Chap 006

Chapter 06 - Variable Costing and Segment Reporting: Tools for Management

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ID OriginCMA/CPA origin

1 T/F M x 6/e: 7-7 Authors2 T/F E x 3/e: 7-11 Authors3 T/F M x 5/e: 7-11 Authors4 T/F E x 6/e: 7-15 Authors5 T/F M x New,10/09/2000,E.N. E.N.6 T/F M x 7/e: 8-12 Authors7 T/F M x 6/e: 7-5 Authors8 T/F M x 2/e: 6-1 Authors9 T/F H x 4/e: 7-376 Authors

10 T/F M x 4/e: 7-383 Authors11 T/F M x 4/e: 7-384 Authors12 T/F E x 5/e: 7-4 Authors13 T/F M x 5/e: 7-6 Authors14 T/F E x 5/e: 7-7 Authors15 T/F M x 5/e: 11-3 Authors16 T/F M x New, 1/31/95,B E.N.17 T/F E x New, 1/31/95,C E.N.

18 T/F M x 8/e:ATB12-01David Keyes

19 T/F E x 2/e: 6-8 Authors

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20Conceptual

M/C H x x 6/e: 7-48 Authors

21Conceptual

M/C M x 8/e: ATB, 8-18David Keyes

22Conceptual

M/C E x 5/e: 7-62 Authors

23Conceptual

M/C E x 9eLD:CH07Q6Larry Deppe

24Conceptual

M/C E x 9eLD:CH07Q5Larry Deppe

25Conceptual


26Conceptual


27Conceptual

M/C H x 7/e: 8-30 Authors

28Conceptual

M/C M x 7/e: 8-20 Authors

29Conceptual

M/C H x 8/e: ATB, 8-55David Keyes

30Conceptual

M/C M x 3/e: 7-14 CMA

31Conceptual


32Conceptual

M/C H x 7/e: 8-19 Authors

33Conceptual

M/C M x 8/e:ATB12-12David Keyes

34Conceptual


35Conceptual


36Conceptual


37Conceptual

M/C E x 8/e:ATB12-07David Keyes

38 M/C M x x x 7/e: 8-59 Authors39 M/C E x 9/5/2004 Single MC A4 E.N.

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40 M/C E x 9/5/2004 Single MC C4 E.N.

41 M/C E xNew,10/09/2000,E.N.,B5 E.N.

42 M/C E xNew,10/09/2000,E.N.,A7 E.N.

43 M/C E xNew,10/09/2000,E.N.,E7 E.N.

44 M/C E x 9/5/2004 Single MC B4 E.N.45 M/C E x 9/5/2004 Single MC D4 E.N.

46 M/C E xNew,10/09/2000,E.N.,F7 E.N.

47 M/C M x 7/e: 8-22 Authors

48 M/C M xNew,10/09/2000,E.N.,G7 E.N.

49 M/C M xNew,10/09/2000,E.N.,H6 E.N.

50 M/C E xNew,10/09/2000,E.N.,D6 E.N.

51 M/C M x 4/e: 7-423 Authors

52 M/C E xNew,10/09/2000,E.N.,C7 E.N.

53 M/C M x 9/5/2004 Single MC H4 E.N.54 M/C M x 9/5/2004 Single MC G4 E.N.55 M/C H x 7/e: 8-60 Authors56 M/C H x 9eLD:CH07Q14 Authors57 M/C H x 7/e: 8-48 Authors58 M/C M x 9eLD:CH07Q19 Authors59 M/C E x 9/5/2004 Single MC F4 E.N.60 M/C E x 9/5/2004 Single MC E4 E.N.61 M/C H x 6/e: 7-58 Authors62 M/C H x 9eLD:CH07Q15 Authors

63 M/C H x 9eLD:CH12,Q18Larry Deppe

64 M/C H x 4/e: 7-415 Authors

65 M/C M xNew,6/1/2003,Single MC B4 E.N.

66 M/C E x New,6/1/2003,Single E.N.

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MC C467 M/C H x 4/e: 7-405 Authors68 M/C H x 6/e: 7-47 Authors69 M/C H x 7/e: 12-45 Authors

70 M/C M x 11/e: ATB 12-25Sandra Lang

71 M/C H x 5/e: 7-25 Authors

72 M/C E xNew,6/1/2003,Single MC D4 E.N.

73 M/C M xNew,6/1/2003,Single MC A4 E.N.

6-1 74-76Multipart

M/CE-M x x x 9eLD:CH07Q7-9

Larry Deppe

6-2 77-79Multipart

M/C M x x x 9eLD:CH07Q10-13Larry Deppe

6-3 80-83Multipart

M/CE-M x x New,10/13/97,F7 E.N.

6-4 84-87Multipart

M/CE-H x x New,10/13/97,H7 E.N.

6-5 88-95Multipart

M/CE-H x x New,10/13/97,A7 E.N.

6-6 96-97Multipart

M/CE-M x x New,10/13/97,I7 E.N.

6-798-101

Multipart M/C M x x New,10/13/97,J7 E.N.

6-8102-103

Multipart M/C H x x 6/e: 7-22 to 23 Authors

6-9104-105

Multipart M/C

E-M x x 5/e: 7-41 to 43 Authors

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106-109

Multipart M/C

M-H x x New,10/13/97,G7 E.N.

6-11

110-112

Multipart M/C

M-H x x 6/e: 7-54 to 57 Authors

6-12

113-115

Multipart M/C

M-H x x 8/e: ATB, 8-39 thru 41

David Keyes

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116-118

Multipart M/C E x x 2/e: 6-13 to 15 Authors

6- 119- Multipart E- x x 3/e: 7-9 to 11 Authors

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14 121 M/C M6-15

122-123

Multipart M/C E x 9/5/2004 Multi MC A4 E.N.

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124-125

Multipart M/C E x New,10/13/97,B7 E.N.

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126-127

Multipart M/C M x 9eLD:CH07Q3-4

Larry Deppe

6-18

128-129

Multipart M/C H x New,10/13/97,D7 E.N.

6-19

130-131

Multipart M/C E x 8/e: ATB, 8-28 thru 29

David Keyes

6-20

132-133

Multipart M/C E x 9/5/2004 Multi MC B4 E.N.

6-21

134-135

Multipart M/C M x New,10/13/97,E7 E.N.

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136-137

Multipart M/C M x 4/e: 7-442 to 443 Authors

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138-139

Multipart M/C M x New,10/13/97,C7 E.N.

6-24

140-141

Multipart M/C M x New,10/13/97,K7 E.N.

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142-143

Multipart M/C M x 9/5/2004 Multi MC E4 E.N.

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144-145

Multipart M/C E x 9/5/2004 Multi MC C4 E.N.

6-27

146-147

Multipart M/C E x 9/5/2004 Multi MC D4 E.N.

6-28

148-149

Multipart M/C M x 9/5/2004 Multi MC F4 E.N.

6-29

150-153

Multipart M/C

M-H x 6/e: 7-30 to 33 Authors

6-30

154-155

Multipart M/C M x 6/e: 7-59 to 60 Authors

6-31

156-160

Multipart M/C

M-H x 5/e: 7-16 to 20 Authors

6-32

161-165

Multipart M/C H x 4/e: 7-406 to 413 Authors

6- 166- Multipart E x 9/27/2004 Multi MC C4 E.N.

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33 168 M/C6-34

169-171

Multipart M/C E x 9/27/2004 Multi MC A4 E.N.

6-35

172-173

Multipart M/C H x 9eLD:CH12,Q19-20

Larry Deppe

6-36

174-176

Multipart M/C E x 9/27/2004 Multi MC B4 E.N.

6-37

177-179

Multipart M/C H x 6/e: 7-19 to 21 Authors

180 Problem M x x x 9eLD:CH07P1Larry Deppe

181 Problem M x x x New,10/13/97,M6 E.N.182 Problem H x x x New,10/13/97,L6 E.N.183 Problem M x x x New,10/13/97,Q6 E.N.184 Problem H x x x New,10/13/97,P6 E.N.185 Problem E x 9/5/2004 Problem B4 E.N.186 Problem E x 9/5/2004 Problem C4 E.N.187 Problem E x 9/5/2004 Problem A4 E.N.188 Problem E x 9/5/2004 Problem F4 E.N.189 Problem E x 9/5/2004 Problem E4 E.N.190 Problem E x 9/5/2004 Problem D4 E.N.

191 Problem M x x 9eLD:CH07P4Larry Deppe

192 Problem M x New,10/13/97,O6 E.N.193 Problem H x New,10/13/97,N6 E.N.194 Problem M x 9/5/2004 Problem J4 E.N.195 Problem E x 9/5/2004 Problem I4 E.N.196 Problem M x 9/5/2004 Problem L4 E.N.197 Problem E x 9/5/2004 Problem G4 E.N.198 Problem M x 9/5/2004 Problem K4 E.N.199 Problem E x 9/5/2004 Problem H4 E.N.200 Problem E x 9/27/2004 Problem B4 E.N.

201 Problem M x 9eLD:CH12,P1Larry Deppe

202 Problem E x 9/27/2004 Problem C4 E.N.203 Problem E x 9/27/2004 Problem A4 E.N.

6-6


Chapter 06Variable Costing and Segment Reporting: Tools for Management

True / False Questions

1. Under variable costing, all variable costs are treated as product costs. True False

2. Under variable costing, fixed manufacturing overhead cost is treated as a product cost. True False

3. The unit product cost under absorption costing does not include fixed manufacturing overhead cost. True False

4. Variable manufacturing overhead costs are treated as period costs under both absorption and variable costing. True False

5. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs deferred in inventory under absorption costing should be added to variable costing net operating income to arrive at the absorption costing net operating income. True False

6. When production is less than sales for the period, absorption costing net operating income will generally be less than variable costing net operating income. True False

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7. Absorption costing is more compatible with cost-volume-profit analysis than is variable costing. True False

8. Contribution margin and segment margin mean the same thing. True False

9. Assuming that a segment has both variable expenses and traceable fixed expenses, an increase in sales should increase profits by an amount equal to the sales times the segment margin ratio. True False

10. The salary of the treasurer of a corporation is an example of a common cost which normally cannot be traced to product segments. True False

11. The salary paid to a store manager is a traceable fixed expense of the store. True False

12. Segmented statements for internal use should be prepared in the contribution format. True False

13. Fixed costs that are traceable to a segment may become common if the segment is divided into smaller units. True False

14. The contribution margin is viewed as a better gauge of the long run profitability of a segment than the segment margin. True False

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15. In responsibility accounting, each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs. True False

16. The contribution margin tells us what happens to profits as volume changes if a segment's capacity and fixed costs change as well. True False

17. Only those costs that would disappear over time if a segment were eliminated should be considered traceable costs of the segment. True False

18. In segment reporting, sales dollars is usually an appropriate allocation base for selling, general, and administrative expenses. True False

19. A segment is any portion or activity of an organization about which a manager seeks revenue, cost, or profit data. True False

Multiple Choice Questions

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20. Routsong Company had the following sales and production data for the past four years:

Selling price per unit, variable cost per unit, and total fixed cost are the same in each year. Which of the following statements is not correct? A. Under variable costing, net operating income for Year 1 and Year 2 would be the same.B. Because of the changes in production levels, under variable costing the unit product cost will change each year.C. The total net operating income for all four years combined would be the same under variable and absorption costing.D. Under absorption costing, net operating income in Year 4 would be less than the net operating income in Year 2.

21. Would the following costs be classified as product or period costs under variable costing at a retail clothing store?

A. Option AB. Option BC. Option CD. Option D

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22. Fixed manufacturing overhead is included in product costs under:


23. Which of the following are considered to be product costs under variable costing?

I. Variable manufacturing overhead.II. Fixed manufacturing overhead.III. Selling and administrative expenses. A. I.B. I and II.C. I and III.D. I, II, and III.

24. Which of the following are considered to be product costs under absorption costing?

I. Variable manufacturing overhead.II. Fixed manufacturing overhead.III. Selling and administrative expenses. A. I, II, and III.B. I and II.C. I and III.D. I.

25. Under variable costing, costs that are treated as period costs include: A. only fixed manufacturing costs.B. both variable and fixed manufacturing costs.C. all fixed costs.D. only fixed selling and administrative costs.

