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Cost Accounting, 15e Global Edition (Horngren/Datar/Rajan)
Chapter 9 Inventory Costing and Capacity Analysis
Objective 9.1
1) Which of the following costs is inventoried when using variable costing?
A) rent on factory building
B) electricity consumed in manufacturing process
C) sales commission paid on each sale
D) advertising costs incurred for the product
2) Which of the following costs is inventoried when using absorption costing?
A) variable selling costs
B) fixed administrative costs
C) variable manufacturing costs
D) fixed selling costs
3) ________ is a method of inventory costing in which all variable manufacturing costs (direct and
indirect) are included as inventoriable costs and all fixed manufacturing costs are excluded.
A) Variable costing
B) Mixed costing
C) Absorption costing
D) Standard costing
4) ________ is a method of inventory costing in which all variable manufacturing costs and all fixed
manufacturing costs are included as inventoriable costs.
A) Variable costing
B) Mixed costing
C) Absorption costing
D) Standard costing
5) Which of the following is true of absorption costing?
A) It expenses marketing costs as cost of goods sold.
B) It treats direct manufacturing costs as a period cost.
C) It includes fixed manufacturing overhead as an inventoriable cost.
D) It treats indirect manufacturing costs as a period cost.
6) Which of the following is true of variable costing?
A) It expenses administrative costs as cost of goods sold.
B) It treats direct manufacturing costs as a product cost.
C) It includes fixed manufacturing overhead as an inventoriable cost.
D) It is required for external reporting to shareholders.
7) In ________, fixed manufacturing costs are included as inventoriable costs.
A) variable costing
B) absorption costing
C) throughput costing
D) activity-based costing
8) ________ method includes fixed manufacturing overhead costs as inventoriable costs.
A) Variable costing
B) Absorption costing
C) Throughput costing
D) Activity-based costing
9) Which of the following costs will be treated as period costs under absorption costing?
A) raw materials used in the production
B) sales commission paid on sale of product
C) depreciation on factory equipment
D) rent for factory building
10) Under absorption costing, fixed manufacturing costs ________.
A) are period costs
B) are inventoriable costs
C) are treated as an expense
D) are sunk costs
11) ________ is a method of inventory costing in which only variable manufacturing costs are included as
inventoriable costs.
A) Fixed costing
B) Variable costing
C) Absorption costing
D) Mixed costing
12) Variable costing regards fixed manufacturing overhead as a(n) ________.
A) administrative cost
B) inventoriable cost
C) period cost
D) product cost
13) The only difference between variable and absorption costing is the expensing of ________.
A) direct manufacturing costs
B) variable marketing costs
C) fixed manufacturing costs
D) variable administrative costs
Gloria's Decorating produces and sells a mantel clock for $100 per unit. In 2015, 42,125 clocks were
produced and 37,958 were sold. Other information for the year includes:
Direct materials $40.00 per unit
Direct manufacturing labor $ 5.00 per unit
Variable manufacturing costs $ 7.50 per unit
Sales commissions $12.50 per part
Fixed manufacturing costs $62.50 per unit
Administrative expenses, all fixed $37.50 per unit
14) What is the inventoriable cost per unit using variable costing?
A) $45.00
B) $52.50
C) $65.00
D) $115.00
15) What is the inventoriable cost per unit using absorption costing?
A) $45.00
B) $52.50
C) $115.00
D) $80.00
Unile Auto produces and sells an auto part for $60.00 per unit. In 2015, 100,000 parts were produced and
75,000 units were sold. Other information for the year includes:
Direct materials $20.00 per unit
Direct manufacturing labor $ 4.00 per unit
Variable manufacturing costs $ 1.00 per unit
Sales commissions $ 6.00 per part
Fixed manufacturing costs $750,000 per year
Administrative expenses, all fixed $270,000 per year
16) What is the inventoriable cost per unit using variable costing?
A) $20.00
B) $24.00
C) $25.00
D) $31.00
17) What is the inventoriable cost per unit using absorption costing?
A) $25.00
B) $31.00
C) $32.50
D) $38.50
18) Which of the following inventory costing methods shown below is required by GAAP (Generally
Accepted Accounting Principles) for external financial reporting?
A) absorption costing
B) variable costing
C) throughput costing
D) direct costing
19) The two most common methods of costing inventories in manufacturing companies are variable
costing and absorption costing.
20) The unit cost of a product is always higher in variable costing than in absorption costing.
21) Under variable costing, lease charges paid on the factory building is an inventoriable cost.
22) Under both variable and absorption costing, research and development costs are period costs.
23) The main difference between variable costing and absorption costing is the way in which fixed
manufacturing costs are accounted for.
24) Job costing system is an example of absorption costing.
