MULTIPLE CHOICE QUESTIONS
1. Under Under variable variable costing, costing, fixed fixed manufac manufacturin turing g overhead overhead is: is: A. expens expensed ed immed immediat iately ely when when incu incurre rred. d. B. nev never expe expens nsed ed.. C. applied applied directly directly to inished!" inished!"oods oods #nventory #nventory.. $. applied applied directly directly to %or %or&!in!' &!in!'rocess rocess #nventory #nventory.. (. treated treated in the same same manner manner as variabl variablee manufact manufacturing uring overhead overhead.. Answer: A )*: 1 +ype: +ype: C -. All of the follow following ing are invento inventoried ried under under variable variable costin costing g except: A. dire direct ct mat mater eria ials ls.. B. direc irectt lab labor or.. C. variab variable le manu manufac factur turing ing overhe overhead. ad. $. fixed fixed manufa manufactu cturin ring g over overhea head. d. (. item itemss C C and and $ $ abov above. e. Answer: $ )*: 1 +ype: +ype: C /. All of the the followin following g are expensed expensed under under variab variable le costing costing except: except: A. variab variable le manu manufac factur turing ing overhe overhead. ad. B. fixed fixed manufa manufactu cturin ring g overhe overhead. ad. C. variab variable le sellin selling g and admini administr strati ative ve costs. costs. $. fixed fixed sellin selling g and admini administr strati ative ve costs. costs. (. item itemss C C and and $ $ abov above. e. Answer: A )*: 1 +ype: +ype: C 0. All of the followin following g costs are invento inventoried ried under under absorptio absorption n costing costing except: A. dire direct ct mat mater eria ials ls.. B. direc irectt lab labor or.. C. variab variable le manu manufac factur turing ing overhe overhead. ad. $. fixed fixed manufa manufactu cturin ring g over overhea head. d. (. fixed fixed admini administr strati ative ve salari salaries. es. Answer: ( )*: 1 +ype: +ype: C . All of the follow following ing are invento inventoried ried under under absorptio absorption n costing costing except: A. dire direct ct labo laborr. B. raw materi materials als used used in produc productio tion. n. C. utilit utilities ies cost cost consum consumed ed in manufa manufactu cturin ring. g. $. sale saless comm commis issi sion ons. s. (. machi machine ne lubri lubrican cantt used used in produc productio tion. n. Answer: $ )*: 1 +ype: +ype: 2
16
Hilton, Managerial Accounting, Seventh Edition
3. +he underlying underlying difference difference between absorption costing and variable variable costing costing lies in the treatment of: A. dire direct ct labo laborr. B. variab variable le manu manufac factur turing ing overhe overhead. ad. C. fixed fixed manufa manufactu cturin ring g overhe overhead. ad. $. variable variable selling selling and administr administrativ ativee expens expenses. es. (. fixed fixed sellin selling g and admini administr strati ative ve expens expenses. es. Answer: C )*: 1 +ype: +ype: C 4. %hich of the following following costs costs would be treated differently under absorption absorption costing costing and variable costing5 6ariable ixed $irect 7anufacturing Administrative )abor *verhead (xpenses A. 8es 2o 8es B. 8es 8es 8es C. 2o 2o 8es 2o $. 2o 2o 8es (. 2o 2o 2o Answer: ( )*: 1 +ype: +ype: C 9. )one tar tar has computed computed the the following following unit unit costs for for the year year ;ust ended: ended: $irect material used $irect labor 6ariable manufacturing overhead ixed manufacturing overhead 6ariable selling and administrative cost ixed selling and administrative cost
<119 - -= 1> 14
Under variable costing, each unit of the company?s inventory would be carried at: A. . B. <. C. <3. $. <90. (. som some oth other er amou amount nt.. Answer: B )*: 1 +ype: +ype: A
17
Hilton, Managerial Accounting, Seventh Edition
=. 'rescott 'rescott Corporatio Corporation n has computed computed the following following unit unit costs for for the year ;ust ended: ended: $irect material used $irect labor 6ariable manufacturing overhead ixed manufacturing overhead 6ariable selling and administrative cost ixed selling and administrative cost
<19 -4 /> /= 14
Under absorption costing, each unit of the company?s inventory would be carried at: A. <4. B. <1>4. C. <113. $. <1//. (. som some oth other er amou amount nt.. Answer: B )*: 1 +ype: +ype: A 1>. anta e Corporat Corporation ion has computed computed the the following following unit costs costs for the year year ;ust ended: ended: $irect material used $irect labor 6ariable manufacturing overhead ixed manufacturing overhead 6ariable selling and administrative cost ixed selling and administrative cost
< - 1= / 0> 14 /-
%hich of the following choices correctly depicts the per!unit cost of inventory under variable costing and absorption costing5 6ariable Absorption Costing Costing A. <4= <11= B. <4= <11 C. <=3 <11= $. <=3 <11 (. ome ome other other comb combina inatio tion n of figu figures res not listed listed abov above. e. Answer: A )*: 1 +ype: +ype: A
Chapter 17
18
11. $elaware $elaware has computed computed the the following following unit unit costs costs for the year year ;ust ended: ended: 6ariable manufacturing cost ixed manufacturing cost 6ariable selling and administrative cost ixed selling and administrative cost
<9 -> 19 11
%hich of the following choices correctly depicts the per!unit cost of inventory under variable costing and absorption costing5 A. 6ariabl riable, e, <9@ <9@ absorp absorptio tion, n, <1> <1>.. B. 6ariabl riable, e, <9@ <9@ absor absorpt ption ion,, <113. <113. C. 6ariabl riable, e, <1>/@ <1>/@ absorp absorptio tion, n, <1>. <1>. $. 6ariabl riable, e, <1>/@ <1>/@ absorp absorptio tion, n, <113. <113. (. ome other other combi combinatio nation n of figures figures not listed listed above above.. Answer: A )*: 1 +ype: +ype: A Use the following to answer uestions 1-!1/: #ndiana Company incurred the following costs during the past year when planned production and actual production each totaled ->,>>> units: $irect materials used $irect labor 6ariable manufacturing overhead ixed manufacturing overhead 6ariable selling and administrative costs ixed selling and administrative costs
