66) Which of the following statements is true?
A) Under variable costing, direct materials and direct labor are expensed as period expenses.
B) Under variable costing, fixed manufacturing overhead is expensed as period expenses.
C) Fixed manufacturing overhead costs are treated the same under both absorption costing and
variable costing.
D) Reported income under absorption costing is not affected by production level changes.
E) Under absorption costing, fixed manufacturing overhead is expensed as period expenses.
67) Under absorption costing, which of the following statements is not true?
A) Over production and inventory buildup can occur because of how managers are evaluated and
rewarded.
B) The fixed costs per unit decline as more units are produced.
C) Variable inventory costs are treated in the same manner as they are under variable costing.
D) Fixed inventory costs are treated in the same manner as they are under variable costing.
E) All manufacturing costs are assigned to products.
68) When the number of units sold exceed the number of units produced, income reported under
absorption costing will be lower than variable costing. Which of the following gives the best
justification of the above statement?
A) Income under absorption costing is always less than income reported using variable costing,
regardless of the number of units produced.
B) Income under absorption costing is always more than income reported using variable costing,
regardless of the number of units produced.
C) The fixed overhead cost deferred in ending inventory is greater than the fixed overhead cost
recognized from beginning inventory.
D) The fixed overhead cost deferred in ending inventory is less than the fixed overhead cost
recognized from beginning inventory.
E) Fixed overhead is treated as a period cost under absorption costing.
69) Mentor Corp. has provided the following information for the current year:
Units produced
3,500
units
Sale price
$
200
per unit
Direct materials
$
70
per unit
Direct labor
$
55
per unit
Variable manufacturing overhead
$
20
per unit
Fixed manufacturing overhead
$
350,000
per year
Variable selling and administrative costs
$
30
per unit
Fixed selling and administrative costs
$
150,000
per year
Calculate the unit product cost using absorption costing.
A) $245
B) $275
C) $55
D) $145
E) $125
Direct materials
$
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead ($350,000 ÷ 3,500 units)
100
Total unit product cost
$
245
70) Mentor Corp. has provided the following information for the current year:
Units produced
3,500
units
Sale price
$
200
per unit
Direct materials
$
70
per unit
Direct labor
$
55
per unit
Variable manufacturing overhead
$
20
per unit
Fixed manufacturing overhead
$
350,000
per year
Variable selling and administrative costs
$
30
per unit
Fixed selling and administrative costs
$
150,000
per year
Calculate the unit product cost using variable costing.
A) $245
B) $275
C) $55
D) $145
E) $125
Direct materials
$
Direct labor
Variable manufacturing overhead
Total unit product cost
$
71) Under absorption costing, a company had the following unit costs when 9,000 units were
produced.
Direct labor
$
7.25
per unit
Direct material
$
8.00
per unit
Variable overhead
$
5.50
per unit
Fixed overhead ($67,500/9,000 units)
$
7.50
per unit
Total production cost
$
28.25
per unit
Compute the total product cost per unit under absorption costing if 25,000 units had been
produced.
A) $28.25
B) $23.45
C) $26.25
D) $20.75
E) $15.25
72) Under absorption costing, a company had the following unit costs when 9,000 units were
produced.
Direct labor
$
7.25
per unit
Direct material
$
8.00
per unit
Variable overhead
$
5.50
per unit
Fixed overhead ($67,500/9,000 units)
$
7.50
per unit
Total production cost
$
28.25
per unit
Compute the total product cost per unit under variable costing if 30,000 units had been produced.
A) $31.75
B) $28.25
C) $23.45
D) $15.25
E) $20.75
73) Under absorption costing, a company had the following unit costs when 8,000 units were
produced.
Direct labor
$
8.50
per unit
Direct material
$
9.00
per unit
Variable overhead
$
6.75
per unit
Fixed overhead ($60,000/8,000 units)
$
7.50
per unit
Total production cost
$
31.75
per unit
Compute the total production cost per unit under variable costing if 25,000 units had been
produced.
A) $31.75
B) $27.25
C) $26.25
D) $24.25
E) $17.50
74) When evaluating a special order, management should:
A) Only accept the order if the incremental revenue exceeds all product costs.
B) Only accept the order if the incremental revenue exceeds fixed product costs.
C) Only accept the order if the incremental revenue exceeds total variable product costs.
D) Only accept the order if the incremental revenue exceeds full absorption product costs.
E) Only accept the order if the incremental revenue exceeds regular sales revenue.
75) 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:
Per Unit
Sales price
$
34
Direct material
$
2
Direct labor
$
3
Variable overhead
$
4
Fixed overhead
$
5
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?
A) Any amount over $34 per unit.
B) Any amount over $20 per unit.
C) Any amount over $14 per unit.
D) Any amount over $9 per unit.
E) Any amount over $5 per unit.
76) 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:
Per Unit
Sales price
$
43
Direct material
$
7
Direct labor
$
6
Variable overhead
$
4
Fixed overhead
$
4
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?
A) Any amount over $43 per unit.
B) Any amount over $17 per unit.
C) Any amount over $21 per unit.
D) Any amount over $13 per unit.
E) Any amount over $22 per unit.
77) Geneva Company manufactures dolls that are sold to various customers. The company works
at full capacity for half the year to meet peak demand, and operates at 80% capacity for the other
half of the year. The following information is provided:
Units produced and sold
600,000
units
Selling price
$
35
/
unit
Variable manufacturing costs
$
20
/
unit
Fixed manufacturing costs
$
1,200,000
/
yr.
