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Exam 6: Variable Costing and Analysis

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Question 71

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

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a. $13 DL + $3 DM + (VOH/14,000) = $73
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Question 72

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Cost information from both absorption costing and variable costing can aid managers in pricing.

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Question 73

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A company is currently operating at 75% capacity and producing 3,000 units. Current cost information relating to this production is shown in the table below: The company has been approached by a customer with a request for a 200-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Under absorption costing, a company had the following unit costs when 10,000 units were produced: The total product cost per unit under absorption costing if 25,000 units had been produced would be $11.

Blatt Company, a manufacturer of slippers, began operations on June 1 of the current year. During this time, the company produced 210,000 units and sold 185,000 units at a sales price of $40 per unit. Cost information for this period is shown in the following table: $\begin{array}{l}\text { Production costs }\\\begin{array} { | l | l | } \hline \text { Direct materials } & \$ 5.00 \text { per unit } \\\hline \text { Direct labor } & \$ 4.75 \text { per unit } \\\hline \text { Variable overhead } & \$ 302,000 \text { in total } \\\hline \text { Fixed overhead } & \$ 405,000 \text { in total } \\\hline \text { Non-production costs } & \\\hline \text { Variable selling and administrative } & \$ 9,000 \text { in total } \\\hline \text { Fixed selling and administrative } & \$ 25,000 \text { in total } \\\hline\end{array}\end{array}$ a. Prepare Blatt's December 31st income statement for the current year under absorption costing. b. Prepare Blatt's December 31st income statement for the current year under variable costing.

When units produced exceed the units sold, income under absorption costing is higher than income under variable costing.

Many companies link manager bonuses to income computed under absorption costing because this is how income is reported to shareholders.

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

When excess capacity exists, what is the minimum special order price a manager should accept to increase net income?

On a contribution margin income statement, expenses are grouped according to ________.

Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During this time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit. Cost information for this period is shown in the following table: $\begin{array} { | l | l | } \hline \text { Production costs } & \\\hline \text { Direct materials } & \$ 2.00 \text { per unit } \\\hline \text { Direct labor } & \$ 80 \text { per unit } \\\hline \text { Variable overhead } & \$ 814,000 \text { in total } \\\hline \text { Fixed overhead } & \$ 481,000 \text { in total } \\\hline \text { Non production costs } & \\\hline \text { Variable selling and administrative } & \$ 78,000 \text { in total } \\\hline \text { Fixed selling and administrative } & \$ 210,000 \text { in total } \\\hline\end{array}$ a. Prepare Wrap-It's December 31st income statement for the current year under absorption costing. b. Prepare Wrap-It's December 31st income statement for the current year under variable costing.

Brush Industries reports the following information for May: Calculate the gross margin for May under absorption costing.

Using absorption costing, which of the following manufacturing costs are assigned to products?

Maloney Co. provided the following information for the year 20X1: There are no beginning inventories. Prepare an income statement using the variable costing format.

[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, compute cost per unit of finished goods under absorption costing.

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

The key difference between variable costing and absorption costing is the treatment of ________ costs.

Which of the following would be reported on a variable costing income statement?

Castaway Company reports the following first year production cost information: $\begin{array} { | l | l | } \hline \text { Units produced } & 53,000 \text { units } \\\hline \text { Units sold } & 51,000 \text { units } \\\hline \text { Direct labor } & \$ 8 \text { per unit } \\\hline \text { Direct materials } & \$ 4 \text { per unit } \\\hline \text { Variable overhead } & \$ 41 \text { per unit } \\\hline \text { Fixed overhead } & \$ 3,339,000 \text { in total } \\\hline\end{array}$ 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.

Which of the following statements is true?