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Chapter 20--Variable Costing For Management Analysis Key
1. In determining cost of goods sold, two alternate costing concepts can be used: absorption costing and variable
costing.
2. In determining cost of goods sold, two alternate costing concepts can be used: direct costing and variable
costing.
3. Fixed factory overhead costs are included as part of the cost of products manufactured under the absorption
costing concept.
4. Under absorption costing, the cost of finished goods includes direct materials, direct labor, and all factory
overhead.
5. Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable
factory overhead.
6. In variable costing, the cost of products manufactured is composed of only those manufacturing costs that
increase or decrease as the volume of production rises or falls.
7. In variable costing, fixed costs do not become part of the cost of goods manufactured, but are considered an
expense of the period.
8. Variable costing is also known as direct costing.
9. Property taxes on a factory building would be included as part of the cost of products manufactured under the
absorption costing concept.
10. The factory superintendent's salary would be included as part of the cost of products manufactured under the
variable costing concept.
11. The factory superintendent's salary would be included as part of the cost of products manufactured under the
absorption costing concept.
12. Electricity purchased to operate factory machinery would be included as part of the cost of products
manufactured under the absorption costing concept.
13. The absorption costing income statement does not distinguish between variable and fixed costs.
14. In the absorption costing income statement, deduction of the cost of goods sold from sales yields gross
profit.
15. In the absorption costing income statement, deduction of the cost of goods sold from sales yields
contribution margin.
16. In the absorption costing income statement, deduction of the cost of goods sold from sales yields net profit.
17. On the variable costing income statement, deduction of the variable cost of goods sold from sales yields
gross profit.
18. On the variable costing income statement, deduction of the variable cost of goods sold from sales yields
manufacturing margin.
19. On the variable costing income statement, all of the fixed costs are deducted from the contribution margin.
20. On the variable costing income statement, variable selling and administrative expenses are deducted from
manufacturing margin to yield contribution margin.
21. On the variable costing income statement, variable costs are deducted from contribution margin to yield
manufacturing margin.
22. On the variable costing income statement, the figure representing the difference between the contribution
margin and income from operations is the fixed manufacturing costs and fixed selling and administrative
expenses.
23. The contribution margin and the manufacturing margin are usually equal.
24. For a period during which the quantity of inventory at the end was larger than that at the beginning, income
from operations reported under variable costing will be larger than income from operations reported under
absorption costing.
25. For a period during which the quantity of inventory at the end was larger than that at the beginning, income
from operations reported under variable costing will be smaller than income from operations reported under
absorption costing.
26. For a period during which the quantity of inventory at the end was smaller than that at the beginning,
income from operations reported under variable costing will be larger than income from operations reported
under absorption costing.
27. For a period during which the quantity of inventory at the end was smaller than that at the beginning,
income from operations reported under variable costing will be smaller than income from operations reported
under absorption costing.
28. For a period during which the quantity of inventory at the end equals the inventory at the beginning, income
from operations reported under variable costing will be smaller than income from operations reported under
absorption costing.
29. For a period during which the quantity of inventory at the end equals the inventory at the beginning, income
from operations reported under variable costing will equal income from operations reported under absorption
costing.
30. For a period during which the quantity of product manufactured exceeded the quantity sold, income from
operations reported under absorption costing will be smaller than income from operations reported under
variable costing.
31. For a period during which the quantity of product manufactured exceeded the quantity sold, income from
operations reported under absorption costing will be larger than income from operations reported under variable
costing.
32. For a period during which the quantity of product manufactured was less than the quantity sold, income
from operations reported under absorption costing will be larger than income from operations reported under
variable costing.
33. For a period during which the quantity of product manufactured was less than the quantity sold, income
from operations reported under absorption costing will be smaller than income from operations reported under
variable costing.
34. For a period during which the quantity of product manufactured equals the quantity sold, income from
operations reported under absorption costing will equal the income from operations reported under variable
costing.
35. For a period during which the quantity of product manufactured equals the quantity sold, income from
operations reported under absorption costing will be smaller than the income from operations reported under
variable costing.
36. Changes in the quantity of finished goods inventory, caused by differences in the levels of sales and
production, directly affects the amount of income from operations reported under absorption costing.
37. Under absorption costing, the amount of income reported from operations can be increased by producing
more units than are sold.
38. Under absorption costing, increases or decreases in income from operations due to changes in inventory
levels could be misinterpreted to be the result of operating efficiencies or inefficiencies.
39. Management may use both absorption and variable costing methods for analyzing a particular product.
40. Property tax expense is an example of a controllable cost for the supervisor of a manufacturing department.
41. Direct labor cost is an example of a controllable cost for the supervisor of a manufacturing department.
42. In the short run, the selling price of a product should normally not be less than the variable costs and
expenses of making and selling it.
43. In the long run, for a business to remain in operation, the selling price of a product should normally cover all
costs and expenses and provide a reasonable income.