<-9>,>>> 1->,>>> 13>,>>> 1>>,>>> 3>,>>> =>,>>>
1-. #f #ndiana #ndiana uses variable variable costing, costing, the total total inventor inventoriable iable costs costs for the year year would be: A. <0>>,>> ,>>>. B. <03>,>>>. C. <3>,>>>. $. <3->,>> ,>>>. (. <33>,>>>. Answer: C )*: 1 +ype: +ype: A 1/. +he per!uni per!unitt inventoria inventoriable ble cost cost under absorpt absorption ion costing costing is: is: A. <=.>. B. <-.>>. C. <-9.>>. $. /.>>. (. <0>.>. Answer: $ )*: 1 +ype: +ype: A
19
Hilton, Managerial Accounting, Seventh Edition
10. Consider the following following comments about about absorption! absorption! and variable!costing variable!costing income statements: #.A variable!costing income statement discloses a firm?s contribution margin. ##.Cost of goods sold on an absorption!costing absorption!costing income statement includes fixed costs. ###.+he amount of variable selling and administrative cost is the same on absorption! and variable!costing income statements. %hich of the above statements is are true5 A. # only. B. ## on only. C. # and ##. $. ## and ###. (. #, ## ##, an and ## ###. Answer: ( )*: -, / +ype: +ype: 2 1. oberts, which began business business at the the start of the current current year, year, had the the following data: 'lanned and actual production: 0>,>>> units ales: /4,>>> units at <1 per unit 'roduction costs: 6ariable: <0 per unit ixed: <-3>,>>> elling and administrative costs: 6ariable: <1 per unit ixed: -,>>> +he gross margin that the company would disclose on an absorption!costing absorption!costing income statement is: A. <=4,>>. B. <104,>>>. C. <133,>>. $. 4>,>> ,>>>. (. som some oth other er amou amount nt.. Answer: C )*: - +ype: +ype: A
Chapter 17
20
13. 7cAfee, which began business business at the the start of of the current current year, had the following data: 'lanned and actual production: 0>,>>> units ales: /4,>>> units at <1 per unit 'roduction costs: 6ariable: <0 per unit ixed: <-3>,>>> elling and administrative costs: 6ariable: <1 per unit ixed: -,>>> +he contribution margin that the company would disclose on an absorption!costing income statement is: A. <>. B. <104,>>>. C. <133,>>. $. 4>,>> ,>>>. (. som some oth other er amou amount nt.. Answer: A )*: - +ype: +ype: A
14. Chicago Chicago began began business business at the the start of the the current current year. year. +he company company planned planned to produc producee -,>>> units, and actual production production conformed to expectations. ales totaled --,>>> units at > each. Costs incurred incurred were: ixed manufacturing overhead ixed selling and administrative cost 6ariable manufacturing cost per unit 6ariable selling and administrative cost per unit
<1>,>>> 1>>,>>> 9 -
#f there were no variances, the company?s absorption!costing absorption!costing net income would be: A. <1=>,>> ,>>>. B. <->-,>>>. C. <->9,>>>. $. <-->,>> ,>>>. (. som some oth other er amou amount nt.. Answer: C )*: - +ype: +ype: A
21
Hilton, Managerial Accounting, Seventh Edition
19. 2orton, which began business business at the the start of of the current current year, had the following data: data: 'lanned and actual production: 0>,>>> units ales: /4,>>> units at <1 per unit 'roduction costs: 6ariable: <0 per unit ixed: <-3>,>>> elling and administrative costs: 6ariable: <1 per unit ixed: -,>>> +he contribution margin that the company would disclose on a variable!costing income statement is: A. <=4,>>. B. <104,>>>. C. <133,>>. $. 4>,>> ,>>>. (. som some oth other er amou amount nt.. Answer: $ )*: / +ype: +ype: A 1=. 7adison began business business at the start of the current year. year. +he company planned planned to to produce produce />,>>> units, and actual production production conformed to expectations. ales totaled -9,>>> units at - each. Costs incurred incurred were: ixed manufacturing overhead ixed selling and administrative cost 6ariable manufacturing cost per unit 6ariable selling and administrative cost per unit
<1>,>>> =>,>>> 11 -
#f there were no variances, the company?s variable!costing net income would be: A. <-4>,>> ,>>>. B. <-=-,>>>. C. >9,>>>. $. </-,>> ,>>>. (. som some oth other er amou amount nt.. Answer: B )*: / +ype: +ype: A
Chapter 17
22
->. +he followin following g data relate relate to )obo )obo Corporatio Corporation n for the year year ;ust ended: ended: ales revenue Cost of goods sold: 6ariable 6ariable portion ixed portion 6ariable selling and administrative cost ixed selling and administrative cost
<4>,>>> /4>,>>> 11>,>>> >,>>> 4,>>>
%hich of the following statements is correct5 A. )oboDs )oboDs variabl variable!cos e!costing ting income income statemen statementt would reveal reveal a gross margin margin of <-4>,>>>. <-4>,>>>. B. )oboDs )oboDs variabl variablee costing costing income income statement statement would reveal reveal a contributi contribution on margin margin of />,>>>. C. )oboDs )oboDs absorpt absorption!c ion!costi osting ng income income statement statement would reveal reveal a contribut contribution ion margin margin of />,>>>. $. )oboDs )oboDs absorpt absorption ion costing costing income income statement statement would would reveal a gross margi margin n of />,>>>. />,>>>. (. )oboDs )oboDs absorpt absorption!c ion!costi osting ng income income statement statement would reveal reveal a gross gross margin margin of <10,>>>. <10,>>>. Answer: B )*: -, / +ype: +ype: A Use the following to answer uestions -1!--: ranE began business at the start of this year and had the following f ollowing costs: variable manufacturing manufacturing cost per unit, <=@ fixed manufacturing manufacturing costs, <3>,>>>@ <3>,>>>@ variable selling and and administrative administrative costs per unit, <-@ and fixed selling and administrative administrative costs, <-->,>>>. +he company sells its units for <0 each. Additional data follow. 'lanned production in units Actual production in units 2umber of units sold sold +here were no variances.