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26. Selling and administrative expenses are considered to be: A. a product cost under variable costing.B. a product cost under absorption costing.C. part of fixed manufacturing overhead under variable costing.D. a period cost under variable costing.

27. A portion of the total fixed manufacturing overhead cost incurred during a period may: A. be excluded from cost of goods sold under absorption costing.B. be charged as a period cost with the remainder deferred under variable costing.C. never be excluded from cost of goods sold under absorption costing.D. never be excluded from cost of goods sold under variable costing.

28. A company using lean production methods likely would show approximately the same net operating income under both absorption and variable costing because: A. ending inventory would be valued in the same manner for both methods under lean production.B. production is geared to sales under lean production and thus there would be little or no ending inventory.C. under lean production fixed manufacturing overhead costs are charged to the period incurred rather than to the product produced.D. there is no distinction made under lean production between fixed and variable costs.

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29. Dull Corporation has been producing and selling electric razors for the past ten years. Shown below are the actual net operating incomes for the last three years of operations at Dull:

Dull Corporation's cost structure and selling price has not changed during its ten years of operations. Based on the information presented above, which of the following statements is true? A. Dull Corporation operated above the breakeven point in each of the three years presented.B. For the three years presented in total, Dull Corporation sold more units than it produced.C. In Year 10, Dull Corporation produced fewer units than it sold.D. In Year 9, Dull Corporation produced more units than it sold.

30. Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if: A. production equals sales for that period.B. production exceeds sales for that period.C. sales exceed production for that period.D. the variable manufacturing overhead exceeds the fixed manufacturing overhead.

31. If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will: A. be equal to the net operating income under variable costing.B. be greater than net operating income under variable costing.C. be equal to the net operating income under variable costing plus total fixed manufacturing costs.D. be equal to the net operating income under variable costing less total fixed manufacturing costs.

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32. Over an extended period of time in which the final ending inventories are zero, the accumulated net operating income figures reported under absorption costing will be: A. greater than those reported under variable costing.B. less than those reported under variable costing.C. the same as those reported under variable costing.D. higher or lower since no generalization can be made.

33. In an income statement segmented by product line, a fixed expense that cannot be allocated among product lines on a cause-and-effect basis should be: A. classified as a traceable fixed expense and not allocated.B. allocated to the product lines on the basis of sales dollars.C. allocated to the product lines on the basis of segment margin.D. classified as a common fixed expense and not allocated.

34. A common cost that should not be assigned to a particular product on a segmented income statement is: A. the product's advertising costs.B. the salary of the corporation president.C. direct materials costs.D. the product manager's salary.

35. All other things being equal, if a division's traceable fixed expenses increase: A. the division's contribution margin ratio will decrease.B. the division's segment margin ratio will remain the same.C. the division's segment margin will decrease.D. the overall company profit will remain the same.

36. All other things equal, if a division's traceable fixed expenses decrease: A. the division's segment margin will increase.B. the overall company net operating income will decrease.C. the division's contribution margin will increase.D. the division's sales volume will increase.

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37. Segment margin is sales minus: A. variable expenses.B. traceable fixed expenses.C. variable expenses and common fixed expenses.D. variable expenses and traceable fixed expenses.

38. Clayton Company produces a single product. Last year, the company's variable production costs totaled $8,000 and its fixed manufacturing overhead costs totaled $4,800. The company produced 4,000 units during the year and sold 3,600 units. Assuming no units in the beginning inventory: A. under variable costing, the units in ending inventory will be costed at $3.20 each.B. the net operating income under absorption costing for the year will be $480 lower than net operating income under variable costing.C. the ending inventory under variable costing will be $480 lower than the ending inventory under absorption costing.D. the net operating income under absorption costing for the year will be $800 lower than net operating income under variable costing.

39. Gangwer Corporation produces a single product and has the following cost structure:

The absorption costing unit product cost is: A. $95B. $119C. $61D. $56

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40. Olds Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The absorption costing unit product cost was: A. $97B. $130C. $99D. $207

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41. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the absorption costing unit product cost for the month? A. $102B. $130C. $97D. $125

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What is the variable costing unit product cost for the month? A. $103B. $99C. $94D. $90

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What is the total period cost for the month under variable costing? A. $185,000B. $117,600C. $273,200D. $302,600

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44. Swiatek Corporation produces a single product and has the following cost structure:

The variable costing unit product cost is: A. $161B. $225C. $153D. $158

45. Cockriel Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The variable costing unit product cost was: A. $42B. $43C. $37D. $48

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What is the total period cost for the month under absorption costing? A. $58,300B. $37,100C. $259,900D. $201,600

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47. Roy Corporation produces a single product. During July, Roy produced 10,000 units. Costs incurred during the month were as follows:

Under absorption costing, any unsold units would be carried in the inventory account at a unit product cost of: A. $5.10B. $4.40C. $3.80D. $3.50

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What is the net operating income for the month under variable costing? A. $21,600B. $(15,200)C. $8,000D. $13,600

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What is the net operating income for the month under absorption costing? A. $5,300B. $3,000C. $(12,700)D. $8,300

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The total gross margin for the month under absorption costing is: A. $42,000B. $14,700C. $69,000D. $79,800

51. A company produces a single product. Last year, fixed manufacturing overhead was $30,000, variable production costs were $48,000, fixed selling and administration costs were $20,000, and variable selling administrative expenses were $9,600. There was no beginning inventory. During the year, 3,000 units were produced and 2,400 units were sold at a price of $40 per unit. Under variable costing, net operating income would be: A. a profit of $6,000.B. a profit of $4,000.C. a loss of $2,000.D. a loss of $4,400.

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The total contribution margin for the month under variable costing is: A. $183,600B. $90,000C. $70,400D. $169,200

53. Last year, Heidenescher Corporation's variable costing net operating income was $63,600 and its inventory decreased by 600 units. Fixed manufacturing overhead cost was $1 per unit. What was the absorption costing net operating income last year? A. $64,200B. $63,000C. $63,600D. $600

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54. Sproles Inc. manufactures a variety of products. Variable costing net operating income was $90,500 last year and its inventory decreased by 3,500 units. Fixed manufacturing overhead cost was $6 per unit. What was the absorption costing net operating income last year? A. $90,500B. $21,000C. $69,500D. $111,500

55. Roberts Company produces a single product. This year, the company's net operating income under absorption costing was $2,000 lower than under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $2 was variable selling and administrative expense. If production cost was $10 per unit under absorption costing, then how many units did the company produce during the year? (The company produced the same number of units last year.) A. 7,500 unitsB. 7,000 unitsC. 9,000 unitsD. 8,500 units

56. Evans Company produces a single product. During the most recent year, the company had a net operating income of $90,000 using absorption costing and $84,000 using variable costing. The fixed overhead application rate was $6 per unit. There were no beginning inventories. If 22,000 units were produced last year, then sales for last year were: A. 15,000 unitsB. 21,000 unitsC. 23,000 unitsD. 28,000 units

57. Craft Company produces a single product. Last year, the company had a net operating income of $80,000 using absorption costing and $74,500 using variable costing. The fixed manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500 units were produced last year, then sales last year were: A. 16,000 unitsB. 20,400 unitsC. 22,600 unitsD. 27,000 units

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58. Moore Company produces a single product. During last year, Moore's variable production costs totaled $10,000 and its fixed manufacturing overhead costs totaled $6,800. The company produced 5,000 units during the year and sold 4,600 units. There were no units in the beginning inventory. Which of the following statements is true? A. The net operating income under absorption costing for the year will be $800 higher than net operating income under variable costing.B. The net operating income under absorption costing for the year will be $544 higher than net operating income under variable costing.C. The net operating income under absorption costing for the year will be $544 lower than net operating income under variable costing.D. The net operating income under absorption costing for the year will be $800 lower than net operating income under variable costing.

59. Last year, Salada Corporation's variable costing net operating income was $97,000. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $14,000. What was the absorption costing net operating income last year? A. $14,000B. $111,000C. $97,000D. $83,000

60. Tsuchiya Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $57,500. Fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $35,400. What was the absorption costing net operating income last year? A. $22,100B. $35,400C. $57,500D. $92,900

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61. Stephen Company produces a single product. Last year, the company had 20,000 units in its ending inventory. During the year, Stephen's variable production costs were $12 per unit. The fixed manufacturing overhead cost was $8 per unit in the beginning inventory. The company's net operating income for the year was $9,600 higher under variable costing than it was under absorption costing. The company uses a last-in-first-out (LIFO) inventory flow assumption. Given these facts, the number of units of product in the beginning inventory last year must have been: A. 21,200B. 19,200C. 18,800D. 19,520

62. Hansen Company produces a single product. During the last year, Hansen had net operating income under absorption costing that was $5,500 lower than its income under variable costing. The company sold 9,000 units during the year, and its variable costs were $10 per unit, of which $6 was variable selling expense. If fixed production cost is $5 per unit under absorption costing every year, then how many units did the company produce during the year? A. 7,625 unitsB. 8,450 unitsC. 10,100 unitsD. 7,900 units

63. Hatch Company has two divisions, O and E. During the year just ended, Division O had a segment margin of $9,000 and variable expenses equal to 70% of sales. Traceable fixed expenses for Division E were $19,000. Hatch Company as a whole had a contribution margin ratio of 40%, a segment margin of $25,000, and sales of $200,000. Given this data, the sales for Division E for last year were: A. $50,000B. $150,000C. $87,500D. $116,667

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64. During April, Division D of Carney Company had a segment margin ratio of 15%, a variable expense ratio of 60% of sales, and traceable fixed expenses of $15,000. Division D's sales were closest to: A. $100,000B. $60,000C. $33,333D. $22,500

65. Colasuonno Corporation has two divisions: the West Division and the East Division. The corporation's net operating income is $88,800. The West Division's divisional segment margin is $39,500 and the East Division's divisional segment margin is $166,900. What is the amount of the common fixed expense not traceable to the individual divisions? A. $255,700B. $206,400C. $117,600D. $128,300

66. Gore Corporation has two divisions: the Business Products Division and the Export Products Division. The Business Products Division's divisional segment margin is $55,700 and the Export Products Division's divisional segment margin is $70,600. The total amount of common fixed expenses not traceable to the individual divisions is $107,400. What is the company's net operating income? A. $233,700B. $(126,300)C. $126,300D. $18,900

67. More Company has two divisions, L and M. During July, the contribution margin in Division L was $60,000. The contribution margin ratio in Division M was 40% and its sales were $250,000. Division M's segment margin was $60,000. The common fixed expenses were $50,000 and the company net operating income was $20,000. The segment margin for Division L was: A. $0B. $10,000C. $50,000D. $60,000

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68. Stephen Company has the following data for its three stores last year:

Given the above data, the total company sales were: A. $1,250,000B. $1,375,000C. $1,450,000D. $800,000

69. Johnson Company operates two plants, Plant A and Plant B. Last year, Johnson Company reported a contribution margin of $40,000 for Plant A. Plant B had sales of $200,000 and a contribution margin ratio of 40%. Net operating income for the company was $27,000 and traceable fixed expenses for the two stores totaled $50,000. Johnson Company's common fixed expenses were: A. $43,000B. $50,000C. $93,000D. $120,000

70. The ARB Company has two divisions: Electronics and DVD/Video Sales. Electronics has traceable fixed expenses of $146,280 and the DVD/Video Sales has traceable fixed expenses of $81,765. If ARB Company has a total of $322,490 in fixed expenses, what are its common fixed expenses? A. $94,445B. $322,490C. $228,045D. $47,223

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71. Leis Retail Company has two Stores, M and N. Store N had sales of $180,000 during March, a segment margin of $54,000, and traceable fixed expenses of $26,000. The company as a whole had a contribution margin ratio of 25% and $120,000 in total contribution margin. Based on this information, total variable expenses in Store M for the month must have been: A. $140,000B. $260,000C. $300,000D. $360,000

72. Sugiki Corporation has two divisions: the Alpha Division and the Delta Division. The Alpha Division has sales of $820,000, variable expenses of $369,000, and traceable fixed expenses of $347,300. The Delta Division has sales of $460,000, variable expenses of $294,400, and traceable fixed expenses of $134,100. The total amount of common fixed expenses not traceable to the individual divisions is $97,300. What is the company's net operating income? A. $135,200B. $37,900C. $616,600D. $519,300

73. Phillipson Corporation has two divisions: the IEB Division and the PIH Division. The corporation's net operating income is $83,900. The IEB Division's divisional segment margin is $149,700 and the PIH Division's divisional segment margin is $60,100. What is the amount of the common fixed expense not traceable to the individual divisions? A. $233,600B. $209,800C. $144,000D. $125,900

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The Pacific Company manufactures a single product. The following data relate to the year just completed:

During the last year, 5,000 units were produced and 4,800 units were sold. There were no beginning inventories.

