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Exam 6: Variable Costing and Analysis

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Question 21

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Decko Industries reported the following monthly data: What is the company's contribution margin for this month if 50,000 units were sold?

A) $1,326,000
B) $1,716,000
C) $1,275,000
D) $1,650,000
E) $1,450,000

F) A) and B)
G) A) and E)

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Question 22

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Assuming fixed costs remain constant, and a company produces more units than it sells, then income under absorption costing is less than income under variable costing.

A) True
B) False

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Question 23

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The product costing approach required by GAAP is referred to as ________.

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

Which of the following best describes costs assigned to the product under the absorption costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative (VSA) Variable manufacturing overhead (VOH) Fixed selling and administrative (FSA) Fixed manufacturing overhead (FOH)

A company is currently operating at 80% capacity producing 5,000 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 100-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?

What is a contribution margin report?

[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 variable costing?

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

A company normally sells a product for $20 per unit. Variable per unit costs for this product are: $2 direct materials, $4 direct labor, and $1.50 variable overhead. The company is currently operating at 70% of capacity producing 14,000 units per year. Total fixed costs are $42,000 per year. The company should not accept a special order for 2,000 units which would be sold for $10 per unit because there would be an incremental loss on the order.

Reporting contribution margin by market segment is useful in assessing the profitability of each segment.

Variable costing treats fixed overhead cost as a period cost.

Under absorption costing, a company had the following unit costs when 9,000 units were produced. Compute the total product cost per unit under absorption costing if 25,000 units had been produced.

A company is currently operating at 70% capacity producing 8,000 units. Cost information relating to this current production is shown in the following table: $\begin{array} { | l | r | } \hline & \text { Per Unit } \\\hline \text { Sales price } & \$ 15.00 \\\hline \text { Direct material } & \$ 3.20 \\\hline \text { Direct labor } & \$ 7.10 \\\hline \text { Variable overhead } & \$ 0.05 \\\hline \text { Fixed overhead } & \$ 0.60 \\\hline\end{array}$ The company has been approached by a customer with a request for a special order for 1,500 units. The sales price per unit for this special order is $10. Should the company accept the special order?

Under an income statement prepared using absorption costing, expenses are grouped according to cost behavior.

A company reports the following information for its first year of operations: If the company's cost per unit of finished goods using variable costing is $2,375, what is total variable overhead?

Absorption costing is required under GAAP.

Lukin Corporation reports the following first year production cost information: $\begin{array} { | l | l | } \hline \text { Units produced } & 62,000 \text { units } \\\hline \text { Units sold } & 59,000 \text { units } \\\hline \text { Sales price } & \$ 350 \text { per unit } \\\hline \text { Direct labor } & \$ 41 \text { per unit } \\\hline \text { Direct materials } & \$ 15 \text { per unit } \\\hline \text { Variable overhead } & \$ 150 \text { per unit } \\\hline \text { Fixed overhead } & \$ 4,340,000 \text { in total } \\\hline \text { Operating expenses } & \$ 1,000,000 \\\hline\end{array}$ a. Compute production cost per unit under variable costing. b. Compute production cost per unit under absorption costing. c. Determine the net income using variable costing. d. Determine the net income using absorption costing.

How will net income under variable costing compare to net income under absorption costing in the following three situations? Explain briefly the cause of any differences. (a) Units produced equal units sold (b) Units produced exceed units sold (c) Units produced are less than units sold

Variable costing is required by Generally Accepted Accounting Principles (GAAP) for financial statement purposes.