1>,>>> 1>,>>> 9,>>
-1. +he net net income income loss loss under under absorpt absorption ion costin costing g is: A. <4,>>. B. <=,>>>. C. <1,>>>. $. <19,>>>. (. som some oth other er amou amount nt.. Answer: $ )*: - +ype: +ype: A --. +he net net income income loss loss under under variabl variablee costing costing is: is: A. <4,>>. B. <=,>>>. C. <1,>>>. $. <19,>>>. (. som some oth other er amou amount nt.. Answer: B )*: / +ype: +ype: A
23
Hilton, Managerial Accounting, Seventh Edition
-/. #ncome #ncome reported reported under absorpt absorption ion costing costing and and variable variable costing costing is: is: A. alwa alway ys the the sam same. B. typi typica call lly y diff differ eren ent. t. C. always always high higher er under under absorp absorptio tion n costin costing. g. $. always always high higher er under under variab variable le costi costing. ng. (. always always the same or highe higherr under under absorp absorption tion costing. costing. Answer: B )*: 0 +ype: +ype: C -0. "omeE?s inventory increased during the year. year. *n the the basis basis of this information, information, income reported under absorption costing: A. will be the same as that report reported ed under under variabl variablee costing. costing. B. will be higher higher than that reported reported under under variable variable costi costing. ng. C. will be lower lower than than that that report reported ed under under variab variable le costing costing.. $. will differ differ from from that reported reported under under variable variable costing, costing, the directio direction n of which cannot cannot be determined from the information given. (. will be less less than than that that reporte reported d in the previo previous us period period.. Answer: B )*: 0 +ype: +ype: 2 -. %hich of the following following conditions conditions would would cause cause absorption!costing absorption!costing net income income to be be lower than variable!costing net income5 A. Units Units sold sold excee exceeded ded uni units ts produ produced ced.. B. Units Units sol sold d eual eualed ed unit unitss produ produced ced.. C. Units Units sold sold were were less less than than unit unitss produ produced ced.. $. ale aless pric prices es dec decre reas ased ed.. (. ell ellin ing g expen expense sess incre increas ased ed.. Answer: A )*: 0 +ype: +ype: 2 -3. %hich of the following following situations situations would cause variable!costing variable!costing net income to be lower than absorption!costing absorption!costing net income5 A. Units Units sold eual eualed ed /=,>>> /=,>>> and units units produc produced ed eualed eualed 0-,>>>. 0-,>>>. B. Units Units so sold ld and and units units produced produced were both 0-,>>>. 0-,>>>. C. Units Units sold sold eualed eualed ,>>> ,>>> and units units produc produced ed eualed eualed 0=,>>>. 0=,>>>. $. ales prices prices decreas decreased ed by <4 per per unit unit during during the account accounting ing period. period. (. elling elling expens expenses es increase increased d by 1>F 1>F during during the the accounti accounting ng period. period. Answer: A )*: 0 +ype: +ype: 2
Chapter 17
2
-4. Consider the following following statements about absorption! and variable!costing variable!costing net income: #.8early #.8early income reported under absorption costing will differ from income reported under variable costing if production and sales volumes differ. ##.)ong!run, total income reported under absorption costing will often be close to that reported under variable costing. ###.$ifferences in income under absorption and variable costing can often be reconciled by multiplying the change in inventory in units by the variable manufacturing overhead cost per unit. %hich of the above statements is are true5 A. # only. B. ## on only. C. ### on only. $. # and ##. (. ## and ###. Answer: $ )*: 0 +ype: +ype: C -9. %hich of the following following formulas formulas can often reconcile reconcile the difference between absorption! and variable!costing net income5 A. Change Change in inventory inventory units units x predete predetermin rmined ed variable!o variable!overhe verhead ad rate per per unit. B. Change Change in inventory inventory units units G predete predetermine rmined d variable!ov variable!overhea erhead d rate per unit. unit. C. Change Change in invento inventory ry units units x predeterm predetermined ined fixed!o fixed!overhe verhead ad rate per per unit. unit. $. Change Change in inventory inventory units units G predete predetermine rmined d fixed!overh fixed!overhead ead rate per per unit. (. Absorptio Absorption!cos n!costing ting net income income ! variable!c variable!costi osting ng net income income x fixed!overh fixed!overhead ead rate per unit. Answer: C )*: 0 +ype: +ype: C -=. 7onex report reported ed <3,>>> <3,>>> of net net income income for the the year year by using using absorptio absorption n costing. costing. +he company had no beginning inventory, inventory, planned and actual production of ->,>>> units, and sales of 19,>>> units. tandard variable manufacturing manufacturing costs were <-> per unit, and total budgeted fixed manufacturing overhead overhead was <1>>,>>>. #f there were no variances, net income income under variable costing would be: A. <1,>>>. B. <,>>>. C. <3,>>>. $. <4,>>>. (. <11,>>>. Answer: B )*: 0 +ype: +ype: A
2!