74. Under variable costing, the unit product cost would be: A. $91.00B. $72.00C. $58.00D. $43.00

75. The carrying value of finished goods inventory at the end of the year under variable costing would be: A. $8,800 greater than under absorption costing.B. $8,800 less than under absorption costing.C. $5,800 less than under absorption costing.D. The same as absorption costing.

76. Under absorption costing, the cost of goods sold for the year would be: A. $206,400B. $345,600C. $278,400D. $360,000

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Carr Company produces a single product. During the past year, Carr manufactured 25,000 units and sold 20,000 units. Production costs for the year were as follows:

Sales totaled $850,000, variable selling expenses totaled $110,000, and fixed selling and administrative expenses totaled $170,000. There were no units in beginning inventory. Assume that direct labor is a variable cost.

77. The contribution margin per unit would be: A. $12.10B. $22.10C. $17.70D. $16.60

78. Under absorption costing, the ending inventory for the year would be valued at: A. $179,500B. $213,500C. $222,000D. $152,000

79. The net operating income for the year under variable costing would be: A. $28,000 lower than under absorption costingB. $28,000 higher than under absorption costingC. $50,000 lower than under absorption costingD. $50,000 higher than under absorption costing

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Favini Company, which has only one product, has provided the following data concerning its most recent month of operations:

80. What is the unit product cost for the month under variable costing? A. $98B. $125C. $118D. $91

81. What is the unit product cost for the month under absorption costing? A. $91B. $125C. $118D. $98

82. What is the net operating income for the month under variable costing? A. $11,800B. $3,700C. $8,100D. $(23,600)

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83. What is the net operating income for the month under absorption costing? A. $11,800B. $3,700C. $8,100D. $(23,600)

Hadlock Company, which has only one product, has provided the following data concerning its most recent month of operations:


85. The total contribution margin for the month under the variable costing approach is: A. $192,000B. $128,000C. $72,800D. $140,800

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86. What is the total period cost for the month under the variable costing approach? A. $125,600B. $108,800C. $176,800D. $68,000

87. What is the net operating income for the month under variable costing? A. $15,200B. $4,000C. $(9,200)D. $19,200

Abe Company, which has only one product, has provided the following data concerning its most recent month of operations:


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91. The total gross margin for the month under the absorption costing approach is: A. $319,200B. $16,800C. $226,800D. $256,500


93. What is the total period cost for the month under the absorption costing approach? A. $156,600B. $210,000C. $151,200D. $366,600

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95. What is the net operating income for the month under absorption costing? A. $11,400B. $(12,900)C. $16,800D. $5,400

Ingerson Company, which has only one product, has provided the following data concerning its most recent month of operations:


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Jarvinen Company, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.


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100. What is the net operating income for the month under variable costing? A. $11,600B. $2,900C. $8,700D. $0

101. What is the net operating income for the month under absorption costing? A. $2,900B. $0C. $8,700D. $11,600

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DeAnne Company produces a single product. The company's variable costing income statement for August appears below:

The company produced 35,000 units in August and the beginning inventory consisted of 8,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months.

102. The value of the company's inventory on August 31 under the absorption costing method is: A. $27,000B. $42,000C. $36,000D. $47,000

103. Under absorption costing, for the month ended August 31, the company would report a: A. $20,000 profitB. $5,000 lossC. $35,000 profitD. $5,000 profit

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Fahey Company manufactures a single product that it sells for $25 per unit. The company has the following cost structure:

There were no units in beginning inventory. During the year, 18,000 units were produced and 15,000 units were sold.

104. Under absorption costing, the unit product cost is: A. $9B. $12C. $13D. $16

105. The company's net operating income for the year under variable costing is: A. $60,000B. $81,000C. $57,000D. $69,000

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Galino Company, which has only one product, has provided the following data concerning its most recent month of operations:




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Kilihea Corporation produces a single product. The company's absorption costing income statement for July follows:

The company's variable production costs are $20 per unit and its fixed manufacturing overhead totals $80,000 per month.

110. Net operating income under the variable costing method for July would be: A. $53,000B. $49,800C. $61,000D. $57,000

111. The contribution margin per unit during July was: A. $17B. $20C. $25D. $6

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112. The break-even point in units for the month under variable costing is: A. 6,850 unitsB. 4,000 unitsC. 3,200 unitsD. 5,100 units

Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure:

In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for $120 each.

113. If Eagle had sold only 9,000 tables in its first year, what total amount of cost would have been assigned to the 1,000 tables in finished goods inventory under the absorption costing method? A. $37,100B. $45,800C. $58,000D. $74,200

114. How would Eagle's variable costing net operating income have been affected in its first year if only 9,000 tables were sold instead of 10,000? A. net operating income would have been $37,100 lowerB. net operating income would have been $45,800 lowerC. net operating income would have been $56,000 lowerD. net operating income would have been $62,000 lower

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115. How would Eagle's absorption costing net operating income have been affected in its first year if 12,000 tables were produced instead of 10,000 and Eagle still sold 10,000 tables? A. net operating income would not have been affectedB. net operating income would have been $27,000 higherC. net operating income would have been $31,500 higherD. net operating income would have been $116,000 lower

Green Enterprises produces a single product. The following data were provided by the company for the most recent period:

116. Under variable costing, the unit product cost is: A. $20B. $18C. $15D. $22


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118. For the period above, one would expect the net operating income under absorption costing to be: A. higher than the net operating income under variable costing.B. lower than the net operating income under variable costing.C. the same as the net operating income under variable costing.D. The relation between absorption costing net operating income and variable costing net operating income cannot be determined.

Whitney, Inc., produces a single product. The following data pertain to one month's operations:

119. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be: A. $16,000B. $10,000C. $19,000D. $12,000

120. The carrying value on the balance sheet of the ending finished goods inventory under absorption costing would be: A. $16,000B. $10,000C. $12,000D. $21,000

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121. For the month referred to above, net operating income under variable costing will be: A. higher than net operating income under absorption costing.B. lower than net operating income under absorption costing.C. the same as net operating income under absorption costing.D. The relation between variable costing and absorption costing net operating income cannot be determined.

Mennig Corporation produces a single product and has the following cost structure:

122. The unit product cost under absorption costing is: A. $92B. $228C. $182D. $85

123. The unit product cost under variable costing is: A. $182B. $92C. $87D. $94

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Byron Company, which has only one product, has provided the following data concerning its most recent month of operations:



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During the last year, Snyder Co. produced 10,000 units of its only product. Costs incurred by Snyder during the year were as follows:

126. The unit product cost under absorption costing was: A. $5.43B. $3.81C. $4.71D. $4.12

127. The unit product cost under variable costing was: A. $3.20B. $3.81C. $4.12D. $3.51

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Deboer Company, which has only one product, has provided the following data concerning its most recent month of operations:



The following cost formula relates to last year's operations at Lemine Manufacturing Corporation:Y = $84,000 + $60.00XIn the formula above, 75% of the fixed cost and 90% of the variable cost are manufacturing costs. Y is the total cost and X is the number of units produced and sold.

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130. If Lemine produces and sells 7,000 units, what is the unit product cost under each of the following methods?


131. If Lemine produces and sells only 6,000 units, what is the unit product cost under each of the following methods?


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Pellman Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories.

132. The unit product cost under absorption costing was: A. $91B. $72C. $25D. $32

133. The unit product cost under variable costing was: A. $33B. $32C. $72D. $40

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Elbon Company, which has only one product, has provided the following data concerning its most recent month of operations:

134. What is the net operating income for the month under variable costing? A. $10,200B. $(19,000)C. $8,800D. $1,400


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Gordon Company produces a single product that sells for $10 per unit. Last year there were no beginning inventories, 100,000 units were produced, and 80,000 units were sold. The company has the following cost structure:

136. Net operating income under variable costing would be: A. $114,000B. $210,000C. $234,000D. $330,000


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Clements Company, which has only one product, has provided the following data concerning its most recent month of operations:



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Kierst Company, which has only one product, has provided the following data concerning its most recent month of operations:


140. What is the net operating income for the month under variable costing? A. $10,600B. $16,200C. $6,200D. $7,500

141. What is the net operating income for the month under absorption costing? A. $7,500B. $16,200C. $6,200D. $10,600

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Krug Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

142. What was the absorption costing net operating income last year? A. $86,200B. $89,100C. $88,800D. $91,400

143. What was the absorption costing net operating income this year? A. $91,300B. $93,300C. $95,900D. $88,500

Enz Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

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Vanstee Corporation manufactures a variety of products. Variable costing net operating income last year was $60,000 and this year was $67,000. Last year, $37,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing. This year, $8,000 in fixed manufacturing overhead costs were released from inventory under absorption costing.



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Condit Corporation manufactures a variety of products. Variable costing net operating income was $75,600 last year and was $80,100 this year. Last year, inventory decreased by 3,400 units. This year, inventory increased by 3,000 units. Fixed manufacturing overhead cost is $5 per unit.



The Rial Company's income statement for June is given below:

150. If sales for Division F increase $40,000 with a $10,000 increase in the Division's traceable fixed costs, the overall company net operating income should: A. increase by $30,000B. increase by $6,000C. increase by $2,889D. decrease by $4,000

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151. During June, the sales clerks in Division F received salaries totaling $35,000. Assume that during July the salaries of these sales clerks are discontinued and instead they are paid a commission of 18% of sales. If sales in Division F increase by $65,000 as a result of this change, the July segment margin for Division F should be: A. $42,700B. $19,400C. $54,400D. $94,000

152. If the sales in Division L increase by 30% while common fixed expenses in the company decrease by $10,000, the segment margin for Division L should: A. increase by $32,400B. increase by $10,800C. decrease by $22,400D. decrease by $65,600

153. A proposal has been made that will lower variable expenses in Division L to 35% of sales. However, this reduction can only be accomplished by a $15,000 increase in Division L's traceable fixed expenses. If this proposal is implemented and if sales remain constant, overall company net operating income should: A. increase by $15,000B. increase by $24,000C. decrease by $15,000D. decrease by $6,000

Pong Incorporated's income statement for the most recent month is given below.

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154. If Store G sales increase by $40,000 with no change in fixed costs, the overall company net operating income should: A. increase by $4,000B. increase by $8,000C. increase by $24,000D. increase by $20,000

155. The marketing department believes that a promotional campaign for Store H costing $8,000 will increase the store's sales by $15,000. If the campaign is adopted, overall company net operating income should: A. decrease by $5,000B. decrease by $5,500C. increase by $2,000D. increase by $7,000

Ring, Incorporated's income statement for the most recent month is given below.

For each of the following questions, refer back to the original data.

156. If Store Q sales increase by $30,000 with no change in fixed expenses, the overall company net operating income should: A. increase by $3,750B. increase by $7,500C. increase by $12,000D. increase by $18,000

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157. The marketing department believes that a promotional campaign at Store P costing $5,000 will increase sales by $15,000. If the campaign is adopted, overall company net operating income should: A. decrease by $800B. decrease by $5,800C. increase by $5,800D. increase by $10,000

158. A proposal has been made that will lower variable costs in Store P to 65% of sales. However, this reduction can only be accomplished by a $16,000 increase in Store P's traceable fixed costs. If this proposal is implemented and sales remain constant, overall company net operating income should: A. remain the sameB. decrease by $2,000C. increase by $2,000D. increase by $14,000

159. If sales in Store Q increase by $30,000 as a result of a $7,000 increase in traceable fixed costs: A. Store Q's contribution margin should increase by $18,000B. Store Q's segment margin should increase by $12,000C. Store Q's contribution margin should increase by $11,000D. Store Q's segment margin should increase by $5,000

160. Currently the sales clerks receive a salary of $17,000 per month in Store Q. A proposal has been made to change from a fixed salary to a sales commission of 5%. Assume that this proposal is adopted, and that as a result sales in Store Q increase by $40,000. The new segment margin for Store Q should be: A. $47,000B. $61,000C. $85,000D. $44,000

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The Gasson Company sells three products, Product A, Product B and Product C, and had sales of $1,000,000 during the month of June. The company's overall contribution margin ratio was 37% and fixed expenses totaled $350,000. Sales were: Product A, $500,000; Product B, $300,000; and Product C, $200,000. Traceable fixed costs were: Product A, $120,000; Product B, $100,000; and Product C, $60,000. The variable expenses of Product A were $300,000 and the variable expenses of Product B were $180,000.