Variable selling and administrative costs
$
6
/
unit
Fixed selling and administrative costs
$
950,000
/
yr.
Geneva receives a purchase order to make 5,000 dolls as a one-time event. The good news is that
this order is during a period when Geneva does have sufficient excess capacity. What is the
lowest selling price Geneva should accept for this purchase order?
A) $35.00
B) $26.00
C) $29.50
D) $23.50
E) $25.00
78) 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) DL, DM, VSA, and VOH.
B) DL, DM, and VOH.
C) DL, DM, VOH, and FOH.
D) DL and DM.
E) DL, DM, FSA, and FOH.
79) Which of the following best describes costs assigned to the product under the variable
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) DL, DM, VSA, and VOH.
B) DL, DM, and VOH.
C) DL, DM, VOH, and FOH.
D) DL and DM.
E) DL, DM, FSA, and FOH.
80) Income ________ when there is zero beginning inventory and all inventory units produced
are sold.
A) Will be lower under variable costing than absorption costing
B) Will be the same under both variable and absorption costing
C) Will be higher under variable costing than absorption costing
D) Will be higher than gross margin under variable costing
E) Will be lower than administrative costs under absorption costing
81) 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?
A) $60,000
B) $110,000
C) $50,000
D) $250,000
E) $310,000
82) 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?
A) $60,000
B) $110,000
C) $50,000
D) $250,000
E) $310,000
83) 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. Income calculated under variable costing is
determined to be $315,000. How much income is reported under absorption costing?
A) $315,000
B) $265,000
C) $565,000
D) $365,000
E) $290,000
84) Special order decisions should be made using variable costing because:
A) Special order decisions usually focus on fixed costs
B) Variable costing includes all overhead costs in the calculation of product costs.
C) Only variable costs will increase as a result of the special order.
D) All costs, including variable and fixed costs, must be covered by the special order pricing.
E) Fixed overhead costs will change as a result of the special order.
85) Shore Company reports the following information regarding its production cost.
Units produced
28,000
units
Direct labor
$
23
per unit
Direct materials
$
24
per unit
Variable overhead
$
10
per unit
Fixed overhead
$
94,920
in total
Compute product cost per unit under absorption costing.
A) $57.00
B) $60.39
C) $47.00
D) $23.00
E) $24.00
86) Urban Company reports the following information regarding its production cost:
Units produced
20,000
units
Direct labor
$
13
per unit
Direct materials
$
18
per unit
Variable overhead
$
11
per unit
Fixed overhead
$
110,000
in total
Compute production cost per unit under variable costing.
A) $18.00
B) $36.50
C) $42.00
D) $13.00
E) $31.00
87) Hayes Inc. provided the following information for the current year:
Beginning inventory
100
units
Units produced
750
units
Units sold
800
units
Selling price
$
150
/unit
Direct materials
$
35
/unit
Direct labor
$
16
/unit
Variable manufacturing overhead
$
15
/unit
Fixed manufacturing overhead
$
24,000
/year
Variable selling/administrative costs
$
8
/unit
Fixed selling/administrative costs
$
15,500
/year
What is the unit product cost for the year using absorption costing?
A) $98
B) $66
C) $74
D) $96
E) $95
Direct materials
$
35
Direct labor
16
Fixed manufacturing overhead
32
($24,000/750 units)
Variable manufacturing overhead
15
Total unit product cost
$
98
88) Hayes Inc. provided the following information for the current year:
Beginning inventory
100
units
Units produced
750
units
Units sold
800
units
Selling price
$
150
/unit
Direct materials
$
35
/unit
Direct labor
$
16
/unit
Variable manufacturing overhead
$
15
/unit
Fixed manufacturing overhead
$
24,000
/year
Variable selling/administrative costs
$
8
/unit
Fixed selling/administrative costs
$
15,500
/year
What is the unit product cost for the year using variable costing?
A) $98
B) $66
C) $74
D) $96
E) $95
Direct materials
$
35
Direct labor
16
Variable manufacturing overhead
15
Total unit product cost
$
66
89) Sea Company reports the following information regarding its production cost.
Units produced
42,000
units
Direct labor
$
35
per unit
Direct materials
$
28
per unit
Variable overhead
$
17
per unit
Fixed overhead
$
105,000
in total
Compute the product cost per unit under variable costing.
A) $28.00
B) $82.50
C) $80.00
D) $63.00
E) $35.00
90) Sea Company reports the following information regarding its production costs:
Units produced
42,000
units
Direct labor
$
35
per unit
Direct materials
$
28
per unit
Variable overhead
$
17
per unit
Fixed overhead
$
105,000
in total
Compute the product cost per unit under absorption costing.
A) $28.00
B) $82.50
C) $80.00
D) $63.00
E) $35.00
91) 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
92) Given Advanced Company’s data, compute cost per unit of finished goods under absorption
costing.
A) $20.00
B) $34.17
C) $25.32
D) $23.00
E) $28.50
93) Given Advanced Company’s data, compute cost of finished goods in inventory under
absorption costing.
A) $285,000
B) $712,500
C) $427,500
D) $230,000
E) $345,000
94) Given Advanced Company’s data, compute cost of finished goods in inventory under
variable costing.
A) $285,000
B) $712,500
C) $427,500
D) $230,000
E) $345,000