & \$ 3.20 \text { per unit } \\\text { Variable overhead } & \$ 315,000 \text { in total } \\\quad \text { Fixed overhead } & \$ 39,600 \text { in total } \\\text { Nonproduction costs } & \\\quad \text { Variable selling and administrative } & \$ 2,000 \text { in total } \\\quad \text { Fixed selling and administrative } & \$ 6,000 \text { in total }\end{array}$ -Given the Cool Pools Company data,what is net income using variable costing?