CHAPTER 13: INTRODUCTION TO PRODUCT … · Web viewPrepare a standard absorption costing income...

CHAPTER 13: STANDARD COSTING, VARIABLE COSTING, AND THROUGHPUT COSTING

Multiple Choice

a 1. Which of the following is NOT a type of absorption costing?a. Direct costing.b. Actual costing.c. Normal costing.d. None of the above.

b 2. Variable costing is UNACCEPTABLE fora. managerial accounting.b. financial accounting.c. transfer pricing.d. reporting by product lines for internal purposes.

d 3. A criticism of variable costing for managerial accounting purposes is that ita. is not acceptable for product line segmented reporting.b. does not reflect cost-volume-profit relationships.c. overstates inventories.d. might encourage managers to emphasize the short term at the expense

of the long term.

c 4. Normal costing and standard costing differ in thata. the two systems can show different overhead budget variances.b. only normal costing can be used with absorption costing.c. the two systems show different volume variances if standard hours do

not equal actual hours.d. normal costing is less appropriate for multiproduct firms.

d 5. Variable costing and absorption costing will show the same incomes when there are noa. beginning inventories.b. ending inventories.c. variable costs.d. beginning and ending inventories.

c 6. ABC had the same activity in 20X3 as in 20X2 except that production was higher in 20X3 than in 20X2. ABC will showa. higher income in 20X3 than in 20X2.b. the same income in both years.c. the same income in both years under variable costing.d. the same income in both years under absorption costing.

b 7. The use of variable costing requires knowinga. the contribution margin and break-even point for each product.b. the variable and fixed components of production cost.c. controllable and noncontrollable components of all costs.d. the number of units of each product produced during the period.

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d 8. Which measure of activity is likely to give the LOWEST standard fixed cost per unit?a. Actual activity.b. Normal capacity.c. Budgeted activity.d. Practical capacity.

c 9. Which item is NOT used to compute the fixed overhead volume variance?a. Standard fixed cost per unit.b. Budgeted fixed overhead.c. Actual fixed overhead.d. Actual quantity produced.

b 10. Which variance is LEAST relevant for control purposes?a. Material use variance.b. Fixed overhead volume variance.c. Fixed overhead budget variance.d. Labor efficiency variance.

a 11. A company that sets a standard fixed cost based on practical capacitya. should expect unfavorable volume variances.b. will set its selling prices too low.

c. has a higher cost per unit than a company using normal activity to set the standard.

d. usually overapplies its fixed costs.

a 12. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in that a predetermined overhead rate isa. based on an input factor like direct labor hours and a standard cost

per unit is based on a unit of output.b. based on practical capacity and a standard fixed cost can be based on

any level of activity.c. used with variable costing while a standard fixed cost is used with

absorption costing.d. likely to be higher than a standard fixed cost per unit.

b 13. ABC had $400,000 budgeted fixed overhead costs and based its standard on normal activity of 40,000 units. Actual fixed overhead costs were $430,000, actual production was 36,000 units, and sales were 30,000 units. The volume variance wasa. $30,000.b. $40,000.c. $70,000.d. $77,777.

a 14. Advocates of variable costing for internal reporting purposes do NOT rely on which of the following points?a. The matching concept.b. Price-volume relationships.c. Absorption costing does not include selling and administrative

expenses as part of inventoriable cost.d. Production influences income under absorption costing.

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d 15. Calculating income under variable costing does NOT require knowinga. unit sales.b. unit variable manufacturing costs.c. selling price.d. unit production.

a 16. Inventoriable costs under absorption costing includea. both fixed and variable production costs.b. only variable production costs.c. all production costs plus variable selling and administrative costs.d. all production costs plus all selling and administrative costs.

b 17. Inventoriable costs under variable costing includea. fixed and variable production costs.b. variable production costs.c. all production costs plus variable selling and administrative costs.d. all production costs plus all selling and administrative costs.

d 18. Absorption costing and variable costing differ in thata. income is lower under variable costing.b. variable costing treats selling costs as period costs.c. variable costing treats all variable costs as product costs.d. inventory cost is higher under absorption costing.

c 19. Absorption costing differs from variable costing in thata. standards can be used with absorption costing, but not with variable

costing.b. absorption costing inventories are more correctly valued.c. production influences income under absorption costing, but not under

variable costing.d. companies using absorption costing have lower fixed costs.

a 20. Which method gives the lowest inventory cost per unit?a. Variable costing.b. Absorption costing using normal activity to set the standard fixed

cost.c. Absorption costing using practical capacity to set the standard fixed

cost.d. Actual absorption costing.

b 21. Which costs are treated differently under absorption costing and variable costing?a. Variable manufacturing costs.b. Fixed manufacturing costs.c. Variable selling and administrative expenses.d. Fixed selling and administrative expenses.

a 22. ABC Company had 15,000 units in ending inventory. The total cost of those units under variable costing isa. less than it is under absorption costing.b. the same as it is under absorption costing.c. more than it is under absorption costing.d. any of the above.

