Chapter 8—Variable Costing for Decision Making Key
1. Under variable costing, which of the following is not considered a product cost?
2. Under absorption costing, which of the following is not considered a product cost?
3. The primary difference between variable and absorption costing is the treatment of:
4. Which of the following statements is false regarding absorption costing?
5. Which of the following statements is false regarding variable costing?
6. Which of the following descriptions would not be found on an income statement prepared using variable
costing?
7. Which of the following line descriptions would not be found on an income statement prepared using
absorption costing?
8. Assuming the number of units sold and produced are the same, which of the following statements is true
when comparing net income using absorption and variable costing?
9. Assuming that the number of units produced is greater than the number of units sold, which of the following
statements is true when comparing net income using absorption and variable costing?
10. Assuming that the number of units produced is less than the number of units sold, which of the following
statements is true when comparing net income using absorption and variable costing?
11. Tyson Manufacturing
Tyson Manufacturing has the following cost information available for 2009:
Direct materials
$6.00 per unit
Direct labor
$2.00 per unit
Variable manufacturing overhead
$1.50 per unit
Variable selling and administrative costs
$3.00 per unit
Fixed manufacturing overhead
$40,000
Fixed selling and administrative costs
$50,000
During 2009, Tyson produced 10,000 units out of which 9,100 units were sold for $50 each.
Refer to the Tyson Manufacturing information above. What is net income under variable costing?
12. Tyson Manufacturing
Tyson Manufacturing has the following cost information available for 2009:
Direct materials
$6.00 per unit
Direct labor
$2.00 per unit
Variable manufacturing overhead
$1.50 per unit
Variable selling and administrative costs
$3.00 per unit
Fixed manufacturing overhead
$40,000
Fixed selling and administrative costs
$50,000
During 2009, Tyson produced 10,000 units out of which 9,100 units were sold for $50 each.
Refer to the Tyson Manufacturing information above. What is net income under absorption costing?
13. Cornell Products
Cornell Products has the following cost information available for 2009:
Direct materials
$1.00 per unit
Direct labor
$2.00 per unit
Variable manufacturing overhead
$1.50 per unit
Variable selling and administrative costs
$ .50 per unit
Fixed manufacturing overhead
$30,000
Fixed selling and administrative costs
$25,000
During 2009, Cornell produced 6,000 units out of which 5,400 units were sold for $20 each.
Refer to the Cornell Products information above. What is net income under variable costing?
14. Cornell Products
Cornell Products has the following cost information available for 2009:
Direct materials
$1.00 per unit
Direct labor
$2.00 per unit
Variable manufacturing overhead
$1.50 per unit
Variable selling and administrative costs
$ .50 per unit
Fixed manufacturing overhead
$30,000
Fixed selling and administrative costs
$25,000
During 2009, Cornell produced 6,000 units out of which 5,400 units were sold for $20 each.
Refer to the Cornell Products information above. What is net income under absorption costing?
15. B & B Manufacturing
B & B Manufacturing produces a single product. Last year, the company produced 10,000 units out of which
9,500 were sold. There were no units in beginning inventory. The company had the following costs:
Variable costs per unit:
Production
$6.00
Selling and administrative
$2.00
Fixed costs (total):
Production
$15,000
Selling and administrative
$10,000
Refer to the B & B Manufacturing information above. What is the unit product cost using variable costing?
16. B & B Manufacturing
B & B Manufacturing produces a single product. Last year, the company produced 10,000 units out of which
9,500 were sold. There were no units in beginning inventory. The company had the following costs:
Variable costs per unit:
$6.00
$2.00
Fixed costs (total):
$15,000
$10,000
Refer to the B & B Manufacturing information above. What is the unit product cost using absorption costing?
17. Lockhart Products produces a single product. During 2009 the company incurred the following costs:
Variable product costs
$8.00 per unit
Variable period costs
$2.00 per unit
Total fixed product costs
$21,000
Total fixed period costs
$10,000
Lockhart had no units in beginning inventory. During 2009, 6,000 units were produced and 5,000 units were sold. Which of the following statements
is true when comparing net income using absorption versus variable costing?