Hilton, Managerial Accounting, Seventh Edition
/>. Canyon Canyon reported reported <1>3,>>> <1>3,>>> of of net income income for the year year by using variab variable le costing. costing. +he company company had no beginning inventory, planned and actual production of >,>>> units, and sales of 04,>>> units. tandard variable manufacturing costs costs were <1 per unit, and total budgeted fixed manufacturing overhead overhead was <1>,>>>. #f there were no variances, net income income under absorption costing would be: A. <-,>>>. B. <=4,>>>. C. <1>3,>>>. $. <11,>>>. (. <13>,>>>. Answer: $ )*: 0 +ype: +ype: A /1. Consider Consider the following following statemen statements ts about absorptio absorption n costing costing and variable variable costing: costing: #.6ariable #.6ariable costing is consistent with contribution reporting and cost!volume!profit analysis. ##.Absorption costing must be used for external financial reporting. ###.A number of companies use both absorption costing and variable costing. %hich of the above statements is are true5 A. # only. B. ## on only. C. ### on only. $. # and ##. (. #, ## ##, an and ## ###. Answer: ( )*: , 3 +ype: +ype: C /-. Consider Consider the following following statemen statements ts about absorptio absorption n costing costing and variable variable costing: costing: #.6ariable #.6ariable costing is consistent with contribution reporting and cost!volume!profit analysis. ##.6ariable ##.6ariable costing must be used for external financial reporting. ###.A number of companies use both absorption costing and variable costing. %hich of the above statements is are true5 A. # only. B. ## on only. C. ### on only. $. # and ##. (. # and ###. Answer: ( )*: , 3 +ype: +ype: C
Chapter 17
26
//. or external!reporting external!reporting purposes, generally accepted accounting principles reuire that that net net income be based on: A. abso absorp rpti tion on cost costin ing. g. B. vari variab able le cost costin ing. g. C. dire direct ct cost costin ing. g. $. semi semiva vari riab able le cos costi ting ng.. (. acti activi vity ty!ba !base sed d cos costi ting ng.. Answer: A )*: 3 +ype: +ype: C /0. Under Under throughput throughput costin costing, g, the cost cost of a unit typical typically ly includes: includes: A. sell sellin ing g cost costs. s. B. fixed fixed manufa manufactu cturin ring g overhe overhead. ad. C. the direct direct costs costs incurred incurred whenever whenever a unit is manufac manufactured tured.. $. admi admini nist stra rati tive ve cos costs ts.. (. all of the the abov above. e. Answer: C )*: 4 +ype: +ype: C /. %hich of the following following methods methods defines product product cost as the unit!level unit!level cost cost incurred each time a unit is manufactured5 A. +hro +hroug ughp hput ut cost costin ing. g. B. #ndi #ndire rect ct cost costin ing. g. C. 'roc 'roces esss cost costin ing. g. $. Abso Absorp rpti tion on cost costin ing. g. (. Bac& Bac&!f !flu lush sh cos costi ting ng.. Answer: A )*: 4 +ype: +ype: C /3. *rion?s management recently committed to incurring incurring direct labor labor and all manufacturing manufacturing overhead charges regardless of the number number of units produced. Under throughput costing, costing, the company?s cost of goods sold would include charges for: A. sellin selling g and adm admini inistr strati ative ve costs costs.. B. dire direct ct mater ateria ials ls.. C. direct direct labo laborr and manu manufact facturi uring ng overh overhead ead.. $. direct direct materials, materials, direct direct labor labor,, and manufac manufacturin turing g overhead. overhead. (. direct direct materials, materials, direct direct labor, labor, manufacturi manufacturing ng overhead, overhead, and selling selling and admini administra strative tive costs. Answer: B )*: 9 +ype: +ype: 2
27
Hilton, Managerial Accounting, Seventh Edition
/4. Highline Highline Company Company reported reported the the followin following g costs for for the year ;ust ;ust ended: ended: +hroughput manufacturing costs 2on!throughput 2on!throughput manufacturing costs elling and administrative costs
<19>,>>> 3>>,>>> 1-,>>>
#f Highline uses throughput costing and had sales revenues for the period of <=>,>>>, which of the following choices correctly depicts the company?s cost of goods sold and net income5 Cost of 2et "oods old #ncome A. <19>,>>> <0,>>> B. <19>,>>> <30,>>> C. >,>>> <0,>>> $. >,>>> <30,>>> (. ome ome other other comb combina inatio tion n of figu figures res not listed listed abov above. e. Answer: A )*: 9 +ype: +ype: A /9. +he fixed!ov fixed!overhead erhead volum volumee variance variance under under variable variable costing: costing: A. coincides coincides with with the fixed manufac manufacturin turing g overhead overhead that was applied applied to product production. ion. B. is dedu deducte cted d on the incom incomee statem statement ent.. C. does does not exis existt. $. will eual the fixed!ove fixed!overhead rhead budget budget varian variance. ce. (. must ust be unf unfav avor orab able le.. Answer: C )*: = +ype: +ype: C /=. %hich %hich of the following following differs differs between absorpt absorption ion costing costing and variable variable costing5 costing5 A. +he num number ber of units units produc produced. ed. B. +he fixed! fixed!ove overhe rhead ad volum volumee varian variance. ce. C. ale aless rev revenu enues. es. $. +he treatment treatment of variab variable le manufa manufacturin cturing g overhea overhead. d. (. #nco #ncome me tax tax rate rates. s. Answer: B )*: = +ype: +ype: C
Chapter 17
28
EXERCISES Characteristics of Absorption Costing an !ariab"e !ariab"e Costing
0>. Consid Consider er the state stateme ments nts that that follow follow.. 1. -. /. 0. . 3. 4.
6ariable ariable selling selling costs costs are are expensed expensed when when incurre incurred. d. +he income income statemen statementt discloses discloses a companyD companyDss contribut contribution ion margin margin.. ixed manufactur manufacturing ing overhe overhead ad is attach attached ed to each each unit unit produced produced.. $irect $irect labo laborr become becomess part part of a unitD unitDss cost. cost. ales reven revenue ue minus minus cost of of goods goods sold eual eualss contribu contribution tion margi margin. n. +his method method must must be used used for extern external al financi financial al reportin reporting. g. ixed sellin selling g and adminis administrati trative ve expenses expenses are treated treated in the the same manner manner as fixed fixed manufacturing overhead. 9. +his method method is is someti sometimes mes called called full full costi costing. ng. =. +his metho method d reuires reuires the calculat calculation ion of a fixed manufa manufacturi cturing ng cost per per unit. euired: $etermine which of the nine statements: A. elate elate only only to absor absorptio ption n costin costing. g. B. elate elate only only to varia variable ble cos costin ting. g. C. elate elate to both both absorpti absorption on costing costing and and variable variable costin costing. g. $. elate elate to neither neither absorptio absorption n costing costing nor variabl variablee costing. costing. )*: 1, 1, -, /, 3 +ype: +ype: C, 2 Answer: A. /, 3, 3, 9, 9, = B. -, 4 C. 1, 0 $.
29
Hilton, Managerial Accounting, Seventh Edition
Misce""aneo#s Ca"c#"ations$ !ariab"e an Absorption Costing
01. #nformation #nformation ta&en ta&en from "rille "rille Corporation? Corporation?ss 7ay accounting accounting records records follows. follows. $irect materials used $irect labor 6ariable manufacturing overhead ixed manufacturing overhead 6ariable selling and administrative co costs ixed selling and administrative costs ales revenues
<1>,>>> 9>,>>> />,>>> 1>>,>>> 1,>>> 3>,>>> 3-,>>>
euired: A. Assuming the the use of variable costing, costing, compute the inventoriable inventoriable costs for the month. month. B. Compute Compute the month?s month?s invento inventoriabl riablee costs by using using absorptio absorption n costing. costing. C. Assume that anticipated and actual production totaled ->,>>> ->,>>> units, and that 19,>>> units units were sold during 7ay. 7ay. $etermine the amount of fixed manufacturing overhead and fixed selling and administrative costs that would be expensed for the month under 1 variable costing and - absorption costing. $. Assume the same same data as in reuirement C. Compute the contribution contribution margin that would be reported on a variable!costing income statement. )*: 1, -, / +ype: +ype: A Answer: A. $irect materials used $irect labor 6ariable manufacturing overhead +otal
<1>,>>> 9>,>>> />,>>> <-3>,>>>
B.
