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Exam 19: Variable Costing and Performance Reporting

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Question 61

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Under absorption costing,a company had the following unit costs when 8,000 units were produced. $\begin{array}{ll}\text { Direct labor } & \$ 8.50 \text { per unit } \\\text { Direct material } & \$ 9.00 \text { per unit } \\\text { Variable overhead } & \$ 6.75 \text { per unit } \\\text { Fixed overhead }(\$ 60,000 / 8,000 \text { units) } &\underline{ \$ 7.50 \text { per unit} } \\\quad \text { Total production cost } &\underline{ \$ 31.75 \text { per unit }}\end{array}$ Compute the total production cost per unit under variable costing if 20,000 units had been produced.

A) $31.75
B) $27.25
C) $26.25
D) $24.25
E) $17.50

F) B) and E)
G) D) and E)

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Question 62

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When units produced equal units sold,reported income is identical under absorption costing and variable costing.

A) True
B) False

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Question 63

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Using a traditional costing approach,which of the following manufacturing costs are assigned to products?

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: $\begin{array} { | l | c | } \hline & \text { Per Unit } \\\hline \text { Sales price } & \$ 43 \\\hline \text { Direct material } & \$ 7 \\\hline \text { Direct labor } & \$ 6 \\\hline \begin{array} { l } \text { Variable } \\\text { overhead }\end{array} & \$ 4 \\\hline \text { Fixed overhead } & \$ 4 \\\hline\end{array}$ The company has been approached by a customer with a request for a 200-unit special.What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Contribution margin is the excess of sales over total variable costs.

Information presented in a variable costing format can assist management when making short-term pricing decisions.

Fixed costs change in the short run depending upon management's decision to accept or reject special orders.

Given the following data,total product cost per unit under absorption costing will be greater than total product cost per unit under variable costing. $\begin{array}{|l|c|}\hline \text { Direct labor } & \$ 9 \text { per unit } \\\hline \text { Direct materials } & \$ 7 \text { per unit } \\\hline \text { Overhead } & \\\hline \text { Total variable overhead } & \$ 45,000 \\\hline \text { Total fixed overhead } & \$ 27,000 \\\hline & \\\hline \text { Expected units to be produced } & 9,000 \text { units } \\\hline\end{array}$

Absorption costing is useful because it reflects the full costs that sales must exceed for the company to be profitable.

Aces,Inc.,a manufacturer of tennis rackets,began operations this year.The company produced 6,000 rackets and sold 4,900.At year-end,the company reported the following income statement using absorption costing. $\begin{array}{lr}\text { Sales }(4,900 \times \$ 90) & \$ 441,000 \\\text { Cost of goods sold }(4,900 \times \$ 38) & \underline{ 186,200} \\\text { Gross margin } & \$ 254,800 \\\text { Selling and administrative expenses } & \underline{7 5 , 0 0 0} \\\text { Net Income } & \underline{\$ 179,800}\end{array}$ Production costs per tennis racket total $38,which consists of $25 in variable production costs and $13 in fixed production costs (based on the 6,000 units produced) .Ten percent of total selling and administrative expenses are variable.Compute net income under variable costing.

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

What is a contribution margin report?

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

Reference: 19_01 Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year. $\begin{array} { l l } \text { Units produced this year } & 25,000 \text { units } \\\text { Units sold this year } & 15,000 \text { units } \\ \text { Direct materials } & \$ 9 \text { per unit } \\\text { Direct labor } & \$ 11 \text { per unit } \\\text { Variable overhead } & \$ 75,000 \mathrm { in } \text { total } \\\text { Fixed overhead } & \$ 137,500 \mathrm { in } \text { total }\end{array}$ -Given Advanced Company's data,compute cost per unit of finished goods under absorption costing.

Home Base,Inc.reports the following production cost information: $\begin{array} { l l } \text { Units produced } & 97,000 \text { units } \\\text { Units sold } & 92,000 \text { units } \\\text { Direct labor } & \$ 17 \text { per unit } \\\text { Direct materials } & \$ 34 \text { per unit } \\\text { Variable overhead } & \$ 2,522,000 \text { in total } \\\text { Fixed overhead } & \$ 1,940,000 \text { in total }\end{array}$ 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.

To convert variable costing net income to absorption costing net income,____________________ the fixed production cost in ending inventory and _______________________ the fixed production cost in beginning inventory.

During a given year,if a company sells more units than it produces,then ending inventory units will be less than beginning inventory units.

Given the following data,calculate product cost per unit under absorption costing. $\begin{array}{|l|c|}\hline \text { Direct labor } & \$ 7 \text { per unit } \\\hline \text { Direct materials } & \$ 1 \text { per unit } \\\hline \text { Overhead } & \\\hline \text { Total variable overhead } & \$ 20,000 \\\hline \text { Total fixed overhead } & \$ 90,000 \\\hline & \\\hline \text { Expected units to be produced } & 40,000 \text { units } \\\hline\end{array}$

What is the general procedure for converting variable costing net income to absorption costing net income?

Clear Company reports the following information for its first year of operations: $\begin{array}{ll}\text { Units produced this year } & 50,000 \text { units } \\\text { Units sold this year } & 49,000 \text { units } \\\text { Direct materials } & \$ 7 \text { per unit } \\\text { Direct labor } & \$ 3 \text { per unit } \\\text { Variable overhead } & \$ 210,000 \text { in total } \\\text { Fixed orerhead } & ? \text { in total }\end{array}$ If the company's cost per unit of finished goods using absorption costing is $19.30,what is total fixed overhead?