18. Variable costing has the following advantages:
19. How do variable costing and absorption costing differ? When is net income different under the two
methods?
20. Preferred Products has the following cost information available for 2009:
Direct materials
$4.00 per unit
Direct labor
$3.00 per unit
Variable manufacturing overhead
$2.00 per unit
Variable selling and administrative costs
$1.00 per unit
Fixed manufacturing overhead
$25,000
Fixed selling and administrative costs
$10,000
During 2009, Preferred produced 5,000 units out of which 4,600 units were sold for $30 each.
Required:
A.
Calculate Preferred’s net income assuming the company uses variable costing.
B.
Calculate Preferred’s net income assuming the company uses absorption costing.
A.
Variable costing:
Sales (4,600 ´ $30)
$138,000
Variable costs: [4,600 ´ ($4 + $3 + $2 + $1)]
46,000
Contribution margin
92,000
Fixed costs: ($25,000 + $10,000)
35,000
Net income
$ 57,000
B.
Absorption costing:
Sales (4,600 ´ $30)
$138,000
Cost of goods sold:
Variable product costs [4,600 ´ ($4 + $3 + $2)]
$41,400
Fixed product costs [($25,000/5,000) ´ 4,600]
23,000
64,400
Gross margin
73,600
costs:
Variable selling and administrative (4,600 ´ $1)
4,600
Fixed selling and administrative
10,000
14,600
Net income
$ 59,000
21. Hellman Manufacturing has the following cost information available for 2009:
Direct materials
$6.00 per unit
Direct labor
$4.00 per unit
Variable manufacturing overhead
$2.00 per unit
Variable selling and administrative costs
$1.00 per unit
Fixed manufacturing overhead
$80,000
Fixed selling and administrative costs
$25,000
During 2009, Merriman produced 12,500 units out of which 11,000 units were sold for $60 each.
Required:
A.
Calculate Hellman’s net income assuming the company uses variable costing.
B.
Calculate Hellman’s net income assuming the company uses absorption costing.
A.
Variable costing:
Sales (11,000 ´ $60)
$660,000
Variable costs: [11,000 ´ ($6 + $4 + $2 + $1)]
143,000
Contribution margin
517,000
Fixed costs: ($80,000 + $25,000)
105,000
Net income
$412,000
costing:
Sales (11,000 ´ $60)
$660,000
Cost of goods sold:
Variable product costs [11,000 ´ ($6 + $4 + $2)]
$132,000
Fixed product costs [($80,000/12,500) ´ 11,000]
70,400
202,400
Gross margin
457,600
costs:
Variable selling and administrative (11,000 ´ $1)
11,000
Fixed selling and administrative
25,000
36,000
Net income
$421,600
22. Wilson Manufacturing produces a single product. Last year, the company produced 20,000 units out of
which 18,000 were sold. There were no units in beginning inventory. The company had the following costs:
Variable costs per unit:
Production
$10.00
Selling and administrative
$ 4.00
Fixed costs (total):
Production
$40,000
Selling and administrative
$20,000
Required:
A.
Calculate Wilson’s total product cost assuming the company uses variable costing.
B.
Calculate Wilson’s total period cost assuming the company uses variable costing.
C.
Calculate Wilson’s total product cost assuming the company uses absorption costing.
D.
Calculate Wilson’s total period cost assuming the company uses absorption costing.
A.
Product cost (variable costing) = $10 ´ 18,000 = $180,000
B.
Period cost (variable costing) = [($4 ´ 18,000) + $20,000 + $40,000] = $132,000
C.
Product cost (absorption costing) = [($10 ´ 18,000) + ($40,000/20,000 ´ 18,000)] = $216,000
D.
Period cost (absorption costing) = [($4 ´ 18,000) + $20,000] = $92,000