$irect materials used $irect labor 6ariable manufacturing overhead ixed manufacturing overhead +otal
C.
1.
ixe ixed d man manu ufact factur urin ing g ove overh rhea ead d: <1 <1>>,> >>,>> >> ixed selling and administrative costs: <3>,>>>
-.
ixed manufactur manufacturing ing overhead: overhead: <1>>,>>> <1>>,>>> G ->,>>> ->,>>> units units x 19,>>> 19,>>> units units I <=>,>>> <=>,>>> ixed selling and administrative costs: <3>,>>>
$.
Chapter 17
<1>,>>> 9>,>>> />,>>> 1>>,>>> 3>,>>>
6ariable riable manufactu manufacturing ring costs: costs: <1>,>> <1>,>>> > J <9>,>>> <9>,>>> J >,>>> >,>>> I <-3>,> <-3>,>>> >> 6ariable 6ariable manufacturing costs per unit: <-3>,>>> G ->,>>> units I <1/ Contribution margin: margin: <3-,>>> ! K19,>>> K19,>>> x <1/ J <1,>>>L I 0>,>>>
30
Misce""aneo#s Ca"c#"ations$ !ariab"e an Absorption Costing
0-. osa, #nc., began operations at the start of the current current year, year, having a production production target of 3>,>>> units. Actual production production totaled 3>,>>> units, and the company sold sold =>F of its manufacturing output output at < per unit. +he following costs costs were incurred: 7anufacturing: $irect materials used $irect labor 6ariable manufacturing overhead ixed manufacturing overhead elling and administrative: 6ariable ixed
>>,>>> 0->,>>> /3>,>>> 3>>,>>> 1->,>>> 3/>,>>>
euired: A. Assuming the the use of variable costing, costing, compute the cost of osa?s ending finished!goods finished!goods inventory. B. Compute the company?s contribution margin. %ould osa disclose the contribution margin on a variable!costing income statement or an absorption!costing income statement5 C. Assuming the the use of absorption costing, costing, how much fixed selling and and administrative administrative cost would osa include in the ending finished!goods inventory5 $. Compute Compute the the compa company?s ny?s gross margin. margin. )*: 1, -, / +ype: +ype: C, A Answer: A. 6ariabl ariablee production production costs costs total total <1,>9>,> <1,>9>,>>> >> >>,>>> >>,>>> J <0->,>> <0->,>>> > J 3>,>>>, 3>,>>>, or <19 <19 per unit <1,>9>,>>> G 3>,>>> 3>,>>> units. ince 3,>>> units remain remain in inventory K> J 3>,>>> ! 3>,>>> x =>FL, the ending finished goods totals <1>9,>>> 3,>>> x <19. B.
ales revenue 3>,>>> units x =>F x < )ess: 6ariable cost of goods sold 3>,>>> units x =>F x <19 6ariable selling and administrative Contribution margin
<-,=4>,>>> <=4-,>>> 1->,>>>
1,>=-,>>> <1,949,>>>
+he contribution margin is disclosed on a variable!costing income statement. C.
2one. All fixed selling selling and and administ administrativ rativee cost cost is treated treated as a period period cost cost and and expense expensed d against revenue.
$.
+he cost cost of a unit unit would would increase increase by <1> <3>>,> <3>>,>>> >> G 3>,>>> 3>,>>> units units becaus becausee of the addition of fixed fixed manufacturing overhead. +hus: ales revenue Cost of goods sold 3>,>>> units x =>F x <-9 "ross margin
31
<-,=4>,>>> 1,1-,>>> <1,09,>>>
Hilton, Managerial Accounting, Seventh Edition
Absorption% an !ariab"e%Costing !ariab"e%Costing Inco&e Ca"c#"ations
0/. +he following data relate to 6enture enture Company, Company, a new corporation, corporation, during a period period when the the firm produced and sold 1>>,>>> units and =>,>>> units, respectively: $irect materials used $irect labor ixed manufacturing overhead 6ariable manufacturing overhead ixed selling and administrative expenses 6ariable selling and administrative expenses
<0>>,>>> ->>,>>> ->,>>> 1->,>>> />>,>>> 0,>>>
+he company met its original planned production production target of 1>>,>>> units. units. +here were no variances during the period, and the firm?s selling price is <1 per unit. euired: A. %hat is the cost of 6entu 6enture?s re?s end!of!period finished!goods inventory under under the variable! costing method5 B. Calculate Calculate the the company company?s ?s variable!co variable!costin sting g net income income.. C. Calculate Calculate the company company?s ?s absorption absorption!cost !costing ing net income income.. )*: 1, -, / +ype: +ype: A Answer: A. (nding (nding finished finished!good !goodss inventory inventory units: units: > J 1>>,>> 1>>,>>> > ! =>,>>> =>,>>> I 1>,>>> 1>,>>> #nventoriable costs under variable costing: $irect materials used $irect labor 6ariable manufacturing overhead +otal
<0>>,>>> ->>,>>> 1->,>>> <4->,>>>
6ariable 6ariable cost per unit produced: <4->,>>> G 1>>,>>> units I <4.-> per unit (nding inventory: 1>,>>> units x <4.-> I <4-,>>> B.
ales revenue =>,>>> units x <1 )ess )ess:: 6ariab riable le cost costss K=> K=>,> ,>>> >> unit unitss x <4.<4.-> > J <0, <0,>> >>> >L Contribution margin )ess: ixed costs <->,>>> J >>,>>> 2et income
C.