161. The net operating income for the company as a whole for June was: A. $20,000B. $90,000C. $170,000D. $300,000

162. The contribution margin ratio for Product C is: A. 75%B. 69%C. 31%D. 25%

163. The common fixed expense for Gasson Company for the month of June was: A. $350,000B. $280,000C. $70,000D. $20,000

164. The product line segment margin for Product A for June was: A. $200,000B. $80,000C. $65,000D. $10,000

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165. The contribution margin in dollars for Product B for June was: A. $20,000B. $111,000C. $120,000D. $200,000

Tennison Corporation has two major business segments-Consumer and Commercial. Data for the segment and for the company for May appear below:

In addition, common fixed expenses totaled $371,000 and were allocated as follows: $186,000 to the Consumer business segment and $185,000 to the Commercial business segment.

166. The contribution margin of the Commercial business segment is: A. $769,000B. $272,000C. $313,000D. $86,000

167. A properly constructed segmented income statement in a contribution format would show that the segment margin of the Consumer business segment is: A. $272,000B. $270,000C. $86,000D. $514,000

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168. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A. $769,000B. $104,000C. $475,000D. -$267,000

Stryker Corporation has two major business segments-East and West. In April, the East business segment had sales revenues of $500,000, variable expenses of $280,000, and traceable fixed expenses of $80,000. During the same month, the West business segment had sales revenues of $970,000, variable expenses of $514,000, and traceable fixed expenses of $184,000. The common fixed expenses totaled $280,000 and were allocated as follows: $112,000 to the East business segment and $168,000 to the West business segment.

169. The contribution margin of the West business segment is: A. $456,000B. $140,000C. $28,000D. $676,000

170. A properly constructed segmented income statement in a contribution format would show that the segment margin of the East business segment is: A. $108,000B. $28,000C. $140,000D. $280,000

171. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A. $412,000B. $676,000C. -$148,000D. $132,000

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Canon Company has two sales areas: North and South. During last year, the contribution margin in the North Area was $50,000, or 20% of sales. The segment margin in the South was $15,000, or 8% of sales. Traceable fixed expenses are $15,000 in the North and $10,000 in the South. During last year, the company reported total net operating income of $26,000.

172. The total fixed expenses (traceable and common) for Canon Company for the year were: A. $49,000B. $25,000C. $24,000D. $50,000

173. The variable expenses for the South Area for the year were: A. $230,000B. $185,000C. $162,500D. $65,000

Data for June for Ozaki Corporation and its two major business segments, North and South, appear below:

In addition, common fixed expenses totaled $145,000 and were allocated as follows: $73,000 to the North business segment and $72,000 to the South business segment.

174. The contribution margin of the South business segment is: A. $343,000B. $63,000C. $119,000D. $192,000

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175. A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is: A. $270,000B. $119,000C. $207,000D. $192,000

176. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A. $(56,000)B. $89,000C. $343,000D. $234,000

Falquez Company sells three products: R, S, and T. Data for activity of Falquez Company during July are as follows:

Common fixed expenses for July amounted to $90,000.

177. Net operating income for the company was: A. $166,000B. $256,000C. $334,000D. $46,000

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178. The contribution margin for Product R was: A. $48,750B. $63,500C. $51,000D. $48,000

179. The segment margin for Product T was: A. $45,000B. $85,000C. $(10,000)D. $80,000

Essay Questions

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180. The EG Company produces and sells one product. The following data refer to the year just completed:

Assume that direct labor is a variable cost.

Required:

a. Compute the cost of a single unit of product under both the absorption costing and variable costing approaches.b. Prepare an income statement for the year using absorption costing.c. Prepare a contribution format income statement for the year using variable costing.d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.

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181. Maga Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required:

a. What is the unit product cost for the month under variable costing?b. What is the unit product cost for the month under absorption costing?c. Prepare a contribution format income statement for the month using variable costing.d. Prepare an income statement for the month using absorption costing.e. Reconcile the variable costing and absorption costing net operating incomes for the month.

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182. Leigh Company, which has only one product, has provided the following data concerning its most recent month of operations:


Required:


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183. Qu Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required:

a. What is the unit product cost for the month under variable costing?b. Prepare a contribution format income statement for the month using variable costing.c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

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184. Packer Company, which has only one product, has provided the following data concerning its most recent month of operations:


Required:


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185. Hubiak Corporation produces a single product and has the following cost structure:

Required:

Compute the unit product cost under absorption costing. Show your work!

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186. Hudalla Corporation produces a single product and has the following cost structure:

Required:

Compute the unit product cost under variable costing. Show your work!

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187. Fellner Corporation produces a single product and has the following cost structure:

Required:

a. Compute the unit product cost under absorption costing. Show your work!b. Compute the unit product cost under variable costing. Show your work!

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188. Bertone Inc., which produces a single product, has provided the following data for its most recent month of operation:

The company had no beginning or ending inventories.

Required:


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189. Krasnow Inc., which produces a single product, has provided the following data for its most recent month of operation:


Required:


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190. Cuffee Inc., which produces a single product, has provided the following data for its most recent month of operation:


Required:


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191. UHF Antennas, Inc., produces and sells a unique television antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation:

Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labor is a variable cost.

Required:

a. Assuming that the company uses absorption costing, compute the unit product cost and prepare an income statement.b. Assuming that the company uses variable costing, compute the unit product cost and prepare an income statement.c. Explain the reason for any difference in the ending inventories under the two costing methods and the impact of this difference on reported net operating income.

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192. O'Keefe Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required:

a. Prepare a contribution format income statement for the month using variable costing.b. Prepare an income statement for the month using absorption costing.

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193. Nesman Company, which has only one product, has provided the following data concerning its most recent month of operations:


Required:


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194. Carvey Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

Required:

a. Determine the absorption costing net operating income for last year. Show your work!b. Determine the absorption costing net operating income for this year. Show your work!

195. Last year, Holroyd Corporation's variable costing net operating income was $95,000. The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $29,000.

Required:

Determine the absorption costing net operating income last year. Show your work!

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196. Last year, Teneyck Corporation's variable costing net operating income was $63,500 and ending inventory decreased by 200 units. Fixed manufacturing overhead cost per unit was $5.

Required:

Determine the absorption costing net operating income for last year. Show your work!

197. Salonia Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

Required:

a. Determine the absorption costing net operating income last year. Show your work!b. Determine the absorption costing net operating income this year. Show your work!

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198. Cassin Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $86,300 and ending inventory decreased by 1,700 units. Fixed manufacturing overhead cost per unit was $8.

Required:


199. Gordy Corporation manufactures a variety of products. Last year, variable costing net operating income was $81,000. The fixed manufacturing overhead costs released from inventory under absorption costing amounted to $39,000.

Required:


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200. Camren Corporation has two major business segments-Apparel and Accessories. Data concerning those segments for December appear below:

Common fixed expenses totaled $357,000 and were allocated as follows: $161,000 to the Apparel business segment and $196,000 to the Accessories business segment.

Required:

Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.

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201. The IT Corporation produces and markets two types of electronic calculators: Model 11 and Model 12. The following data were gathered on activities last month:

Required:

Prepare a segmented income statement in the contribution format for last month.

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202. Data for May concerning Dorow Corporation's two major business segments-Fibers and Feedstocks-appear below:

Common fixed expenses totaled $345,000 and were allocated as follows: $186,000 to the Fibers business segment and $159,000 to the Feedstocks business segment.

Required:


203. Mossor Corporation has two major business segments-Retail and Wholesale. In December, the Retail business segment had sales revenues of $510,000, variable expenses of $296,000, and traceable fixed expenses of $61,000. During the same month, the Wholesale business segment had sales revenues of $510,000, variable expenses of $240,000, and traceable fixed expenses of $82,000. Common fixed expenses totaled $191,000 and were allocated as follows: $113,000 to the Retail business segment and $78,000 to the Wholesale business segment.

Required:


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Chapter 06 Variable Costing and Segment Reporting: Tools for Management Answer Key

True / False Questions

1. Under variable costing, all variable costs are treated as product costs. FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLevel: Medium

2. Under variable costing, fixed manufacturing overhead cost is treated as a product cost. FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: KnowledgeLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLevel: Easy

3. The unit product cost under absorption costing does not include fixed manufacturing overhead cost. FALSE


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4. Variable manufacturing overhead costs are treated as period costs under both absorption and variable costing. FALSE


5. When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs deferred in inventory under absorption costing should be added to variable costing net operating income to arrive at the absorption costing net operating income. TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differLevel: Medium

6. When production is less than sales for the period, absorption costing net operating income will generally be less than variable costing net operating income. TRUE


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7. Absorption costing is more compatible with cost-volume-profit analysis than is variable costing. FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: Other topicsLevel: Medium

8. Contribution margin and segment margin mean the same thing. FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisionsLevel: Medium

9. Assuming that a segment has both variable expenses and traceable fixed expenses, an increase in sales should increase profits by an amount equal to the sales times the segment margin ratio. FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisionsLevel: Hard

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10. The salary of the treasurer of a corporation is an example of a common cost which normally cannot be traced to product segments. TRUE


11. The salary paid to a store manager is a traceable fixed expense of the store. TRUE


12. Segmented statements for internal use should be prepared in the contribution format. TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: KnowledgeLearning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisionsLevel: Easy

13. Fixed costs that are traceable to a segment may become common if the segment is divided into smaller units. TRUE


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14. The contribution margin is viewed as a better gauge of the long run profitability of a segment than the segment margin. FALSE


15. In responsibility accounting, each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs. FALSE


16. The contribution margin tells us what happens to profits as volume changes if a segment's capacity and fixed costs change as well. FALSE


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17. Only those costs that would disappear over time if a segment were eliminated should be considered traceable costs of the segment. TRUE


18. In segment reporting, sales dollars is usually an appropriate allocation base for selling, general, and administrative expenses. FALSE


19. A segment is any portion or activity of an organization about which a manager seeks revenue, cost, or profit data. TRUE


Multiple Choice Questions

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20. Routsong Company had the following sales and production data for the past four years:

Selling price per unit, variable cost per unit, and total fixed cost are the same in each year. Which of the following statements is not correct? A. Under variable costing, net operating income for Year 1 and Year 2 would be the same.B. Because of the changes in production levels, under variable costing the unit product cost will change each year.C. The total net operating income for all four years combined would be the same under variable and absorption costing.D. Under absorption costing, net operating income in Year 4 would be less than the net operating income in Year 2.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLevel: Hard

21. Would the following costs be classified as product or period costs under variable costing at a retail clothing store?



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22. Fixed manufacturing overhead is included in product costs under:



23. Which of the following are considered to be product costs under variable costing?

I. Variable manufacturing overhead.II. Fixed manufacturing overhead.III. Selling and administrative expenses. A. I.B. I and II.C. I and III.D. I, II, and III.


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24. Which of the following are considered to be product costs under absorption costing?

I. Variable manufacturing overhead.II. Fixed manufacturing overhead.III. Selling and administrative expenses. A. I, II, and III.B. I and II.C. I and III.D. I.


25. Under variable costing, costs that are treated as period costs include: A. only fixed manufacturing costs.B. both variable and fixed manufacturing costs.C. all fixed costs.D. only fixed selling and administrative costs.


26. Selling and administrative expenses are considered to be: A. a product cost under variable costing.B. a product cost under absorption costing.C. part of fixed manufacturing overhead under variable costing.D. a period cost under variable costing.


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27. A portion of the total fixed manufacturing overhead cost incurred during a period may: A. be excluded from cost of goods sold under absorption costing.B. be charged as a period cost with the remainder deferred under variable costing.C. never be excluded from cost of goods sold under absorption costing.D. never be excluded from cost of goods sold under variable costing.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLevel: Hard

28. A company using lean production methods likely would show approximately the same net operating income under both absorption and variable costing because: A. ending inventory would be valued in the same manner for both methods under lean production.B. production is geared to sales under lean production and thus there would be little or no ending inventory.C. under lean production fixed manufacturing overhead costs are charged to the period incurred rather than to the product produced.D. there is no distinction made under lean production between fixed and variable costs.