44. For short-run production planning, information in the variable costing format is more useful to management
than is information in the absorption costing concept format.
45. For short-run production planning, information in the absorption costing format is more useful to
management than is information in the variable costing format.
46. Sales mix is generally defined as the relative distribution of sales among the various products sold.
47. If the ability to sell and the amount of production facilities devoted to each of two products is equal, it is
profitable to increase the sales of that product with the lowest contribution margin.
48. If the ability to sell and the amount of production facilities devoted to each of two products is equal, it is
profitable to increase the sales of that product with the highest contribution margin.
49. The contribution margin ratio is computed as contribution margin divided by sales.
50. In evaluating the performance of salespersons, the salesperson with the highest level of sales should be
evaluated as the best performer.
51. Companies prepare contribution margin reports by market segments and product segments because products
contribute to profitability in various ways.
52. Ford’s Expedition sport utility vehicle is its most profitable model. Therefore, Ford need not promote its
Expedition model anymore.
53. The systematic examination of differences between planned and actual contribution margins is termed
contribution margin analysis.
54. In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in
unit sales price or cost, is termed the quantity factor.
55. In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in
unit sales price or cost, is termed the unit price or unit cost factor.
56. In contribution margin analysis, the effect of a difference in unit sales price or unit cost on the number of
units sold is termed the unit price or unit cost factor.
58. In contribution margin analysis, the quantity factor is computed as the difference between actual quantity
sold and the planned quantity sold, multiplied by the planned unit sales price or unit cost.
59. In contribution margin analysis, the unit price or unit cost factor is computed as the difference between
actual quantity sold and the planned quantity sold, multiplied by the planned unit sales price or unit cost.
60. In contribution margin analysis, the unit price or unit cost factor is computed as the difference between the
actual unit price or unit cost and the planned unit price or unit cost, multiplied by the actual quantity sold.
61. A change in the amount of sales can be due to either a change in the units sold or a change in price or both.
62. Contribution margin reporting and analysis is appropriate only for manufacturing firms, not for service
firms.
63. Service firms can only have one activity base for analyzing changes in costs.
64. In a service firm, it may be necessary to have several activity bases to properly match the change in costs
with the changes in various activities.
65. Managers in service firms do not find contribution margin analysis reports useful because their firms do not
sell inventory.
66. What term is commonly used to describe the concept whereby the cost of manufactured products is
composed of direct materials cost, direct labor cost, and all factory overhead cost?
67. What term is commonly used to describe the concept whereby the cost of manufactured products is
composed of direct materials cost, direct labor cost, and variable factory overhead cost?
68. Another name for variable costing is:
69. Under absorption costing, which of the following costs would not be included in finished goods inventory?
70. Under absorption costing, which of the following costs would not be included in finished goods inventory?
71. Under variable costing, which of the following costs would not be included in finished goods inventory?
72. Under variable costing, which of the following costs would be included in finished goods inventory?
73. Under variable costing, which of the following costs would be included in finished goods inventory?
74. Under variable costing, which of the following costs would not be included in finished goods inventory?
75. Which of the following would be included in the cost of a product manufactured according to absorption
costing?
76. Which of the following would be included in the cost of a product manufactured according to variable
costing?
77. On the variable costing income statement, the figure representing the difference between manufacturing
margin and contribution margin is the:
78. In the variable costing income statement, deduction of variable selling and administrative expenses from
manufacturing margin yields:
79. The amount of income under absorption costing will equal the amount of income under variable costing
when units manufactured:
80. The amount of income under absorption costing will be less than the amount of income under variable
costing when units manufactured:
81. Which of the following statements is correct using the direct costing concept?
82. The amount of income under absorption costing will be more than the amount of income under variable
costing when units manufactured:
83. The level of inventory of a manufactured product has increased by 7,000 units during a period. The
following data are also available:
Variable
Fixed
Unit manufacturing costs of the period
$12.00
$6.00
Unit operating expenses of the period
4.00
1.50
What would be the effect on income from operations if absorption costing is used rather than variable costing?
84. The level of inventory of a manufactured product has increased by 8,000 units during a period. The
following data are also available:
Variable
Fixed
Unit manufacturing costs of the period
$24.00
$10.00
Unit operating expenses of the period
8.00
3.00
What would be the effect on income from operations if variable costing is used rather than absorption costing?
85. S&P Enterprises sold 10,000 units of inventory during a given period. The level of inventory of a
manufactured product remained unchanged. The manufacturing costs were as follows:
Variable
Fixed
Unit manufacturing costs of the period
$11.00
$7.00
Unit operating expenses of the period
3.00
2.50
Which of the following statements is true?
86. The level of inventory of a manufactured product has increased by 8,000 units during a period. The
following data are also available:
Variable
Fixed
Unit manufacturing costs of the period
$24.00
$10.00
Unit operating expenses of the period
8.00
3.00
What would be the effect on income from operations if absorption costing is used rather than variable costing?