'redeterm 'redetermined ined fixed fixed overhead overhead rate: rate: <->,> <->,>>> >> G 1>>,>>> 1>>,>>> units units I <-.> <-.> Absorption cost per unit: <4.-> J <-.> I <=.4> ales revenue =>,>>> units x <1 )ess: Cost of goods sold =>,>>> units x <=.4> "ross margin )ess: *perating costs >>,>>> J <0,>>>
Chapter 17
<1,/>,>>> 3=/, 3=/,>> >>> > < 34,>>> >,>>> < 1>4,>>>
<1,/>,>>> 94/,>>> < 044,>>> /0,>>>
32
2et income
33
< 1/-,>>>
Hilton, Managerial Accounting, Seventh Edition
Absorption% an !ariab"e%Costing !ariab"e%Costing In'entor()Inco&e Ca"c#"ations
00. +he followin following g data relate relate to to Hunter, Hunter, #nc., #nc., a new company: company: 'lanned and actual production ales at <09 per unit 7anufacturing costs: 6ariable ixed elling and administrative costs: 6ariable ixed
->>,>>> units 14>,>>> units <19 per unit <90>,>>> <4 per unit <=-,>>>
+here were no variances during the period. euired: A. $etermine the the number of units in the ending finished!goods finished!goods inventory. inventory. B. Calculate the cost of the ending finished!goods inventory under under 1 variable variable costing costing and - absorption costing. C. $etermine $etermine the the company? company?ss variable!co variable!costin sting g net income income.. $. $etermine $etermine the the company?s company?s absorption absorption!cost !costing ing net income. income. )*: 1, -, / +ype: +ype: A Answer: A. (nding (nding finished finished!goo !goods ds invent inventory ory:: > J ->>,>> ->>,>>> > ! 14>,>> 14>,>>> > I />,>>> />,>>> units units B.
6ariable riable costin costing: g: />,> />,>>> >> uni units ts x <19 <19 I <0> <0>,>> ,>>> > Absorption costing: 'redetermined fixed overhead rate: <90>,>>> G ->>,>>> units I <0.->@ />,>>> units x <19.>> J <0.-> I <333,>>>
C.
ales revenue 14>,>>> units x <09 )ess: 6ariable costs K14>,>>> units x <19 J <4L Contribution margin )ess: ixed costs <90>,>>> J <=-,>>> 2et income
<9,13>,>>> 0,->,>>> ,=1>,>>> 1,43,>>> <-,10,>>>
$.
ales revenue 14>,>>> units x <09 )ess )ess:: Cos Costt of good goodss so sold K14> K14>,> ,>>> >> unit unitss x <19 <19.> .>> > J <0. <0.-> ->L L "ross margin )ess: *perating costs K14>,>>> units x <4 J <=-,>>>L 2et income
<9,13>,>>> /,44 /,440, 0,>> >>> > <0,/93,>>> -,11,>>> <-,-41,>>>
Chapter 17
3
Con'ersion of Absorption%Cost *ata to !ariab"e%Cost *ata+ ,or-ing .ac-/ars
0. Mim, #nc., began began business at the start start of the the current year and maintains maintains its accounting records on an absorption!cost basis. +he following selected selected information appeared on the company?s company?s income statement and end!of!year balance sheet: #ncome!statement data: ales revenues /,>>> units x <-- "ross margin +otal sales and administrative expenses Balance!sheet data: (nding finished!goods inventory 1-,>>> units
<44>,>>> -1>,>>> 13>,>>> 1=-,>>>
Mim achieved its planned production level level for the year. +he company?s fixed manufacturing manufacturing overhead totaled <101,>>>, and the firm paid a 1>F commission based on gross sales dollars to its sales force. euired: A. How many many units units did Mim Mim plan to produce produce during during the the year. year. B. How much much fixed manufacturing overhead did did the company apply apply to each unit produced5 C. Comput Computee Mim?s Mim?s cost cost of of goods goods sold sold.. $. How much much variable variable cost did the company company attach attach to each unit unit manufactured manufactured55 )*: 1, -, / +ype: +ype: A, 2
3!
Hilton, Managerial Accounting, Seventh Edition
Answer: A. ales /,>> /,>>> > units units J ending finish finished!go ed!goods ods inventory inventory 1-,> 1-,>>> >> units units I production production 04,>>> units. 2ote: +here is no beginning beginning finished!goods inventory. inventory. B.
ince plann planned ed and actual actual produc production tion figur figures es are the the same, Mim Mim applied applied to to each unit unit <101,>>> G 04,>>> units.
C.
ales revenue "ross margin Cost of goods sold
$.
Mim attache attached d <1/ to to each unit. unit. +his +his figure figure can be derived derived by by analyEi analyEing ng cost cost of goods goods sold:
<44>,>>> -1>,>>> <3>,>>>
Cost of goods sold ixe ixed d cost cost in cost cost of good goodss sol sold d /, /,>> >>> > unit unitss x 6ariable cost of goods sold
<3>,>>> 1>, 1>,>> >>> > <0,>>>
<0,>>> G /,>>> units I <1/ +he same <1/ figure can be obtained by studying the ending finished!good inventory: (nding finished!goods inventory ixed cost 1-,>>> units x 6ariable cost
<1=-,>>> /3,>>> <13,>>>
<13,>>> G 1-,>>> units I <1/
Chapter 17
36
Reconci"iation of Absorption% an !ariab"e%Costing ariab"e%Costing Inco&e
03. Houston Company Company has per!unit fixed and variable manufacturing manufacturing costs costs of <0> and <1, respectively. respecti vely. 6ariable 6ariable selling and administrative administra tive costs are <= per unit. Consider the two cases that follow for the firm. Ca"e A# 6ariable!costing net income, <11>,>>>@ sales, 3,>>> units@ production, 3,>>> units 6ariable!costing net income, <149,>>>@ sales, 4,>> units@ production, 4,1>> Ca"e $# 6ariable!costing units
euired: A. rom a product!costing perspective, what is is the basic difference difference between between absorption absorption costing and variable costing5 B. Compute Compute Houston?s Houston?s absorp absorption tion!cos !costing ting net income income in Case A. A. C. Compute Compute Houston?s Houston?s absor absorption ption!cos !costing ting net net income income in Case B. )*: 1, 0 +ype: +ype: C, A Answer: A. +he difference difference between absorption costing and variable costing costing lies in the treatment treatment of fixed manufacturing overhead. Under absorption costing, costing, fixed manufacturing overhead is a product cost and attached to each unit produced. #n contrast, under variable costing, costing, it is written off expensed as a period cost. B. ince the the number of units units sold euals euals the number number of units produce produced, d, variable! variable! and absorption!income absorption!income figures are the same: <11>,>>>. C. %ith sales of 4,>> units and production production of 4,1>> units, income income computed under under absorption costing includes <13,>>> 0>> units x <0> of prior!period fixed manufacturing overhead. Absorption Absorption income is therefore <13-,>>> <149,>>> ! <13,>>>. <13,>>>.