25) For 2011, Nichols, Inc., had sales of 150,000 units and production of 200,000 units. Other information
for the year included:
Direct manufacturing labor $187,500
Variable manufacturing overhead 100,000
Direct materials 150,000
Variable selling expenses 100,000
Fixed administrative expenses 100,000
Fixed manufacturing overhead 200,000
There was no beginning inventory.
Required:
a. Compute the ending finished goods inventory under both absorption and variable costing.
b. Compute the cost of goods sold under both absorption and variable costing.
26) Charlassier Corporation manufactures and sells laptop computers and uses standard costing. For the
month of September there was no beginning inventory, there were 3,000 units produced and 2,500 units
sold. The manufacturing variable cost per unit is $385 and the variable operating cost per unit was
$312.50. The fixed manufacturing cost is $450,000 and the fixed operating cost is $75,000. The selling
price per unit is $925.
Required:
Prepare the income statement for Charlassier Corporation for September under variable costing.
27) a. Explain the difference between the variable and absorption costing methods.
b. Which method(s) are required for external reporting? For internal reporting?
Objective 9.2
1) The contribution-margin format is used for ________.
A) variable costing income statement
B) mixed costing income statement
C) absorption costing income statement
D) job order costing income statement
2) The gross-margin format is used for ________.
A) variable costing income statement
B) mixed costing income statement
C) absorption costing income statement
D) standard costing income statement
3) Which of the following statements is true of contribution-margin format of the income statement?
A) It is used for absorption costing.
B) It highlights the lump sum of fixed manufacturing costs.
C) It distinguishes manufacturing costs from nonmanufacturing costs.
D) It calculates gross margin.
4) Which of the following statements is true of gross-margin format of the income statement?
A) It distinguishes between manufacturing and nonmanufacturing costs.
B) It distinguishes variable costs from fixed costs.
C) It is used for variable costing.
D) It calculates the contribution margin from sales.
5) ________ is subtracted from sales while calculating contribution margin.
A) Direct labor in factory
B) Rent on factory building
C) Rent on the headquarterʹs building
D) Sales commission on incremental sales
6) ________ are subtracted from sales to calculate gross margin.
A) Variable manufacturing costs
B) Fixed administrative costs
C) Variable administrative costs
D) Fixed selling costs
Zahra's Decoratives produces and sells a decorative pillow for $97.50 per unit. In the first month of
operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the
amount budgeted for the month. Other information for the month includes:
Variable manufacturing costs $22.10 per unit
Variable marketing costs $ 3.90 per unit
Fixed manufacturing costs $13.00 per unit
Administrative expenses, all fixed $19.50 per unit
Ending inventories:
Direct materials -0-
WIP -0-
Finished goods 250 units
7) What is cost of goods sold per unit using variable costing?
A) $22.10
B) $26
C) $39
D) $58.50
8) What is cost of goods sold using variable costing?
A) $38,675
B) $35,000
C) $44,200
D) $52,000
9) What is the contribution margin using variable costing?
A) $118,625
B) $125,125
C) $126,425
D) $135,625
10) What is the operating income using variable costing?
A) $125,125
B) $85,125
C) $65,000
D) $60,125
Jean Peck's Furniture's manufactures tables for hospitality sector. It takes only bulk orders and each table
is sold for $300 after negotiations. In the month of January, it manufactures 3,000 tables and sells 2,250
tables. Actual fixed costs are the same as the amount fixed costs budgeted for the month.
The following information is provided for the month of January:
Variable manufacturing costs $120 per unit
Fixed manufacturing costs $90,000 per month
Fixed Administrative expenses $25,000 per month
At the end of the month Jean Peck's Furniture's has an ending inventory of finished goods of 750 units.
The company also incurs a sales commission of $10 per unit.
11) What is the cost of goods sold per unit when using absorption costing?
A) $120
B) $128
C) $150
D) $158
12) What is the gross margin when using absorption costing?
A) $675,000
B) $527,500
C) $270,000
D) $337,500
13) What is the operating income when using absorption costing?
A) $337,500
B) $312,500
C) $290,000
D) $260,500
14) An favorable production-volume variance occurs when ________.
A) the denominator level exceeds production
B) production exceeds the denominator level
C) production exceeds unit sales
D) unit sales exceed production
15) If the unit level of inventory increases during an accounting period, then ________.
A) less operating income will be reported under absorption costing than variable costing
B) more operating income will be reported under absorption costing than variable costing
C) operating income will be the same under absorption costing and variable costing
D) the exact effect on operating income cannot be determined
16) The difference between operating incomes under variable costing and absorption costing centers on
how to account for ________.