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29. Dull Corporation has been producing and selling electric razors for the past ten years. Shown below are the actual net operating incomes for the last three years of operations at Dull:

Dull Corporation's cost structure and selling price has not changed during its ten years of operations. Based on the information presented above, which of the following statements is true? A. Dull Corporation operated above the breakeven point in each of the three years presented.B. For the three years presented in total, Dull Corporation sold more units than it produced.C. In Year 10, Dull Corporation produced fewer units than it sold.D. In Year 9, Dull Corporation produced more units than it sold.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differLevel: Hard

30. Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if: A. production equals sales for that period.B. production exceeds sales for that period.C. sales exceed production for that period.D. the variable manufacturing overhead exceeds the fixed manufacturing overhead.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differLevel: MediumSource: CMA, adapted

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31. If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will: A. be equal to the net operating income under variable costing.B. be greater than net operating income under variable costing.C. be equal to the net operating income under variable costing plus total fixed manufacturing costs.D. be equal to the net operating income under variable costing less total fixed manufacturing costs.


32. Over an extended period of time in which the final ending inventories are zero, the accumulated net operating income figures reported under absorption costing will be: A. greater than those reported under variable costing.B. less than those reported under variable costing.C. the same as those reported under variable costing.D. higher or lower since no generalization can be made.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differLevel: Hard

33. In an income statement segmented by product line, a fixed expense that cannot be allocated among product lines on a cause-and-effect basis should be: A. classified as a traceable fixed expense and not allocated.B. allocated to the product lines on the basis of sales dollars.C. allocated to the product lines on the basis of segment margin.D. classified as a common fixed expense and not allocated.


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34. A common cost that should not be assigned to a particular product on a segmented income statement is: A. the product's advertising costs.B. the salary of the corporation president.C. direct materials costs.D. the product manager's salary.


35. All other things being equal, if a division's traceable fixed expenses increase: A. the division's contribution margin ratio will decrease.B. the division's segment margin ratio will remain the same.C. the division's segment margin will decrease.D. the overall company profit will remain the same.


36. All other things equal, if a division's traceable fixed expenses decrease: A. the division's segment margin will increase.B. the overall company net operating income will decrease.C. the division's contribution margin will increase.D. the division's sales volume will increase.


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37. Segment margin is sales minus: A. variable expenses.B. traceable fixed expenses.C. variable expenses and common fixed expenses.D. variable expenses and traceable fixed expenses.


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38. Clayton Company produces a single product. Last year, the company's variable production costs totaled $8,000 and its fixed manufacturing overhead costs totaled $4,800. The company produced 4,000 units during the year and sold 3,600 units. Assuming no units in the beginning inventory: A. under variable costing, the units in ending inventory will be costed at $3.20 each.B. the net operating income under absorption costing for the year will be $480 lower than net operating income under variable costing.C. the ending inventory under variable costing will be $480 lower than the ending inventory under absorption costing.D. the net operating income under absorption costing for the year will be $800 lower than net operating income under variable costing.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLearning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differLevel: Medium

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39. Gangwer Corporation produces a single product and has the following cost structure:

The absorption costing unit product cost is: A. $95B. $119C. $61D. $56

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLevel: Easy

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40. Olds Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The absorption costing unit product cost was: A. $97B. $130C. $99D. $207


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What is the absorption costing unit product cost for the month? A. $102B. $130C. $97D. $125


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What is the variable costing unit product cost for the month? A. $103B. $99C. $94D. $90


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What is the total period cost for the month under variable costing? A. $185,000B. $117,600C. $273,200D. $302,600


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44. Swiatek Corporation produces a single product and has the following cost structure:

The variable costing unit product cost is: A. $161B. $225C. $153D. $158


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45. Cockriel Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The variable costing unit product cost was: A. $42B. $43C. $37D. $48


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What is the total period cost for the month under absorption costing? A. $58,300B. $37,100C. $259,900D. $201,600


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47. Roy Corporation produces a single product. During July, Roy produced 10,000 units. Costs incurred during the month were as follows:

Under absorption costing, any unsold units would be carried in the inventory account at a unit product cost of: A. $5.10B. $4.40C. $3.80D. $3.50

Absorption costing unit product cost = $44,000 10,000 units = $4.40 per unit

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLevel: Medium

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What is the net operating income for the month under variable costing? A. $21,600B. $(15,200)C. $8,000D. $13,600

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Variable costing unit product cost

Variable costing income statement

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLevel: Medium

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What is the net operating income for the month under absorption costing? A. $5,300B. $3,000C. $(12,700)D. $8,300

Unit product cost under absorption costing:

Absorption costing income statement

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The total gross margin for the month under absorption costing is: A. $42,000B. $14,700C. $69,000D. $79,800


Absorption costing income statement

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AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLevel: Easy

51. A company produces a single product. Last year, fixed manufacturing overhead was $30,000, variable production costs were $48,000, fixed selling and administration costs were $20,000, and variable selling administrative expenses were $9,600. There was no beginning inventory. During the year, 3,000 units were produced and 2,400 units were sold at a price of $40 per unit. Under variable costing, net operating income would be: A. a profit of $6,000.B. a profit of $4,000.C. a loss of $2,000.D. a loss of $4,400.

Variable costing unit product cost = $48,000 3,000 units produced = $16 per unit


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The total contribution margin for the month under variable costing is: A. $183,600B. $90,000C. $70,400D. $169,200

Unit product cost under variable costing:

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AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLevel: Easy

53. Last year, Heidenescher Corporation's variable costing net operating income was $63,600 and its inventory decreased by 600 units. Fixed manufacturing overhead cost was $1 per unit. What was the absorption costing net operating income last year? A. $64,200B. $63,000C. $63,600D. $600

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differLevel: Medium

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54. Sproles Inc. manufactures a variety of products. Variable costing net operating income was $90,500 last year and its inventory decreased by 3,500 units. Fixed manufacturing overhead cost was $6 per unit. What was the absorption costing net operating income last year? A. $90,500B. $21,000C. $69,500D. $111,500


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55. Roberts Company produces a single product. This year, the company's net operating income under absorption costing was $2,000 lower than under variable costing. The company sold 8,000 units during the year, and its variable costs were $8 per unit, of which $2 was variable selling and administrative expense. If production cost was $10 per unit under absorption costing, then how many units did the company produce during the year? (The company produced the same number of units last year.) A. 7,500 unitsB. 7,000 unitsC. 9,000 unitsD. 8,500 units

Variable production cost per unit = $8 per unit - $2 per unit = $6 per unitAbsorption unit product cost = Variable production cost per unit + Fixed production cost per unit$10 per unit = $6 per unit + Fixed manufacturing overhead cost per unitFixed manufacturing overhead cost per unit = $10 per unit - $6 per unit = $4 per unit

Since absorption costing net operating income was $2,000 lower than its variable costing net operating income, $2,000 of fixed manufacturing overhead cost was released from inventory under absorption costing.

Fixed manufacturing overhead cost released from inventory under absorption costing = Fixed manufacturing overhead cost per unit Decrease in units in inventory$2,000 = $4 per unit Decrease in units in inventoryDecrease in units in inventory = $2,000 $4 per unit = 500 units

Units sold = Units produced + Decrease in units in inventory8,000 units = Units produced + 500 unitsUnits produced = 8,000 units - 500 units = 7,500 units

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differLevel: Hard

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56. Evans Company produces a single product. During the most recent year, the company had a net operating income of $90,000 using absorption costing and $84,000 using variable costing. The fixed overhead application rate was $6 per unit. There were no beginning inventories. If 22,000 units were produced last year, then sales for last year were: A. 15,000 unitsB. 21,000 unitsC. 23,000 unitsD. 28,000 units

Since absorption costing net operating income was greater than its variable costing net operating income by $6,000, it must have deferred $6,000 of fixed manufacturing overhead costs in inventory under absorption costing.

Fixed manufacturing overhead costs deferred in inventory under absorption costing = Fixed manufacturing overhead cost per unit Increase in units in inventory$6,000 = $6 per unit Increase in units in inventoryIncrease in units in inventory = $6,000 $6 per unit = 1,000 units

Therefore, since there were no beginning inventories and 1,000 units of the 22,000 units that were produced were in ending inventories, sales must have been 21,000 units.


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57. Craft Company produces a single product. Last year, the company had a net operating income of $80,000 using absorption costing and $74,500 using variable costing. The fixed manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500 units were produced last year, then sales last year were: A. 16,000 unitsB. 20,400 unitsC. 22,600 unitsD. 27,000 units

Since absorption costing net operating income was greater than its variable costing net operating income by $5,500, it must have deferred $5,500 of fixed manufacturing overhead costs in inventory under absorption costing.

Fixed manufacturing overhead costs deferred in inventory under absorption costing = Fixed manufacturing overhead cost per unit Increase in units in inventory$5,500 = $5 per unit Increase in units in inventoryIncrease in units in inventory = $5,500 $5 per unit = 1,100 units

Therefore, since there were no beginning inventories and 1,100 units of the 21,500 units that were produced were in ending inventories, sales must have been 20,400 units.


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58. Moore Company produces a single product. During last year, Moore's variable production costs totaled $10,000 and its fixed manufacturing overhead costs totaled $6,800. The company produced 5,000 units during the year and sold 4,600 units. There were no units in the beginning inventory. Which of the following statements is true? A. The net operating income under absorption costing for the year will be $800 higher than net operating income under variable costing.B. The net operating income under absorption costing for the year will be $544 higher than net operating income under variable costing.C. The net operating income under absorption costing for the year will be $544 lower than net operating income under variable costing.D. The net operating income under absorption costing for the year will be $800 lower than net operating income under variable costing.

Therefore, net operating income under absorption costing would be $544 higher than net operating income under variable costing.


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59. Last year, Salada Corporation's variable costing net operating income was $97,000. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $14,000. What was the absorption costing net operating income last year? A. $14,000B. $111,000C. $97,000D. $83,000

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differLevel: Easy

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60. Tsuchiya Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $57,500. Fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $35,400. What was the absorption costing net operating income last year? A. $22,100B. $35,400C. $57,500D. $92,900


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61. Stephen Company produces a single product. Last year, the company had 20,000 units in its ending inventory. During the year, Stephen's variable production costs were $12 per unit. The fixed manufacturing overhead cost was $8 per unit in the beginning inventory. The company's net operating income for the year was $9,600 higher under variable costing than it was under absorption costing. The company uses a last-in-first-out (LIFO) inventory flow assumption. Given these facts, the number of units of product in the beginning inventory last year must have been: A. 21,200B. 19,200C. 18,800D. 19,520

Since the variable costing operating net income was $9,600 higher under variable costing than under absorption costing, fixed manufacturing overhead costs must have been released from inventory under absorption costing. In other words, the ending inventory must have been lower than the beginning inventory. Under the LIFO inventory flow assumption, all of the units in ending inventory were also in beginning inventory. Therefore, the reduction in inventory must have been 1,200 units (= $9,600 $8 per unit).

Units in ending inventory = Units in beginning inventory - Reduction in units in inventory20,000 units = Units in beginning inventory - 1,200 unitsUnits in beginning inventory = 20,000 units + 1,200 units = 21,200 units


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62. Hansen Company produces a single product. During the last year, Hansen had net operating income under absorption costing that was $5,500 lower than its income under variable costing. The company sold 9,000 units during the year, and its variable costs were $10 per unit, of which $6 was variable selling expense. If fixed production cost is $5 per unit under absorption costing every year, then how many units did the company produce during the year? A. 7,625 unitsB. 8,450 unitsC. 10,100 unitsD. 7,900 units

Since net operating income under absorption costing was $5,500 lower than under variable costing, inventories must have decreased. A reduction in inventories results in releasing fixed manufacturing overhead from inventories.

