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Exam 6: Variable Costing and Analysis

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Question 61

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[The following information applies to the questions displayed below.] Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year. -Given Advanced Company's data, and the knowledge that the product is sold for $50 per unit and operating expenses are $200,000, compute the net income under absorption costing.

A) $55,000
B) $67,500
C) $80,500
D) $122,500
E) $205,000

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

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Question 62

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Blackbird, Incorporated reports the following information regarding its production cost: $\begin{array} { | l | l | } \hline \text { Units produced } & 39,000 \text { units } \\\hline \text { Direct labor } & \$ 13 \text { per unit } \\\hline \text { Direct materials } & \$ 17 \text { per unit } \\\hline \text { Variable overhead } & \$ 200 \text { per unit } \\\hline \text { Fixed overhead } & \$ 9,750,000 \text { in total } \\\hline\end{array}$ a. Compute production cost per unit under variable costing. b. Compute production cost per unit under absorption costing.

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a. $13 DL + $17 DM + $200 VOH ...

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Question 63

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

Under absorption costing, which of the following statements is not true?

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?

Gage Company reports the following information for its first year of operations: If the company's cost per unit of finished goods using variable costing is $63, what is total variable overhead?

Assuming fixed costs remain constant, and a company sells more units than it produces, then income under absorption costing is less than income under variable costing.

Quaker Corporation sold 6,600 units of its product at a price of $42.40 per unit. Total variable cost per unit is $19.25, consisting of $10.15 in variable production cost and $9.10 in variable selling and administrative cost. Compute contribution margin for the company.

________ and ________ are product costs that can be directly traced to the product.

Brush Industries reports the following information for May: Calculate the operating income for May under absorption costing.

What is the formula to compute manufacturing margin?

________ costing treats fixed overhead as a period cost.

The variable costing income statement classifies costs based on cost behavior rather than function.

Geneva Co. reports the following information for July: Calculate the contribution margin for July.

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

[The following information applies to the questions displayed below.] Red and White Company reported the following monthly data: -What is Red and White's net income under absorption costing if 980 units are sold and selling and administrative expenses are $12,000?

What are the limitations of using variable costing?

[The following information applies to the questions displayed below.] Galaxy, Inc., a manufacturer of telescopes, began operations on June 1 of the current year. During this time, the company produced 60,000 units and sold 40,000 units at a sales price of $600 per unit. Cost information for this year is shown in the following table: -Given the Galaxy Inc. data, what is net income using variable costing?

Absorption costing is useful because it reflects the full costs that sales must exceed for the company to be profitable.

Milton Company reports the following information for the current year: If the company's cost per unit of finished goods using absorption costing is $18, what is total fixed overhead?