A) direct materials costs
B) fixed manufacturing costs
C) variable manufacturing costs
D) selling and administrative costs
17) One possible means of determining the difference between operating incomes for absorption costing
and variable costing is by ________.
A) subtracting sales of the previous period from sales of this period
B) subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead
in ending inventory
C) multiplying the number of units produced by the budgeted fixed manufacturing cost rate
D) adding fixed manufacturing costs to the production-volume variance
18) When comparing the operating incomes between absorption costing and variable costing, and ending
finished inventory exceeds beginning finished inventory, it may be assumed that ________.
A) sales decreased during the period
B) variable cost per unit is more than fixed cost per unit
C) there is a favorable production-volume variance
D) absorption costing operating income exceeds variable costing operating income
19) Which of the following statements is true of absorption costing?
A) Absorption costing allocates fixed manufacturing overhead to actual units produced during the
period.
B) Absorption costing carries over nonmanufacturing costs to the future periods.
C) Absorption costing shows the same level of profit as variable costing irrespective of the level of
inventories.
D) Absorption costing allocates total manufacturing cost using the budgeted level of production for a
particular year.
20) Heston Company has the following information for the current year:
Beginning fixed manufacturing overhead in inventory $190,000
Fixed manufacturing overhead in production 750,000
Ending fixed manufacturing overhead in inventory 50,000
Beginning variable manufacturing overhead in inventory $20,000
Variable manufacturing overhead in production 100,000
Ending variable manufacturing overhead in inventory 30,000
What is the difference between operating incomes under absorption costing and variable costing?
A) $140,000
B) $100,000
C) $80,000
D) $10,000
21) The following information pertains to Brian Stone Corporation:
Beginning fixed manufacturing overhead in inventory $60,000
Ending fixed manufacturing overhead in inventory 45,000
Beginning variable manufacturing overhead in inventory $30,000
Ending variable manufacturing overhead in inventory 14,250
Fixed selling and administrative costs $724,000
Units produced 5,000 units
Units sold 4,800 units
What is the difference between operating incomes under absorption costing and variable costing?
A) $750
B) $7,500
C) $15,000
D) $30,750
Stiller Corporation incurred fixed manufacturing costs of $24,000 during 2015. Other information for 2015
includes:
The budgeted denominator level is 2,000 units.
Units produced total 1,500 units.
Units sold total 1,200 units.
Beginning inventory was zero.
The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted
denominator level. Manufacturing variances are closed to cost of goods sold.
22) Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances)
total ________.
A) $14,400
B) $19,200
C) $24,000
D) 0
23) Fixed manufacturing costs included in ending inventory total ________.
A) $4,800
B) $6,000
C) $3,600
D) 0
24) The production-volume variance is ________.
A) $8,000
B) $6,000
C) $9,600
D) 0
25) Operating income using absorption costing will be ________ than operating income if using variable
costing.
A) $9,600 higher
B) $4,800 lower
C) $3,600 higher
D) $14,400 lower
26) Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances)
total ________.
A) $3,600
B) $4,800
C) $6,000
D) 0
27) Fixed manufacturing costs included in ending inventory total ________.
A) $1,200
B) $1,500
C) $900
D) 0
28) The production-volume variance totals ________.
A) $2,000
B) $1,500
C) $2,400
D) 0
29) Operating income using variable costing will be ________ than operating income if using absorption
costing.
A) $2,400 higher
B) $2,400 lower
C) $3,600 higher
D) $900 lower
Answer the following questions using the information below:
Jupiter Corporation incurred fixed manufacturing costs of $16,000 during 2015. Other information for
2015 includes:
The budgeted denominator level is 2,000 units.
Units produced total 2,200 units.
Units sold total 1,900 units.
Variable cost per unit is $4.
Beginning inventory is zero.
The fixed manufacturing cost rate is based on the budgeted denominator level.
30) Under absorption costing, fixed manufacturing costs expensed on the income statement (excluding
adjustments for variances) total ________.
A) $26,400
B) $22,800
C) $24,000
D) $21,818
31) Under absorption costing, the production-volume variance is ________.
A) $2,400
B) $2,000
C) $1,600
D) 0
32) Under variable costing, the fixed manufacturing costs expensed on the income statement (excluding
adjustments for variances) total ________.
A) $16,000
B) $15,200
C) $14,400
D) 0
33) The operating income using variable costing will be ________ as compared to the operating income
under absorption costing.
A) lower by $2,400
B) lower by $4,800
C) higher by $2,400
D) higher by $4,800
34) In general, if inventory increases during an accounting period, ________.
A) variable costing will report less operating income than absorption costing
B) absorption costing will report less operating income than variable costing
C) variable costing and absorption costing will report the same operating income
D) both variable costing and absorption costing will show losses