37
Hilton, Managerial Accounting, Seventh Edition
Reconci"iation of Absorption% an !ariab"e%Costing ariab"e%Costing Inco&e
04.
Beachc Beachcraf raftt Corpor Corporati ation on has fixed fixed manufa manufactu cturin ring g cost cost of of <1<1- per unit. unit. Consid Consider er the three three independent cases that follow. Absorption! and variable costing net income each totaled <-0>,>>> in a period Ca"e A# Absorption! when the firm produced 19,>>> units. Absorption!costing net income totaled ->,>>> in a period when finished! Ca"e $# Absorption!costing goods inventory levels rose by 4,>>> 4, >>> units. Absorption!costing net income and variable!costing net income respectively Ca"e C# Absorption!costing totaled <-->,>>> and <->,>>> in a period when the beginning finished!goods inventory was 10,>>> units. euired: A. #n Case A, how how many units units were were sold sold during during the period5 period5 B. #n Case B, how much much income income would Beachcraf Beachcraftt report report under variabl variablee costing5 costing5 C. #n Case C, how many many units units were in the the ending ending finished!g finished!goods oods inven inventory tory55 )*: 0 +ype: +ype: A Answer: A. Absorption! and variable costing income income will be the same amount when inventory inventory levels are unchanged. +hus, sales totaled 19,>>> units. B. +he difference difference between between absorption!costing absorption!costing income and variable!costing income is <90,>>> 4,>>> units x <1-. "iven that inventories are rising, rising, variable!costing net income will amount to <-/3,>>> ->,>>> ! <90,>>>. C. +he >,>>> difference in income <->,>>> <->,>>> ! <-->,>>> is is explained by the change change in inventory units, multiplied multiplied by the fixed overhead per unit. +hus, the inventory changed by -,>> units >,>>> G <1-. "iven that absorption income income is less than income computed by the variable!costing variable!costing method, inventory levels must have decreased, decreased, resulting in an ending inventory level of 11,>> units 10,>>> ! -,>>.
Chapter 17
38
Thro#ghp#t Costing0 Absorption Costing0 !ariab"e !ariab"e Costing
09. Coastal Corporation, Corporation, which which uses throughput costing, began began operations operations at the start of the current year. 'lanned and actual production eualed ->,>>> ->,>>> units, and sales totaled 14,>> units at <= per unit. unit. Cost data for the year year were as follows: $irect materials per unit Conversion cost: $irect labor 6ariable manufacturing overhead ixed manufacturing overhead elling and administrative costs total
<
19
13>,>>> -9>,>>> /0>,>>> 0/>,>>>
+he company classifies direct materials as a throughput cost. euired: A. Compute Compute the compa company?s ny?s total total cost cost for the the year. year. B. How much of this cost would be held in in year!end inventory under 1 absorption absorption costing, costing, - variable costing, and / throughput costing5 C. How much of the company?s company?s total total cost for for the year year would appear appear on the period?s income income statement under 1 absorption costing, - variable costing, and / throughput costing5 $. Compute Compute the year?s year?s through throughput!c put!costi osting ng net incom income. e. )*: 1, -, /, 4 +ype: +ype: A, A, 2 Answer: A. $irect materials ->,>>> units x <19 $irect labor 6ariable manufacturing overhead ixed manufacturing overhead elling and administrative costs +otal B.
+he year!en year!end d inventory inventory of -,>> -,>> units units ->,>>> ->,>>> ! 14,>> 14,>> is is costed costed as follows: follows:
$irect materials $irect labor 6ariable manufacturing overhead ixed manufacturing overhead +otal product cost Cost per unit +otal G ->,>>> units 8ear!end inventory -,>> units x cost per unit
39
< /3>,>>> 13>,>>> -9>,>>> /0>,>>> 0/>,>>> <1,4>,>>>
Absorption Costing < /3>,>>> 13>,>>> -9>,>>> /0>,>>> <1,10>,>>> <4
6ariable Costing 3>,>>> 13>,>>> -9>,>>>
+hroughput Costing 3>,>>>
<9>>,>>> <0>
3>,>>> <19
<10-,>>
<1>>,>>>
<0,>>>
Hilton, Managerial Accounting, Seventh Edition
C.
+he total total costs costs would would be be allocated allocated between between the the current current period? period?ss income income statemen statementt and the year!end inventory inventory on the balance sheet. sheet. +hus: Absorption costing: <1,4>,>>> ! <10-,>> I <1,0-4,>> 6ariable costing: <1,4>,>>> ! <1>>,>>> I <1,04>,>>> +hroughput costing: <1,4>,>>> ! <0,>>> I <1,-,>>>
$.
+hroughpu +hroughputt income: income: ales ales revenue revenue 14,>> 14,>> units units x <= <= ! <1,- <1,-,>>> ,>>> I <1/4, <1/4,>> >>
Thro#ghp#t Costing
0=. Mrell Corporation, Corporation, which which uses throughput costing, began operations operations at the start start of the current year ->x1. 'lanned and actual production eualed eualed 0>,>>> units, and sales totaled /,>>> units at <9> per unit. unit. Cost data for ->x1 were as follows: follows: $irect materials per unit Conversion cost: $irect labor 6ariable manufacturing overhead ixed manufacturing overhead elling and administrative costs: 6ariable per unit ixed
<
->
-1,>>> /0>,>>> -9,>>> 9 -->,>>>
+he company classifies direct materials as a throughput cost. euired: A. %hat is is meant meant by the the term throu throughpu ghputt costing costing55 B. Compute Compute the cost cost of the the company? company?ss year!end year!end inventor inventory y. C. 'repare 'repare Mrell?s Mrell?s incom incomee statement statement for for the year. year. )*: 1, 4 +ype: +ype: C, A
Chapter 17
0
Answer: A. +hroughpu +hroughputt costing costing is a techni techniue ue that that assigns assigns only only the unit!l unit!level evel spendi spending ng amounts amounts for direct costs as the cost cost of products or services. services. #n this case, direct materials materials is the only item that ualifies as a throughput cost. B.
