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Exam 19: Variable Costing and Performance Reporting

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Question 51

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A company is currently operating at 60% capacity producing 10,000 units. Cost information relating to this current production is shown in the table below. $\begin{array} { | l | r | } \hline & \text { Per Unit } \\\hline \text { Sales price } & \$ 21 \\\hline \text { Direct material } & \$ 6 \\\hline \text { Direct labor } & \$ 4.12 \\\hline \begin{array} { l } \text { Variable } \\\text { overhead }\end{array} & \$ 2.23 \\\hline \text { Fixed overhead } & \$ 0.80 \\\hline\end{array}$

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Question 52

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Which of the following statements is true regarding absorption costing?

A) It is not the traditional costing approach.
B) It is not permitted to be used for financial reporting.
C) It is not permitted to be used for tax reporting.
D) It assigns all manufacturing costs to products.
E) It requires only variable costs to be treated as product costs.

F) B) and D)
G) All of the above

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Question 53

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Multiplying the contribution margin ratio by the expected change in sales equals the expected change in contribution margin.

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

Contribution margin ratio is the percent of each sales dollar used to cover variable costs.

Given the following data, calculate the total product cost per unit under variable costing. $\begin{array} { | l | c | } \hline \text { Direct labor } & \$ 3.50 \text { per unit } \\\hline \text { Direct materials } & \$ 1.25 \text { per unit } \\\hline \text { Overhead } & \\\hline \text { Total variable overhead } & \$ 41,400 \\\hline \text { Total fixed overhead } & \$ 150,000 \\\hline & \\\hline \text { Expected units to be produced } & 18,000 \text { units } \\\hline\end{array}$

32 Degrees, Inc., a manufacturer of frozen food, began operations on July 1 of the current year. During this time, the company produced 140,000 units and sold 140,000 units at a sales price of $125 per unit. Cost information for this period is shown below. (a.) Prepare 32 Degree's December 31^st income statement for the current year under absorption costing. (b.) Prepare 32 Degree's December 31^st income statement for the current year under variable costing.

The variable costing income statement classifies costs based on cost behavior rather than function.

________________ is the amount remaining from sales revenues after cost of goods sold has been deducted.

During a given year if a company produces and sells the same number of units, then beginning inventory units equal ending inventory units.

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 below. (a.) Prepare Wrap-It's December 31^st income statement for the current year under absorption costing. (b.) Prepare Wrap-It's December 31^st income statement for the current year under variable costing.

Swola Company reports the following annual cost data for its single product. $\begin{array} { l l } \text { Normal production level } & 75,000 \text { units } \\\text { Direct materials } & \$ 1.25 \text { per unit } \\\text { Direct labor } & \$ 2.50 \text { per unit } \\\text { Variable overhead } & \$ 3.75 \text { per unit } \\\text { Fixed overhead } & \$ 300,000 \text { in total }\end{array}$ 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 gross margin increase or decrease under variable costing?

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 below. $\begin{array}{l}\text { Production costs }\\\text { Direct materials } & \$ 2.50 \text { per unit } \\\text { Direct labor } & \$ 3.00 \text { per unit } \\\text { Variable overhead } & \$ 45,000 \text { in total } \\\text { Fixed overhead } & \$ 240,000 \text { in total }\\\text { Non-production costs }\\\text { Variable selling and administrative } & \$ 10,000 \text { in total } \\\text { Fixed selling and administrative } & \$ 50,000 \text { in total }\\\end{array}$ -Given the Scavenger Company data, what is net income using absorption costing?

Dataport Company reports the following annual cost data for its single product. $\begin{array}{ll}\text { Normal production and sales level } & 89,000 \text { units } \\\text { Direct materials } & \$ 14.00 \text { per unit } \\\text { Direct labor } & \$ 21.00 \text { per unit } \\\text { Variable overhead } & \$ 27.00 \text { per unit } \\\text { Fixed overhead } & \$ 3,738,000 \text { in total }\end{array}$ This product is normally sold for $230 per unit. If Dataport increases its production to 100,000 units, while sales remain at the current 89,000 unit level, by how much would the company's gross margin increase or decrease under absorption costing? Assume the company has idle capacity to double current production.

Given the following data, total product cost per unit under variable costing is $7.05. $\begin{array} { | l | c | } \hline \text { Direct labor } & \$ 3.50 \text { per unit } \\\hline \text { Direct materials } & \$ 1.25 \text { per unit } \\\hline \text { Overhead } & \\\hline \text { Total variable overhead } & \$ 41,400 \\\hline \text { Total fixed overhead } & \$ 150,000 \\\hline & \\\hline \text { Expected units to be produced } & 18,000 \text { units } \\\hline\end{array}$

Sindler Corporation sold 3,000 units of its product at a price of $13 per unit. Total variable cost per unit is $7.50, consisting of $6.80 in variable production cost and $.70 in variable selling and administrative cost. Compute contribution margin for the company.

Magenta Inc. reports the following information for the current year which is its first year of operations. $\begin{array} { l l } \text { Units produced this year } & 750,000 \text { units } \\\text { Units sold this year } & 740,000 \text { units } \\\text { Direct materials } & \$ 18.30 \text { per unit } \\\text { Direct labor } & \$ 14.20 \text { per unit } \\\text { Variable overhead } & ? \text { in total } \\\text { Fixed overhead } & \$ 4,500,000 \text { in total }\end{array}$ If the company's cost per unit of finished goods using absorption costing is $39.75, what is total variable overhead?

Which of the following statements is true?

Assume a company sells a given product for $83 per unit. Variable selling costs are $20.75 per unit and variable production costs are $49.80 per unit. If the company breaks even when selling 300,000 units, what are total fixed costs?

Pact Company had net income of $972,000 based on variable costing. Beginning and ending inventories were 7,800 units and 5,200 units, respectively. Assume the fixed overhead per unit was $3.61 for both the beginning and ending inventory. What is net income under absorption costing?