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Exam 6: Variable Costing and Analysis

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Question 1

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Cavalier Corporation sold 26,000 units of its product at a price of $225 per unit. Total variable cost per unit is $188, consisting of $103 in variable production cost and $85 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.

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($225 - $1...

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When the number of units produced is equal to the number of units sold, net income reported under variable costing is identical to net income reported under absorption costing.

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Under variable costing, product costs consist of direct labor, direct materials, and fixed overhead.

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

Geneva Company manufactures dolls that are sold to various customers. The company works at full capacity for half the year to meet peak demand, and operates at 80% capacity for the other half of the year. The following information is provided: Geneva receives a purchase order to make 5,000 dolls as a one-time event. The good news is that this order is during a period when Geneva does have sufficient excess capacity. What is the lowest selling price Geneva should accept for this purchase order?

[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 variable costing if 980 units are sold and operating expenses are $12,000?

What is the benefit of using variable costing in short-term pricing decisions? Is this benefit available under absorption costing?

Home Base, Inc. reports the following production cost information: $\begin{array} { | l | l | } \hline \text { Units produced } & 97,000 \text { units } \\\hline \text { Units sold } & 92,000 \text { units } \\\hline \text { Direct labor } & \$ 17 \text { per unit } \\\hline \text { Direct materials } & \$ 34 \text { per unit } \\\hline \text { Variable overhead } & \$ 26 \text { per unit } \\\hline \text { Fixed overhead } & \$ 1,940,000 \text { in total } \\\hline\end{array}$ a. Compute production cost per unit under variable costing. b. Compute production cost per unit under absorption costing. c. Determine the cost of ending inventory using variable costing. d. Determine the cost of ending inventory using absorption costing.

When units produced are less than units sold, income under absorption costing is higher than income under variable costing.

A company reports the following information regarding its production cost: $\begin{array} { | l | l | } \hline \text { Units produced } & 22,000 \text { units } \\\hline \text { Direct labor } & \$ 31 \text { per unit } \\\hline \text { Direct materials } & \$ 27 \text { per unit } \\\hline \text { Variable overhead } & ? \text { in total } \\\hline \text { Fixed overhead } & \$ 2,750,000 \text { in total } \\\hline\end{array}$ 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.

[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 absorption costing?

Sea Company reports the following information regarding its production cost. Compute the product cost per unit under variable costing.

The data needed for cost-volume-profit analysis is readily available if the income statement is prepared using a contribution format.

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.

Heather, Incorporated reports the following annual cost data for its single product: 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 company's gross margin increase or decrease under absorption costing? Assume the company has idle capacity to increase current production.

Special order decisions should be made using variable costing because:

When evaluating a special order, management should:

When excess capacity exists, managers should accept a special order if the special order price exceeds the ________.

[The following information applies to the questions displayed below.] Red and White Company reported the following monthly data: -What is Red and White's contribution margin for this month if 980 units were sold?

When there are zero units in beginning Finished Goods Inventory and more units are produced than sold, the income will be lower under variable costing than under absorption costing.