(nding (nding invento inventory: ry: > J 0>,>>> 0>,>>> units units ! /,>>> /,>>> units units I ,>>> units@ units@ ,>>> ,>>> units units x <-> I <1>>,>>>
C.
Mrell Corporation +hroughput!Costing +hroughput!Costing #ncome tatement or the 8ear (nded $ecember /1, ->x1 ales revenue /,>>> units x <9> )ess: Cost of goods sold /,>>> units x <-> "ross margin )ess: *perating costs $irect labor 6ariable 6ariable manufacturing manufact uring overhead overhea d ixed manufacturing overhead 6ariable 6ariable selling and administrative administra tive costs /,>>> units x <9 ixed selling and administrative costs +otal operating costs 2et income
1
<-,9>>,>>> 4>>,>>> <-,1>>,>>> < -1,>>> /0>,>>> -9,>>> -9>,>>> -->,>>> <1,9/,>>> < 14,>>>
Hilton, Managerial Accounting, Seventh Edition
!ariab"e% an Absorption%Costing Inco&e State&ents0 !o"#&e !ariance
>. *utdoors Company manufactures sleeping bags that sell for > each. +he variable standard costs of production are <1=.>. Budgeted fixed manufacturing overhead overhead is <1>>,>>>, and budgeted production production is 1>,>>> sleeping bags. +he company actually manufactured manufactured 1-,>> bags, of which 11,>>> 11,>>> were sold. +here were no variances during the year except for the the fixed!overhead volume variance. 6ariable ariable selling and administrative costs are <>.> per sleeping bag sold@ fixed selling and administrative costs are <,>>>. euired: A. Calculate the standard product product cost per sleeping sleeping bag under under absorption costing and variable costing. B. Compute Compute the the fixed! fixed!over overhead head volume volume variance variance.. C. 'repare income income statements for the year by using absorption absorption costing and variable costing. costing. )*: -, /, = +ype: +ype: A Answer: A. +he absorption cost is <-=.> K<1=.> J <1>>,>>> ÷ 1>,>>> unitsL, and the variable cost is <1=.>. B.
C.
6olume varianc variancee I budgeted budgeted fixed overhead overhead ! fixed fixed overhead overhead applie applied d I <1>>,>>> ! 1-,>> units x <1> I <-,>>> or <-,>>> *utdoors Company Absorption!Costing Absorption!Costing #ncome tatement or the 8ear (nded $ecember /1, ->xx ales revenue 11,>>> units x > )ess: Cost of goods sold 11,>>> units x <-=.> "ross margin at standard Add: ixed!overhead volume variance "ross margin at actual )ess: *perating expenses K11,>>> units x <>.> J <,>>>L 2et income
/>,>>> /-0,>> < ,>> -,>>> < />,>> 1>,>> < ->,>>>
*utdoors Company 6ariable!Costing #ncome tatement or the 8ear (nded $ecember /1, ->xx ales revenue 11,>>> units x > )ess )ess:: 6a 6ar. cost cost of of good goodss sold sold 11 11,> ,>>> >> uni units ts x <1=. <1=.> > 6ar. operating expenses 11,>>> units x <>.> .> Contribution margin )ess: ixed costs <1>>,>>> J <,>>> 2et income
Chapter 17
/>,>>> <-10 <-10, ,>> >> ,> ,>>
-->,>> ,>>> <11>,>>> 1>,>>> < ,>>>
2
*ISCUSSION QUESTIONS Absorption Costing0 !ariab"e Costing0 an Ter&ino"og(
1. Absorption and variable variable costing are two different methods of measuring measuring income and costing costing inventory. euired: A. 'roduct costs are are defined defined as costs associated with the manufacturing manufacturing process. How does does the operational definition of product cost differ between absorption costing and variable costing5 B. An absorption!costing absorption!costing income statement statement will report report gross profit or gross margin margin whereas a variable!costing income income statement will report contribution margin. margin. %hat is the difference between these terms5 terms5 C. Boan, #nc., has greatly greatly modified modified its manufacturing process to to reduce non!value!added activities and has also adopted the ;ust!in!time ;ust!in!time philosophy. philosophy. As a result, the average finished!goods inventory has dropped from six wee&s? supply to eight business days? supply. supply. #n view of these changes, will the difference in operating operating income between variable costing and absorption absorption costing be greater or less than in the past5 (xplain. )*: 1, 1, -, /, 3 +ype: +ype: C, 2 Answer: A. +he sole difference between the two methods methods is that fixed manufacturing manufacturing overhead costs are defined as a product cost under absorption costing and as a period cost under variable costing. B. "ross profit profit gross margin is the difference between sales sales and cost of goods sold. sold. Cost of goods sold includes variable variable and fixed manufacturing costs. Contribution margin, margin, on the other hand, is the difference between sales and variable expenses, namely, variable cost of goods sold and variable operating expenses. expenses. ixed costs are ignored when calculating the contribution margin. C. +hese changes changes should should reduce the differences differences in operating income between between absorption absorption costing and variable costing. costing. #nventories of wor&!in!process wor&!in!process and finished goods are much smaller than previously@ thus, changes in inventories will be much less significant, which reduces differences in income.
3
Hilton, Managerial Accounting, Seventh Edition
Reconci"iation of Absorption% an !ariab"e%Costing ariab"e%Costing Inco&e
-. +he difference difference in net income between absorption and and variable costing can be explained by the change in finished!goods inventory in units multiplied by the standard fixed manufacturing overhead rate. euired: (xplain why this calculation accounts for the difference noted. )*: 0 +ype: +ype: C Answer: +he only difference between the two methods is the treatment of fixed manufacturing overhead. uch amounts are expensed under variable costing costing whereas with absorption absorption costing, a predetermined amount is attached to each unit manufactured. manufactured. +his applied overhead moves bac& and forth between the balance sheet and the income statement depending on what happens to inventory during the period period i.e., increase or decrease. Because of this situation, the change in inventory multiplied by the fixed manufacturing overhead per unit corresponds with the difference in reported income between absorption costing and variable costing.
Chapter 17