Fixed manufacturing overhead costs released from inventory under absorption costing = Fixed manufacturing overhead per unit Reduction in the units in inventory$5,500 = $5 per unit Reduction in the units in inventoryReduction in the units in inventory = $5,500 $5 per unit = 1,100 units

Units in beginning inventory + Units produced = Units sold + Units in ending inventoryUnits in beginning inventory - Units in ending inventory = Units sold - Units producedReduction in the units in inventory = Units sold - Units produced1,100 units = 9,000 units - Units producedUnits produced = 9,000 units - 1,100 units = 7,900 units


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63. Hatch Company has two divisions, O and E. During the year just ended, Division O had a segment margin of $9,000 and variable expenses equal to 70% of sales. Traceable fixed expenses for Division E were $19,000. Hatch Company as a whole had a contribution margin ratio of 40%, a segment margin of $25,000, and sales of $200,000. Given this data, the sales for Division E for last year were: A. $50,000B. $150,000C. $87,500D. $116,667

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E segment margin = Total segment margin - O segment margin = $25,000 - $9,000 = $16,000

E segment margin = E contribution margin - E traceable expensesE contribution margin = E segment margin + E traceable expenses$16,000 + $19,000 = $35,000

Total contribution margin = Total sales Total contribution margin ratio = $200,000 0.40 = $80,000

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Total contribution margin = O contribution margin + E contribution marginO contribution margin = Total contribution margin - E contribution margin= $80,000 - $35,000 = $45,000

O CM ratio = 1 - O variable expense ratio = 1 - 0.70 = 0.30O contribution margin = O CM ratio O sales$45,000 = 0.30 O salesO sales = $45,000 0.30 = $150,000

Total sales = O sales + E salesE sales = Total sales - O sales = $200,000 - $150,000 = $50,000

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AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisionsLevel: Hard

64. During April, Division D of Carney Company had a segment margin ratio of 15%, a variable expense ratio of 60% of sales, and traceable fixed expenses of $15,000. Division D's sales were closest to: A. $100,000B. $60,000C. $33,333D. $22,500

Segment margin = 0.15 Segment salesSegment variable expenses = 0.60 Segment salesSegment traceable fixed expenses = $15,000Segment margin = Segment sales - Segment variable expenses - Segment traceable fixed expenses0.15 Segment sales = Segment sales - 0.60 Segment sales - $15,0000.25 Segment sales = $15,000Segment sales = $15,000 0.25 = $60,000


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65. Colasuonno Corporation has two divisions: the West Division and the East Division. The corporation's net operating income is $88,800. The West Division's divisional segment margin is $39,500 and the East Division's divisional segment margin is $166,900. What is the amount of the common fixed expense not traceable to the individual divisions? A. $255,700B. $206,400C. $117,600D. $128,300

Total segment margin = $39,500 + $166,900 = $206,400Total net operating income = Total segment margin - Common fixed expenses$88,800 = $206,400 - Common fixed expensesCommon fixed expenses = $206,400 - $88,800 = $117,600

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisionsLevel: Medium

66. Gore Corporation has two divisions: the Business Products Division and the Export Products Division. The Business Products Division's divisional segment margin is $55,700 and the Export Products Division's divisional segment margin is $70,600. The total amount of common fixed expenses not traceable to the individual divisions is $107,400. What is the company's net operating income? A. $233,700B. $(126,300)C. $126,300D. $18,900

Total segment margin = $55,700 + $70,600 = $126,300Total net operating income = Total segment margin - Common fixed expenses= $126,300 - $107,400 = $18,900

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisionsLevel: Easy

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67. More Company has two divisions, L and M. During July, the contribution margin in Division L was $60,000. The contribution margin ratio in Division M was 40% and its sales were $250,000. Division M's segment margin was $60,000. The common fixed expenses were $50,000 and the company net operating income was $20,000. The segment margin for Division L was: A. $0B. $10,000C. $50,000D. $60,000

Net operating income = Total segment margin - Common fixed expenses$20,000 = Total segment margin - $50,000Total segment margin = $20,000 + $50,000 = $70,000

Total segment margin = L segment margin + M segment margin$70,000 = L segment margin + $60,000L segment margin = $70,000 - $60,000 = $10,000


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68. Stephen Company has the following data for its three stores last year:

Given the above data, the total company sales were: A. $1,250,000B. $1,375,000C. $1,450,000D. $800,000

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Segment A Variable expense ratio = Segment A Variable expenses Segment A Sales0.60 = $240,000 Segment A SalesSegment A Sales = $240,000 0.60 = $400,000

Segment B CM ratio = Segment B Contribution margin Segment B Sales0.20 = $120,000 Segment B SalesSegment B Sales = $120,000 0.20 = $600,000

Segment C CM ratio = 1 - Segment C Variable expense ratioSegment C Variable expense ratio = 1 - Segment C CM ratio = 1 - 0.40 = 0.60Segment C Variable expense ratio = Segment C Variable expenses Segment C SalesSegment C Sales = Segment C Variable expenses Segment C Variable expense ratio= $150,000 0.60 = $250,000

Total sales = $400,000 + $600,000 + $250,000 = $1,250,000

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69. Johnson Company operates two plants, Plant A and Plant B. Last year, Johnson Company reported a contribution margin of $40,000 for Plant A. Plant B had sales of $200,000 and a contribution margin ratio of 40%. Net operating income for the company was $27,000 and traceable fixed expenses for the two stores totaled $50,000. Johnson Company's common fixed expenses were: A. $43,000B. $50,000C. $93,000D. $120,000

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Plant B Contribution margin = Plant B CM ratio Plant B Sales = 0.40 $200,000 = $80,000

Net operating income = Segment margin - Common fixed expenses

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$27,000 = $70,000 - Common fixed expensesCommon fixed expenses = $70,000 - $27,000

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70. The ARB Company has two divisions: Electronics and DVD/Video Sales. Electronics has traceable fixed expenses of $146,280 and the DVD/Video Sales has traceable fixed expenses of $81,765. If ARB Company has a total of $322,490 in fixed expenses, what are its common fixed expenses? A. $94,445B. $322,490C. $228,045D. $47,223

Common fixed expenses = Total fixed expenses - Traceable fixed expenses= $322,490 - ($146,280 + $81,765) =$94,445


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71. Leis Retail Company has two Stores, M and N. Store N had sales of $180,000 during March, a segment margin of $54,000, and traceable fixed expenses of $26,000. The company as a whole had a contribution margin ratio of 25% and $120,000 in total contribution margin. Based on this information, total variable expenses in Store M for the month must have been: A. $140,000B. $260,000C. $300,000D. $360,000

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CM ratio = Contribution margin Sales0.25 = $120,000 SalesSales = $120,000 0.25 = $480,000

Contribution margin = Sales - Variable expenses$120,000 = $480,000 - Variable expensesVariable expenses = $480,000 - $120,000 = $360,000

Store N Segment margin = Store N Contribution margin - Segment N Traceable fixed expenses$54,000 = Store N Contribution margin - $26,000Store N Contribution margin = $54,000 + $26,000 = $80,000

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Store N Contribution margin = Store N Sales - Store N Variable expenses$80,000 = $180,000 - Store N Variable expensesStore N Variable expenses = $180,000 - $80,000 = $100,000

Total Variable expenses = Store M Variable expenses + Store N Variable expenses$360,000 = Store M Variable expenses + $100,000Store M Variable expenses = $360,000 - $100,000 = $260,000


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72. Sugiki Corporation has two divisions: the Alpha Division and the Delta Division. The Alpha Division has sales of $820,000, variable expenses of $369,000, and traceable fixed expenses of $347,300. The Delta Division has sales of $460,000, variable expenses of $294,400, and traceable fixed expenses of $134,100. The total amount of common fixed expenses not traceable to the individual divisions is $97,300. What is the company's net operating income? A. $135,200B. $37,900C. $616,600D. $519,300


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73. Phillipson Corporation has two divisions: the IEB Division and the PIH Division. The corporation's net operating income is $83,900. The IEB Division's divisional segment margin is $149,700 and the PIH Division's divisional segment margin is $60,100. What is the amount of the common fixed expense not traceable to the individual divisions? A. $233,600B. $209,800C. $144,000D. $125,900

Net operating income = Segment margin - Common fixed expenses$83,900 = ($149,700 +$60,100) - Common fixed expenses$83,900 = $209,800 - Common fixed expensesCommon fixed expenses = $209,800 - $83,900 = $125,900


The Pacific Company manufactures a single product. The following data relate to the year just completed:

During the last year, 5,000 units were produced and 4,800 units were sold. There were no beginning inventories.

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74. Under variable costing, the unit product cost would be: A. $91.00B. $72.00C. $58.00D. $43.00

Under variable costing, the unit product cost is the variable production cost of $43 per unit.


75. The carrying value of finished goods inventory at the end of the year under variable costing would be: A. $8,800 greater than under absorption costing.B. $8,800 less than under absorption costing.C. $5,800 less than under absorption costing.D. The same as absorption costing.

Fixed manufacturing overhead per unit = Fixed manufacturing overhead Units produced= $145,000 5,000 units = $29 per unitChange in units in inventory = Units produced - Units sold = 5,000 units - 4,800 units = 200 units

Since inventories increased by 200 units, fixed manufacturing overhead is deferred in inventories and absorption costing net operating income will be greater than variable costing net operating income.

Manufacturing overhead deferred in inventory = Fixed manufacturing overhead per unit Increase in units in inventory = $29 per unit 200 unit increase = $5,800

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLevel: Medium

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76. Under absorption costing, the cost of goods sold for the year would be: A. $206,400B. $345,600C. $278,400D. $360,000


Carr Company produces a single product. During the past year, Carr manufactured 25,000 units and sold 20,000 units. Production costs for the year were as follows:

Sales totaled $850,000, variable selling expenses totaled $110,000, and fixed selling and administrative expenses totaled $170,000. There were no units in beginning inventory. Assume that direct labor is a variable cost.

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77. The contribution margin per unit would be: A. $12.10B. $22.10C. $17.70D. $16.60

Variable expenses per unit:

Selling price per unit = $850,000 20,000 units = $42.50 per unitUnit CM = Selling price per unit - Variable expenses per unit= $42.50 per unit - $25.90 per unit = $16.60 per unit


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78. Under absorption costing, the ending inventory for the year would be valued at: A. $179,500B. $213,500C. $222,000D. $152,000


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79. The net operating income for the year under variable costing would be: A. $28,000 lower than under absorption costingB. $28,000 higher than under absorption costingC. $50,000 lower than under absorption costingD. $50,000 higher than under absorption costing

Change in units in inventory = Units produced - Units sold= 25,000 units - 20,000 units = 5,000 unit increase

Fixed manufacturing overhead per unit = Fixed manufacturing overhead Units produced= $250,000 25,000 units = $10.00 per unit

Since the units produced exceeds the units sold, fixed manufacturing overhead costs will be deferred in inventory and absorption costing net operating income will exceed variable costing net operating income.

Manufacturing overhead deferred in inventory = Fixed manufacturing overhead per unit Increase in units in inventory = $10.00 per unit 5,000 units = $50,000


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Favini Company, which has only one product, has provided the following data concerning its most recent month of operations:



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83. What is the net operating income for the month under absorption costing? A. $11,800B. $3,700C. $8,100D. $(23,600)


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Hadlock Company, which has only one product, has provided the following data concerning its most recent month of operations:



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Unit CM = Selling price per unit - Variable expenses per unit= $91 per unit - $69 per unit = $22 per unitContribution margin = Unit CM Unit sales = $22 per unit 6,400 units = $140,800



AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLevel: Hard

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Abe Company, which has only one product, has provided the following data concerning its most recent month of operations:



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Unit CM = Selling price per unit - Variable expenses per unit= $126 per unit - ($81 per unit + $7 per unit) = $126 per unit - $88 per unit = $38 per unit

Contribution margin = Unit CM Unit sales = $38 per unit 8,400 units = $319,200


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AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLevel: Hard



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Ingerson Company, which has only one product, has provided the following data concerning its most recent month of operations:



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Jarvinen Company, which has only one product, has provided the following data concerning its most recent month of operations:




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100. What is the net operating income for the month under variable costing? A. $11,600B. $2,900C. $8,700D. $0


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101. What is the net operating income for the month under absorption costing? A. $2,900B. $0C. $8,700D. $11,600


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DeAnne Company produces a single product. The company's variable costing income statement for August appears below:

The company produced 35,000 units in August and the beginning inventory consisted of 8,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months.

