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Exam 6: Variable Costing and Analysis

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Question 81

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Assume a company sells a given product for $18 per unit. Variable selling costs are $0.70 per unit and variable production costs are $5.30 per unit. If the company breaks even when selling 4,000,000 units, what are total fixed costs?

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$18 - $0.70 - $5.30 = $12 cont...

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Question 82

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When the number of units sold exceed the number of units produced, income reported under absorption costing will be lower than variable costing. Which of the following gives the best justification of the above statement?

A) Income under absorption costing is always less than income reported using variable costing, regardless of the number of units produced.
B) Income under absorption costing is always more than income reported using variable costing, regardless of the number of units produced.
C) The fixed overhead cost deferred in ending inventory is greater than the fixed overhead cost recognized from beginning inventory.
D) The fixed overhead cost deferred in ending inventory is less than the fixed overhead cost recognized from beginning inventory.
E) Fixed overhead is treated as a period cost under absorption costing.

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Question 83

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A company normally sells a product for $25 per unit. Variable per unit costs for this product are: $3 direct materials, $5 direct labor, and $2 variable overhead. The company is currently operating at 100% of capacity producing 30,000 units per year. Total fixed costs are $75,000 per year. The company should accept a special order for 1,000 units which would be sold for $13 per unit because the special order price exceeds variable costs.

Reported income is identical under absorption costing and variable costing when the units produced ________ the units sold.

Given the following data, total product cost per unit under absorption costing is $9.14.

Given the following data, total product cost per unit under absorption costing will be greater than total product cost per unit under variable costing.

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. Income calculated under variable costing is determined to be $315,000. How much income is reported under absorption costing?

To convert variable costing income to absorption costing income, management will need to add fixed overhead cost deferred in ending inventory and subtract fixed overhead cost recognized from beginning inventory.

Under absorption costing, fixed manufacturing overhead is expensed at the time the units are produced. Under variable costing, fixed manufacturing overhead is expensed at the time the units are sold.

Swisher, Incorporated reports the following annual cost data for its single product: This product is normally sold for $48 per unit. If Swisher increases its production to 50,000 units, while sales remain at the current 30,000 unit level, by how much would the company's income increase or decrease under absorption costing?

Absorption costing is usually used for internal management purposes, and variable costing is usually used for external reporting purposes.

Home Base, Inc. reports the following production cost information: $\begin{array} { | l | l | } \hline \text { Beginning inventory } & 10,000 \text { units } \\\hline \text { Units produced } & 97,000 \text { units } \\\hline \text { Units sold } & 92,000 \text { units } \\\hline \text { Direct labor } & \$ 17 \text { per unit } \\\hline \text { Direct materials } & \$ 34 \text { per unit } \\\hline \text { Variable overhead } & \$ 26 \text { per unit } \\\hline \text { Fixed overhead } & \$ 1,940,000 \text { in total } \\\hline \text { Operating costs } & \$ 2,000,000 \text { in total } \\\hline\end{array}$ Assume that productions costs have remained the same since the previous period and all units are sold for $137.00 per unit. a. Compute production cost per unit under variable costing. b. Compute production cost per unit under absorption costing. c. Determine net income using variable costing. d. Determine net income using absorption costing.

Assume a company sells a given product for $95 per unit. Variable selling costs are $24.25 per unit and variable production costs are $53.50 per unit. If the company breaks even when selling 260,000 units, what are total fixed costs?

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

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

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

Which of the following statements is true regarding absorption costing?

Swola Company reports the following annual cost data for its single product. This product is normally sold for $25 per unit. If Swola increases its production to 200,000 units, while sales remain at the current 75,000 unit level, by how much would the company's income increase or decrease under absorption costing?

[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 variable costing.

Mentor Corp. has provided the following information for the current year: Calculate the unit product cost using variable costing.