87. The level of inventory of a manufactured product has increased by 5,000 units during a period. The
following data are also available:
Variable
Fixed
Unit manufacturing costs of the period
$24.00
$10.00
Unit operating expenses of the period
8.00
3.00
What would be the effect on income from operations if variable costing is used rather than absorption costing?
88. The level of inventory of a manufactured product has increased by 4,000 units during a period. The
following data are also available:
Variable
Fixed
Unit manufacturing costs of the period
$22.00
$11.00
Unit operating expenses of the period
7.00
5.00
What would be the effect on income from operations if absorption costing is used rather than variable costing?
89. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (20,000 units):
Direct materials
$180,000
Direct labor
240,000
Variable factory overhead
280,000
Fixed factory overhead
100,000
$800,000
Operating expenses:
Variable operating expenses
$130,000
Fixed operating expenses
50,000
180,000
If 1,600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?
90. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (10,000 units):
Direct materials
$ 80,000
Direct labor
120,000
Variable factory overhead
140,000
Fixed factory overhead
40,000
$380,000
Operating expenses:
Variable operating expenses
$ 65,000
Fixed operating expenses
25,000
90,000
If 1,000 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the absorption costing balance
sheet?
91. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (20,000 units):
Direct materials
$180,000
Direct labor
240,000
Variable factory overhead
280,000
Fixed factory overhead
100,000
$800,000
Operating expenses:
Variable operating expenses
$130,000
Fixed operating expenses
50,000
180,000
If 1,500 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?
92. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (10,000 units):
Direct materials
$ 80,000
Direct labor
120,000
Variable factory overhead
140,000
Fixed factory overhead
40,000
$380,000
Operating expenses:
Variable operating expenses
$ 65,000
Fixed operating expenses
25,000
90,000
If 600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the absorption costing balance sheet?
93. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (2,500 units):
Direct materials
$42,500
Direct labor
85,000
Variable factory overhead
47,500
Fixed factory overhead
12,500
$187,500
Operating expenses:
Variable operating expenses
$15,000
Fixed operating expenses
4,500
19,500
If 75 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the absorption costing balance sheet?
94. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (10,000 units):
Direct materials
$170,000
Direct labor
360,000
Variable factory overhead
190,000
Fixed factory overhead
50,000
$770,000
Operating expenses:
Variable operating expenses
$ 60,000
Fixed operating expenses
18,000
78,000
If 500 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?
95. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (10,000 units):
Direct materials
$140,000
Direct labor
40,000
Variable factory overhead
20,000
Fixed factory overhead
4,000
$204,000
Operating expenses:
Variable operating expenses
$ 34,000
Fixed operating expenses
2,000
36,000
If 2,000 units remain unsold at the end of the month and sales total $300,000 for the month, what would be the amount of income from operations
reported on the variable costing income statement?
96. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (5,000 units):
Direct materials
$70,000
Direct labor
20,000
Variable factory overhead
10,000
Fixed factory overhead
2,000
$102,000
Operating expenses:
Variable operating expenses
$17,000
Fixed operating expenses
1,000
18,000
If 1,000 units remain unsold at the end of the month and sales total $150,000 for the month, what would be the amount of income from operations
reported on the absorption costing income statement?
97. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (10,000 units):
Direct materials
$140,000
Direct labor
40,000
Variable factory overhead
20,000
Fixed factory overhead
4,000
$204,000
Operating expenses:
Variable operating expenses
$ 34,000
Fixed operating expenses
2,000
36,000
If 2,000 units remain unsold at the end of the month and sales total $300,000 for the month, what is the amount of the manufacturing margin that
would be reported on the variable costing income statement?
98. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (5,000 units):
Direct materials
$70,000
Direct labor
20,000
Variable factory overhead
10,000
Fixed factory overhead
2,000
$102,000
Operating expenses:
Variable operating expenses
$17,000
Fixed operating expenses
1,000
18,000
If 1,000 units remain unsold at the end of the month and sales total $150,000 for the month, what is the amount of the manufacturing margin that
would be reported on the absorption costing income statement?
99. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (5,000 units):
Direct materials
$70,000
Direct labor
20,000
Variable factory overhead
10,000
Fixed factory overhead
2,000
$102,000
Operating expenses:
Variable operating expenses
$17,000
Fixed operating expenses
1,000
18,000
If 1,000 units remain unsold at the end of the month and sales total $150,000 for the month, what is the amount of the contribution margin that would
be reported on the variable costing income statement?
100. A business operated at 100% of capacity during its first month, with the following results:
Sales (160 units)
$160,000
Production costs (200 units):
Direct materials
$100,000
Direct labor
20,000
Variable factory overhead
10,000
Fixed factory overhead
4,000
134,000
Operating expenses:
Variable operating expenses
$ 12,000
Fixed operating expenses
2,000
14,000
What is the amount of the manufacturing margin that would be reported on the variable costing income statement?