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102. The value of the company's inventory on August 31 under the absorption costing method is: A. $27,000B. $42,000C. $36,000D. $47,000

Units sold = $600,000 $15 per unit = 40,000 units

Units in beginning inventory + Units produced = Units sold + Units in ending inventory8,000 units + 35,000 units = 40,000 units + Units in ending inventoryUnits in ending inventory = 8,000 units + 35,000 units - 40,000 units = 3,000 units

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLevel: Hard

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103. Under absorption costing, for the month ended August 31, the company would report a: A. $20,000 profitB. $5,000 lossC. $35,000 profitD. $5,000 profit


Fahey Company manufactures a single product that it sells for $25 per unit. The company has the following cost structure:

There were no units in beginning inventory. During the year, 18,000 units were produced and 15,000 units were sold.

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105. The company's net operating income for the year under variable costing is: A. $60,000B. $81,000C. $57,000D. $69,000


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Galino Company, which has only one product, has provided the following data concerning its most recent month of operations:

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Kilihea Corporation produces a single product. The company's absorption costing income statement for July follows:

The company's variable production costs are $20 per unit and its fixed manufacturing overhead totals $80,000 per month.

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110. Net operating income under the variable costing method for July would be: A. $53,000B. $49,800C. $61,000D. $57,000


111. The contribution margin per unit during July was: A. $17B. $20C. $25D. $6


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112. The break-even point in units for the month under variable costing is: A. 6,850 unitsB. 4,000 unitsC. 3,200 unitsD. 5,100 units

Fixed expenses = Fixed selling and administrative expense + Fixed manufacturing overhead= $57,000 + $80,000 = $137,000Unit sales to break even = Fixed expenses Unit CM= $137,000 $20= 6,850 units


Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure:

In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for $120 each.

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113. If Eagle had sold only 9,000 tables in its first year, what total amount of cost would have been assigned to the 1,000 tables in finished goods inventory under the absorption costing method? A. $37,100B. $45,800C. $58,000D. $74,200


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114. How would Eagle's variable costing net operating income have been affected in its first year if only 9,000 tables were sold instead of 10,000? A. net operating income would have been $37,100 lowerB. net operating income would have been $45,800 lowerC. net operating income would have been $56,000 lowerD. net operating income would have been $62,000 lower

Unit CM = Selling price per unit - Variable expenses per unit= $120 per unit - ($58 per unit + $6 per unit) = $120 per unit - $64 per unit = $56 per unit

Change in contribution margin = Unit CM ratio Change in unit sales= $56 per unit 1,000 units = $56,000

Since fixed expenses would not be affected by this change in unit sales, the change in contribution margin would drop directly to the bottom line, decreasing net operating income by $56,000.


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115. How would Eagle's absorption costing net operating income have been affected in its first year if 12,000 tables were produced instead of 10,000 and Eagle still sold 10,000 tables? A. net operating income would not have been affectedB. net operating income would have been $27,000 higherC. net operating income would have been $31,500 higherD. net operating income would have been $116,000 lower

Absorption costing income statement with production and sales of 10,000 units:

Absorption costing income statement with production of 12,000 units and sales of 10,000 units:

Therefore, net operating income would have been $27,000 higher (= $398,000 - $371,000)


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Green Enterprises produces a single product. The following data were provided by the company for the most recent period:

116. Under variable costing, the unit product cost is: A. $20B. $18C. $15D. $22

Under variable costing, the unit product cost is the variable manufacturing cost.


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118. For the period above, one would expect the net operating income under absorption costing to be: A. higher than the net operating income under variable costing.B. lower than the net operating income under variable costing.C. the same as the net operating income under variable costing.D. The relation between absorption costing net operating income and variable costing net operating income cannot be determined.

When production exceeds sales, net operating income under absorption costing will always be higher than under variable costing. A portion of fixed manufacturing cost will be deferred in ending inventory rather than being included in the income statement.


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Whitney, Inc., produces a single product. The following data pertain to one month's operations:

119. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be: A. $16,000B. $10,000C. $19,000D. $12,000


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121. For the month referred to above, net operating income under variable costing will be: A. higher than net operating income under absorption costing.B. lower than net operating income under absorption costing.C. the same as net operating income under absorption costing.D. The relation between variable costing and absorption costing net operating income cannot be determined.

Since production exceeds sales, the net operating income for variable costing will be lower than for absorption costing. This occurs because under absorption costing, some of the fixed manufacturing overhead cost is deferred in ending inventories.


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Mennig Corporation produces a single product and has the following cost structure:

122. The unit product cost under absorption costing is: A. $92B. $228C. $182D. $85


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123. The unit product cost under variable costing is: A. $182B. $92C. $87D. $94


Byron Company, which has only one product, has provided the following data concerning its most recent month of operations:

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During the last year, Snyder Co. produced 10,000 units of its only product. Costs incurred by Snyder during the year were as follows:

126. The unit product cost under absorption costing was: A. $5.43B. $3.81C. $4.71D. $4.12


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127. The unit product cost under variable costing was: A. $3.20B. $3.81C. $4.12D. $3.51


Deboer Company, which has only one product, has provided the following data concerning its most recent month of operations:

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The following cost formula relates to last year's operations at Lemine Manufacturing Corporation:Y = $84,000 + $60.00XIn the formula above, 75% of the fixed cost and 90% of the variable cost are manufacturing costs. Y is the total cost and X is the number of units produced and sold.

130. If Lemine produces and sells 7,000 units, what is the unit product cost under each of the following methods?


Variable manufacturing cost = 0.90 $60.00 = $54.00Fixed manufacturing cost = 0.75 $84,000 = $63,000


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131. If Lemine produces and sells only 6,000 units, what is the unit product cost under each of the following methods?


Variable manufacturing cost = 0.90 $60.00 = $54.00Fixed manufacturing cost = 0.75 $84,000 = $63,000


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Pellman Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories.

132. The unit product cost under absorption costing was: A. $91B. $72C. $25D. $32


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133. The unit product cost under variable costing was: A. $33B. $32C. $72D. $40


Elbon Company, which has only one product, has provided the following data concerning its most recent month of operations:

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134. What is the net operating income for the month under variable costing? A. $10,200B. $(19,000)C. $8,800D. $1,400



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Gordon Company produces a single product that sells for $10 per unit. Last year there were no beginning inventories, 100,000 units were produced, and 80,000 units were sold. The company has the following cost structure:

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136. Net operating income under variable costing would be: A. $114,000B. $210,000C. $234,000D. $330,000



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Clements Company, which has only one product, has provided the following data concerning its most recent month of operations:

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Kierst Company, which has only one product, has provided the following data concerning its most recent month of operations:


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140. What is the net operating income for the month under variable costing? A. $10,600B. $16,200C. $6,200D. $7,500



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141. What is the net operating income for the month under absorption costing? A. $7,500B. $16,200C. $6,200D. $10,600



Krug Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

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Enz Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

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Vanstee Corporation manufactures a variety of products. Variable costing net operating income last year was $60,000 and this year was $67,000. Last year, $37,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing. This year, $8,000 in fixed manufacturing overhead costs were released from inventory under absorption costing.



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Condit Corporation manufactures a variety of products. Variable costing net operating income was $75,600 last year and was $80,100 this year. Last year, inventory decreased by 3,400 units. This year, inventory increased by 3,000 units. Fixed manufacturing overhead cost is $5 per unit.

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The Rial Company's income statement for June is given below:

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150. If sales for Division F increase $40,000 with a $10,000 increase in the Division's traceable fixed costs, the overall company net operating income should: A. increase by $30,000B. increase by $6,000C. increase by $2,889D. decrease by $4,000

CM ratio = Contribution margin Sales = $88,000 $220,000 = 0.40Change in contribution margin = CM ratio Change in sales = 0.40 $40,000 =Change in net operating income = Change in contribution margin - Increase in traceable fixed costs= $16,000 - $10,000 = $6,000


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151. During June, the sales clerks in Division F received salaries totaling $35,000. Assume that during July the salaries of these sales clerks are discontinued and instead they are paid a commission of 18% of sales. If sales in Division F increase by $65,000 as a result of this change, the July segment margin for Division F should be: A. $42,700B. $19,400C. $54,400D. $94,000

Projected sales = $220,000 + $65,000 = $285,000Current variable expense ratio = $132,000 $220,000 = 0.60Projected variable expense ratio = 0.60 + 0.18 = 0.78Projected variable expenses = 0.78 $285,000 = $222,300Projected traceable fixed expenses = $55,000 - $35,000 = $20,000


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152. If the sales in Division L increase by 30% while common fixed expenses in the company decrease by $10,000, the segment margin for Division L should: A. increase by $32,400B. increase by $10,800C. decrease by $22,400D. decrease by $65,600

CM ratio = Contribution margin Sales = $108,000 $180,000 = 0.60Change in contribution margin = CM ratio Change in sales = 0.60 (0.30 $180,000) = $32,400The decrease in common fixed expenses has no impact on the Division L segment margin. Therefore, the Division L segment margin will increase by $32,400.


153. A proposal has been made that will lower variable expenses in Division L to 35% of sales. However, this reduction can only be accomplished by a $15,000 increase in Division L's traceable fixed expenses. If this proposal is implemented and if sales remain constant, overall company net operating income should: A. increase by $15,000B. increase by $24,000C. decrease by $15,000D. decrease by $6,000


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Pong Incorporated's income statement for the most recent month is given below.

154. If Store G sales increase by $40,000 with no change in fixed costs, the overall company net operating income should: A. increase by $4,000B. increase by $8,000C. increase by $24,000D. increase by $20,000

CM ratio = Contribution margin Sales = $30,000 $60,000 = 0.50Change in contribution margin = CM ratio Change in sales = 0.50 $40,000 = $20,000Since there is no change in fixed costs, the net operating income should increase by $20,000.


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155. The marketing department believes that a promotional campaign for Store H costing $8,000 will increase the store's sales by $15,000. If the campaign is adopted, overall company net operating income should: A. decrease by $5,000B. decrease by $5,500C. increase by $2,000D. increase by $7,000

CM ratio = Contribution margin Sales = $60,000 $90,000 = 2/3Change in contribution margin = CM ratio Change in sales = 2/3 $15,000 = $10,000Change in net operating income = Change in contribution margin - Cost of promotional campaign= $10,000 - $8,000 = $2,000


Ring, Incorporated's income statement for the most recent month is given below.

For each of the following questions, refer back to the original data.

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156. If Store Q sales increase by $30,000 with no change in fixed expenses, the overall company net operating income should: A. increase by $3,750B. increase by $7,500C. increase by $12,000D. increase by $18,000

CM ratio = Contribution margin Sales = $160,000 $400,000 = 0.40Change in contribution margin = CM ratio Change in sales = 0.40 $30,000 = $12,000Since there is no change in any other cost, the net operating income should increase by $12,000.


157. The marketing department believes that a promotional campaign at Store P costing $5,000 will increase sales by $15,000. If the campaign is adopted, overall company net operating income should: A. decrease by $800B. decrease by $5,800C. increase by $5,800D. increase by $10,000

CM ratio = Contribution margin Sales = $56,000 $200,000 = 0.28Change in contribution margin = CM ratio Change in sales = 0.28 $15,000 = $4,200Change in net operating income = Change in contribution margin - Cost of promotional campaign= $4,200 - $5,000 = -$800


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158. A proposal has been made that will lower variable costs in Store P to 65% of sales. However, this reduction can only be accomplished by a $16,000 increase in Store P's traceable fixed costs. If this proposal is implemented and sales remain constant, overall company net operating income should: A. remain the sameB. decrease by $2,000C. increase by $2,000D. increase by $14,000

Proposed variable expense ratio = 0.65Proposed variable expenses = 0.65 $200,000 = $130,000


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159. If sales in Store Q increase by $30,000 as a result of a $7,000 increase in traceable fixed costs: A. Store Q's contribution margin should increase by $18,000B. Store Q's segment margin should increase by $12,000C. Store Q's contribution margin should increase by $11,000D. Store Q's segment margin should increase by $5,000

CM ratio = Contribution margin Sales = $160,000 $400,000 = 0.40Change in contribution margin = CM ratio Change in sales = 0.40 $30,000 = $12,000Change in net operating income = Change in contribution margin - Increase in traceable fixed costs= $12,000 - $7,000 = $5,000


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160. Currently the sales clerks receive a salary of $17,000 per month in Store Q. A proposal has been made to change from a fixed salary to a sales commission of 5%. Assume that this proposal is adopted, and that as a result sales in Store Q increase by $40,000. The new segment margin for Store Q should be: A. $47,000B. $61,000C. $85,000D. $44,000

Current variable expense ratio = Variable expenses Sales = $240,000 $400,000 = 0.60Projected variable expense ratio = 0.60 + 0.05 = 0.65Projected sales = $400,000 + $40,000 = $440,000Projected variable expenses = 0.65 $440,000 = $286,000Projected traceable fixed expenses = $110,000 - $17,000 = $93,000


The Gasson Company sells three products, Product A, Product B and Product C, and had sales of $1,000,000 during the month of June. The company's overall contribution margin ratio was 37% and fixed expenses totaled $350,000. Sales were: Product A, $500,000; Product B, $300,000; and Product C, $200,000. Traceable fixed costs were: Product A, $120,000; Product B, $100,000; and Product C, $60,000. The variable expenses of Product A were $300,000 and the variable expenses of Product B were $180,000.

