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Exam 6: Variable Costing and Analysis

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Question 51

True/False

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If a company has excess capacity, increases in production level will increase variable production costs but not fixed production costs.

A) True
B) False

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Question 52

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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, compute cost per unit of finished goods under variable costing.

A) $20.00
B) $25.00
C) $21.88
D) $23.00
E) $28.50

F) B) and C)
G) C) and D)

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Question 53

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Accurate Metal Company sold 32,000 units of its product at a price of $250 per unit. Total variable cost per unit is $150, consisting of $145 in variable production cost and $5 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.

Given the following data, calculate product cost per unit under absorption costing.

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 variable costing?

________ is the amount remaining from manufacturing margin after all variable selling, general and administrative expenses have been deducted.

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. What is the value of ending inventory under absorption costing?

Evaluating and rewarding managers based on absorption costing income can lead to overproduction.

Front Company had net income of $72,500 based on variable costing. Beginning and ending inventories were 800 units and 1,200 units, respectively. Assume the fixed overhead per unit was $7.90 for both the beginning and ending inventory. What is net income under absorption costing?

Which of the following costing methods charges all manufacturing costs to its products?

A company is currently operating at 60% capacity producing 10,000 units. Cost information relating to this current production is shown in the following table: $\begin{array} { | l | r | } \hline & \text { Per Unit } \\\hline \text { Sales price } & \$ 21.00 \\\hline \text { Direct material } & \$ 6.00 \\\hline \text { Direct labor } & \$ 4.12 \\\hline \text { Variable overhead } & \$ 2.23 \\\hline \text { Fixed overhead } & \$ 0.80 \\\hline\end{array}$ The company has been approached by a customer with a request for a special order for 5,000 units. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

[The following information applies to the questions displayed below.] Scavenger Company, a manufacturer of recycling bins, began operations on January 1 of the current year. During this time, the company produced 60,000 units and sold 55,000 units at a sales price of $15 per unit. Cost information for this year is shown in the following table: -Given the Scavenger Company data, what is net income using absorption costing?

Castaway Company reports the following first year production cost information: $\begin{array} { | l | l | } \hline \text { Units produced } & 53,000 \text { units } \\\hline \text { Units sold } & 51,000 \text { units } \\\hline \text { Sales price } & \$ 150 \text { per unit } \\\hline \text { Direct labor } & \$ 8 \text { per unit } \\\hline \text { Direct materials } & \$ 4 \text { per unit } \\\hline \text { Variable overhead } & \$ 41 \text { per unit } \\\hline \text { Fixed overhead } & \$ 3,339,000 \text { in total } \\\hline \text { Operating expenses } & \$ 1,000,000 \text { in total } \\\hline\end{array}$ a. Determine the net income using variable costing. b. Determine the net income using absorption costing.

Hayes Inc. provided the following information for the current year: What is the unit product cost for the year using absorption 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. What is the value of ending inventory under variable costing?

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

Anchovy, Inc., a producer of frozen pizzas, began operations this year. During this year, the company produced 16,000 cases of pizza and sold 15,000. At year-end, the company reported the following income statement using absorption costing: Production costs per case total $19, which consists of $15.50 in variable production costs and $3.50 in fixed production costs (based on the 16,000 units produced). Eight percent of total selling and administrative expenses are variable. Compute net income under variable costing.

It is not possible to convert reports prepared using variable costing to absorption costing reports.

Magenta Inc. reports the following information for the current year, which is its first year of operations: If the company's cost per unit of finished goods using absorption costing is $39.75, what is total variable overhead?

The data needed for cost-volume-profit analysis is readily available if the income statement is prepared under absorption costing.