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Exam 6: Variable Costing and Performance Reporting

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Question 61

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Variable costing is the only acceptable basis for both external reporting and tax reporting.

A) True
B) False

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Question 62

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Vision Tester, Inc., a manufacturer of optical glass, began operations on February 1 of the current year.During this time, the company produced 900,000 units and sold 800,000 units at a sales price of $12 per unit.Cost information for this year is shown in the following table: $\begin{array}{l}\text { Production costs }\\\begin{array}{ll}\text { Direct materials } & \$ 80 \text { per unit } \\\text { Direct labor } & \$ 70 \text { per unit } \\\text { Variable overhead } & \$ 500,000 \text { in total } \\\text { Fixed overhead } & \$ 450,000 \text { in total } \\\text { Jon-production costs } & \\\text { Variable selling and administrative } & \$ 30,000 \text { in total } \\\text { Fixed selling and administrative } & \$ 490,000 \text { in total }\end{array}\end{array}$ Given this information, which of the following is true?

A) Net income under variable costing will exceed net income under absorption costing by $50,000.
B) Net income under absorption costing will exceed net income under variable costing by $50,000.
C) Net income will be the same under both absorption and variable costing.
D) Net income under variable costing will exceed net income under absorption costing by $60,000.
E) Net income under absorption costing will exceed net income under variable costing by $60,000.

F) A) and E)
G) C) and D)

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Question 63

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During a given year if a company produces and sells the same number of units, then beginning inventory units equal ending inventory units.

________________________ is the exact point where revenues equal expenses.

During a given year, if a company produces more units than it sells, then ending inventory units will be less than beginning inventory units.

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: $\begin{array}{lr}\text { Sales } ( 15,000 \times\$ 48 ) & \$ 720,000\\\text { Cost of goods sold } ( 15,000 \times \$ 19 ) & \underline { 285,000 }\\\text { Gross margin } &\$ 435,000 \\\text { Selling and adrninistrative } & \underline { 79,000 }\\\text { expenses } &\\\text { Net incorne } & \underline {\$ 356,000 }\end{array}$ 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.

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?

A company reports the following information regarding its production cost: $\begin{array}{ll}\text { Units produced } & 14,000 \text { units } \\\text { Direct labor } & \$ 13 \text { per unit } \\\text { Direct materials } & \$ 3 \text { per unit } \\\text { Variable overhead } & ? \text { in total } \\\text { Fixed overhead } & \$ 56,000 \text { in total }\end{array}$ Required: Perform the following independent calculations. a.Compute total variable overhead cost if the production cost per unit under variable costing is $73. b.Compute total variable overhead cost if the production cost per unit under absorption costing is $73.

What costs are treated as product costs under the variable costing method?

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?

Assume a company sells a given product for $12 per unit.How many units must be sold to break even if variable selling costs are $0.50 per unit, variable production costs are $3.50 per unit, and total fixed costs are $4,500,000?

Which of the following statements is true regarding variable costing?

Given Advanced Company's data, compute cost of finished goods in inventory under absorption costing.

A variable costing income statement focuses attention on the relationship between costs and sales that is not evident from the absorption costing format.

The traditional costing approach assigns all manufacturing costs to products.

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. $\begin{array} { | l | c | } \hline \text { Direct labor } & \mathbf { \$ 1 . 5 0 p e r ~ u ni t ~ } \\\hline \text { Direct rmaterials } & \$ 1.50 \mathrm { per } \text { unit } \\\hline \text { Overhead } & \\\hline \text { Total variable overhead } & \$ 900,000 \\\hline \text { Total fixed overhead } & \$ 1,200,000 \\\hline & \\\hline \text { Expected urits to be produced } & \mathbf { 3 , 0 0 0 } \text { units } \\\hline\end{array}$

To convert variable costing income to absorption costing income, management will need to change the way fixed overhead costs are treated.

A company reports the following information regarding its production cost: $\begin{array}{ll}\text { Units produced } & 22,000 \text { units } \\\text { Direct labor } & \$ 31 \text { per unit } \\\text { Direct materials } & \$ 27 \text { per unit } \\\text { Variable overhead } & ? \text { in total } \\\text { Fixed overhead } & \$ 2,750,000 \text { in total }\end{array}$ Required: Perform the following independent calculations. a.Compute total variable overhead cost if the production cost per unit under variable costing is $240. b.Compute total variable overhead cost if the production cost per unit under absorption costing is $240.

Given the following data, total product cost per unit under absorption costing is $11.40. $\begin{array} { | l | c | } \hline \text { Direct labor } & \$ 5 \text { per unit } \\\hline \text { Direct rmaterials } & \$ 6 \text { per unit } \\\hline \text { Overhead } & \\\hline \text { Total variable overhead } & \$ 32,800 \\\hline \text { Total fixed overhead } & \$ 164,000 \\\hline & \\\hline \text { Expected urits to be produced } & \mathbf { 8 2 , 0 0 0 u ni t s } \\\hline\end{array}$

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