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161. The net operating income for the company as a whole for June was: A. $20,000B. $90,000C. $170,000D. $300,000

Total contribution margin = Overall CM ratio Total sales = 0.37 $1,000,000 = $370,000Net operating income = Total contribution margin - Total fixed expenses = $370,000 - $350,000 = $20,000


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162. The contribution margin ratio for Product C is: A. 75%B. 69%C. 31%D. 25%

Total contribution margin = Overall CM ratio Total sales = 0.37 $1,000,000 = $370,000

Total contribution margin = Total sales - Total variable expenses$370,000 = $1,000,000 - Total variable expensesTotal variable expenses = $1,000,000 - $370,000 = $630,000

Total variable expenses = Product A variable expenses + Product B variable expenses + Product C variable expenses$630,000 = $300,000 + $180,000 + Product C variable expensesProduct C variable expenses = $630,000 - $300,000 - $180,000 = $150,000

Product C contribution margin = $200,000 - $150,000 = $50,000Product C CM ratio = Product C contribution margin Product C sales = $50,000 $200,000 = 0.25

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163. The common fixed expense for Gasson Company for the month of June was: A. $350,000B. $280,000C. $70,000D. $20,000

Total traceable fixed expenses = $120,000 + $100,000 + $60,000 = $280,000Common fixed expenses = Total fixed expenses - Total traceable fixed expenses= $350,000 - $280,000 = $70,000


164. The product line segment margin for Product A for June was: A. $200,000B. $80,000C. $65,000D. $10,000


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165. The contribution margin in dollars for Product B for June was: A. $20,000B. $111,000C. $120,000D. $200,000


Tennison Corporation has two major business segments-Consumer and Commercial. Data for the segment and for the company for May appear below:

In addition, common fixed expenses totaled $371,000 and were allocated as follows: $186,000 to the Consumer business segment and $185,000 to the Commercial business segment.

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166. The contribution margin of the Commercial business segment is: A. $769,000B. $272,000C. $313,000D. $86,000


167. A properly constructed segmented income statement in a contribution format would show that the segment margin of the Consumer business segment is: A. $272,000B. $270,000C. $86,000D. $514,000


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168. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A. $769,000B. $104,000C. $475,000D. -$267,000


Stryker Corporation has two major business segments-East and West. In April, the East business segment had sales revenues of $500,000, variable expenses of $280,000, and traceable fixed expenses of $80,000. During the same month, the West business segment had sales revenues of $970,000, variable expenses of $514,000, and traceable fixed expenses of $184,000. The common fixed expenses totaled $280,000 and were allocated as follows: $112,000 to the East business segment and $168,000 to the West business segment.

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169. The contribution margin of the West business segment is: A. $456,000B. $140,000C. $28,000D. $676,000


170. A properly constructed segmented income statement in a contribution format would show that the segment margin of the East business segment is: A. $108,000B. $28,000C. $140,000D. $280,000


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171. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A. $412,000B. $676,000C. -$148,000D. $132,000


Canon Company has two sales areas: North and South. During last year, the contribution margin in the North Area was $50,000, or 20% of sales. The segment margin in the South was $15,000, or 8% of sales. Traceable fixed expenses are $15,000 in the North and $10,000 in the South. During last year, the company reported total net operating income of $26,000.

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172. The total fixed expenses (traceable and common) for Canon Company for the year were: A. $49,000B. $25,000C. $24,000D. $50,000

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Total traceable fixed expenses = North Traceable fixed expenses + South Traceable fixed expenses= $15,000 + $10,000 = $25,000

North Segment margin = North Contribution margin - North Traceable fixed expenses= $50,000 - $15,000 = $35,000

Total Segment margin = North Segment margin + South Segment margin= $35,000 + $15,000 = $50,000

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Net operating income = Segment margin - Common fixed expensesCommon fixed expenses = Segment margin - Net operating income = $50,000 - $26,000 = $24,000

The total fixed expenses = Traceable fixed expenses + Common fixed expenses= $25,000 + $24,000 = $49,000


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173. The variable expenses for the South Area for the year were: A. $230,000B. $185,000C. $162,500D. $65,000

South Segment margin = 0.08 South Sales$15,000 = 0.08 South SalesSouth Sales = $15,000 0.08 = $187,500

South segment margin = South contribution margin - South traceable fixed expenses$15,000 = South contribution margin - $10,000South contribution margin = $15,000 + $10,000 = $25,000

South Contribution margin = South Sales - South Variable expenses$25,000 = $187,500 - South Variable expensesSouth Variable expenses = $187,500 - $25,000 = $162,500

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Data for June for Ozaki Corporation and its two major business segments, North and South, appear below:

In addition, common fixed expenses totaled $145,000 and were allocated as follows: $73,000 to the North business segment and $72,000 to the South business segment.

174. The contribution margin of the South business segment is: A. $343,000B. $63,000C. $119,000D. $192,000


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175. A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is: A. $270,000B. $119,000C. $207,000D. $192,000


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176. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A. $(56,000)B. $89,000C. $343,000D. $234,000


Falquez Company sells three products: R, S, and T. Data for activity of Falquez Company during July are as follows:

Common fixed expenses for July amounted to $90,000.

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177. Net operating income for the company was: A. $166,000B. $256,000C. $334,000D. $46,000

Contribution margin = CM ratio Sales = 0.32 $800,000 = $256,000Net operating income = Contribution margin - Traceable fixed expenses - Common fixed expenses= $256,000 - $120,000 - $90,000 = $46,000


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178. The contribution margin for Product R was: A. $48,750B. $63,500C. $51,000D. $48,000

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Contribution margin = CM ratio Sales = 0.32 $800,000 = $256,000

Total Sales = R Sales + S Sales + T Sales$800,000 = $150,000 + S Sales + $200,000S Sales = $800,000 - ($150,000 + $200,000) = $450,000

S Contribution margin = S CM ratio S Sales = 0.25 $450,000 = $112,500

T Contribution margin = T CM ratio T Sales = 0.40 $200,000 = $80,000

Total Contribution margin = R Contribution margin + S Contribution margin + T Contribution margin$256,000 = R Contribution margin + $112,500 + $80,000R Contribution margin = $256,000 - ($112,500 + $80,000) = $63,500

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179. The segment margin for Product T was: A. $45,000B. $85,000C. $(10,000)D. $80,000

Total Traceable fixed expenses = R Traceable fixed expenses + S Traceable fixed expenses + T Traceable fixed expenses$120,000 = $25,000 + $60,000 + T Traceable fixed expensesT Traceable fixed expenses = $120,000 - ($25,000 + $60,000) = $35,000

Contribution margin = CM ratio Sales = 0.40 $200,000 = $80,000

T Segment margin = T Contribution margin - T Traceable fixed expenses= $80,000 - $35,000 = $45,000

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Essay Questions

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180. The EG Company produces and sells one product. The following data refer to the year just completed:

Assume that direct labor is a variable cost.

Required:

a. Compute the cost of a single unit of product under both the absorption costing and variable costing approaches.b. Prepare an income statement for the year using absorption costing.c. Prepare a contribution format income statement for the year using variable costing.d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.

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a. Cost per unit under absorption costing:

b. Absorption costing income statement:

c. Variable costing income statement:

d.

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181. Maga Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required:


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a. & b. Unit product costs

c. & d. Income statements

e. Reconciliation

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182. Leigh Company, which has only one product, has provided the following data concerning its most recent month of operations:


Required:


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a. & b. Unit product costs

c. & d. Income statements

e. Reconciliation

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AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLearning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differLevel: Hard

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183. Qu Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required:


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a. Variable costing unit product cost

b. Variable costing income statement

c. Computation of absorption costing net operating income


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184. Packer Company, which has only one product, has provided the following data concerning its most recent month of operations:


Required:


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a. Variable costing unit product cost

b. Variable costing income statement

c. Computation of absorption costing net operating income

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each methodLearning Objective: 06-02 Prepare income statements using both variable and absorption costingLearning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differLevel: Hard

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185. Hubiak Corporation produces a single product and has the following cost structure:

Required:



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186. Hudalla Corporation produces a single product and has the following cost structure:

Required:



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187. Fellner Corporation produces a single product and has the following cost structure:

Required:


a. Absorption costing:

b. Variable costing:


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188. Bertone Inc., which produces a single product, has provided the following data for its most recent month of operation:


Required:



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189. Krasnow Inc., which produces a single product, has provided the following data for its most recent month of operation:


Required:



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190. Cuffee Inc., which produces a single product, has provided the following data for its most recent month of operation:


Required:


a. Absorption costing:

b. Variable costing:


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191. UHF Antennas, Inc., produces and sells a unique television antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation:

Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labor is a variable cost.

Required:

a. Assuming that the company uses absorption costing, compute the unit product cost and prepare an income statement.b. Assuming that the company uses variable costing, compute the unit product cost and prepare an income statement.c. Explain the reason for any difference in the ending inventories under the two costing methods and the impact of this difference on reported net operating income.

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a. Unit product cost under absorption costing:

b. Unit product cost under variable costing:

c.

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192. O'Keefe Company, which has only one product, has provided the following data concerning its most recent month of operations:

Required:


a. Variable costing income statement

b. Absorption costing income statement

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193. Nesman Company, which has only one product, has provided the following data concerning its most recent month of operations:


Required:


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a. Variable costing income statement

b. Absorption costing income statement


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194. Carvey Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

Required:

a. Determine the absorption costing net operating income for last year. Show your work!b. Determine the absorption costing net operating income for this year. Show your work!

a. and b.


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195. Last year, Holroyd Corporation's variable costing net operating income was $95,000. The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $29,000.

Required:



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196. Last year, Teneyck Corporation's variable costing net operating income was $63,500 and ending inventory decreased by 200 units. Fixed manufacturing overhead cost per unit was $5.

Required:



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197. Salonia Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

Required:

a. Determine the absorption costing net operating income last year. Show your work!b. Determine the absorption costing net operating income this year. Show your work!

a and b.


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198. Cassin Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $86,300 and ending inventory decreased by 1,700 units. Fixed manufacturing overhead cost per unit was $8.

Required:



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199. Gordy Corporation manufactures a variety of products. Last year, variable costing net operating income was $81,000. The fixed manufacturing overhead costs released from inventory under absorption costing amounted to $39,000.

Required:



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200. Camren Corporation has two major business segments-Apparel and Accessories. Data concerning those segments for December appear below:

Common fixed expenses totaled $357,000 and were allocated as follows: $161,000 to the Apparel business segment and $196,000 to the Accessories business segment.

Required:



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201. The IT Corporation produces and markets two types of electronic calculators: Model 11 and Model 12. The following data were gathered on activities last month:

Required:

Prepare a segmented income statement in the contribution format for last month.


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202. Data for May concerning Dorow Corporation's two major business segments-Fibers and Feedstocks-appear below:

Common fixed expenses totaled $345,000 and were allocated as follows: $186,000 to the Fibers business segment and $159,000 to the Feedstocks business segment.

Required:



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203. Mossor Corporation has two major business segments-Retail and Wholesale. In December, the Retail business segment had sales revenues of $510,000, variable expenses of $296,000, and traceable fixed expenses of $61,000. During the same month, the Wholesale business segment had sales revenues of $510,000, variable expenses of $240,000, and traceable fixed expenses of $82,000. Common fixed expenses totaled $191,000 and were allocated as follows: $113,000 to the Retail business segment and $78,000 to the Wholesale business segment.

Required:



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Chap 006

Documents

Transcript of Chap 006