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b 23. York Company had $200,000 income using absorption costing. York has no variable manufacturing costs. Beginning inventory was $15,000 and ending inventory was $22,000. Income under variable costing would have beena. $178,000.b. $193,000.c. $200,000.d. $207,000.

c 24. An unfavorable volume variance means thata. cost control was probably poor.b. absorption costing income is lower than variable costing income.c. actual output was less than the level used to set the standard fixed

cost.d. actual output was more than the level used to set the standard fixed

cost.

d 25. Which variance CANNOT arise under variable costing?a. variable overhead budget variance.b. variable overhead efficiency variance.c. fixed overhead budget variance.d. fixed overhead volume variance.

a 26. Standard costing differs from normal costing in the treatment ofa. materials, direct labor, and overhead.b. materials and direct labor.c. direct labor and overhead.d. overhead.

d 27. Normal costing differs from actual costing in treatinga. materials, direct labor, and overhead.b. materials and direct labor.c. direct labor and overhead.d. overhead.

c 28. As compared to normal costing, standard costing can yielda. different volume variances and budget variances.b. different budget variances.c. different volume variances.d. none of the above.

c 29. Under variable costing there can be noa. fixed overhead variances.b. fixed overhead budget variance.c. fixed overhead volume variance.d. no fixed overhead.

c 30. ABC had the same activity in 20X4 as in 20X3 except that production was lower in 20X4 than in 20X3. ABC will showa. lower income in 20X4 than in 20X3.b. the same income in both years.c. the same income in both years under variable costing.d. the same income in both years under absorption costing.

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a 31. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold 21,000 units. Ending inventory under variable costing would bea. $20,000.b. $30,000.c. $35,000.d. cannot be determined without further information.

c 32. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold 21,000 units. Ending inventory under absorption costing would bea. $20,000.b. $30,000.c. $35,000.d. cannot be determined without further information.

a 33. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold 21,000 units. The volume variance under variable costing would bea. $0.b. $20,000.c. $30,000.d. some other number.

c 34. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold 21,000 units. The volume variance under absorption costing would bea. $0.b. $20,000.c. $30,000.d. some other number.

b 35. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold 21,000 units. The standard cost of goods sold under variable costing would bea. $400,000.b. $420,000.c. $735,000.d. some other number.

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c 36. Rounder Industries manufactures a single product. Variable production costs are $20 and fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold 21,000 units. The standard cost of goods sold under absorption costing would bea. $400,000.b. $420,000.c. $735,000.d. some other number.

c 37. Alpha Company has a standard fixed cost of $10 per unit. At an actual production of 16,000 units an unfavorable volume variance of $20,000 resulted. What were total budgeted fixed costs?a. $140,000b. $160,000c. $180,000d. Cannot be determined without further information.

a 38. Beta Company has a standard fixed cost of $10 per unit using a normal capacity of 11,000 units. An unfavorable volume variance of $12,000 resulted. What was the volume produced?a. 9,800b. 11,000c. 12,200d. Cannot be determined without further information.

a 39. Gamma Corporation has total budgeted fixed costs of $150,000. Actual production was 8,000 units; normal capacity is 7,500 units. What was the volume variance?a. $10,000 favorableb. $15,000 favorablec. $15,000 unfavorabled. $10,000 unfavorable

b 40. Eastern Co. has total budgeted fixed costs of $150,000. Actual production of 39,000 units resulted in a $6,000 favorable volume variance. What normal capacity was used to determine the fixed overhead rate?a. 33,000b. 37,500c. 40,560d. Cannot be determined without further information.

a 41. Western Company has a standard fixed cost of $8 per unit. At an actual production of 8,000 units a favorable volume variance of $12,000 resulted. What were total budgeted fixed costs?a. $52,000b. $64,000c. $76,000d. Cannot be determined without further information.

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d 42. Monona Corporation has total budgeted fixed costs of $64,000. Actual production was 15,000 units; normal capacity is 16,000 units. What was the volume variance?a. $4,000 favorableb. $4,267 favorablec. $4,267 unfavorabled. $4,000 unfavorable

b 43. Madison Industries manufactures a single product using standard costing. Variable production costs are $26 and fixed production costs are $250,000. Madison uses a normal activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in inventory, produced 11,000 units, and sold 11,500 units. Ending inventory under variable costing would bea. $10,000.b. $13,000.c. $23,000.d. cannot be determined without further information.

c 44. Madison Industries manufactures a single product using standard costing. Variable production costs are $26 and fixed production costs are $250,000. Madison uses a normal activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in inventory, produced 11,000 units, and sold 11,500 units. Ending inventory under absorption costing would bea. $10,000.b. $13,000.c. $23,000.d. cannot be determined without further information.

d 45. Madison Industries manufactures a single product using standard costing. Variable production costs are $26 and fixed production costs are $250,000. Madison uses a normal activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in inventory, produced 11,000 units, and sold 11,500 units. The volume variance under variable costing would bea. $10,000.b. $20,000.c. $30,000.d. some other number.

c 46. Madison Industries manufactures a single product using standard costing. Variable production costs are $26 and fixed production costs are $250,000. Madison uses a normal activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in inventory, produced 11,000 units, and sold 11,500 units. The volume variance under absorption costing would bea. $10,000.b. $20,000.c. $30,000.d. some other number.

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b 47. Madison Industries manufactures a single product using standard costing. Variable production costs are $26 and fixed production costs are $250,000. Madison uses a normal activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in inventory, produced 11,000 units, and sold 11,500 units. The standard cost of goods sold under variable costing would bea. $230,000.b. $299,000.c. $506,000.d. $529,000.

c 48. Sigma Company has a standard fixed cost of $18 per unit using a normal capacity of 9,000 units. A favorable volume variance of $18,000 resulted. What was the volume produced?a. 8,000b. 9,000c. 10,000d. Cannot be determined without further information.

c 49. Western Co. has total budgeted fixed costs of $72,000. Actual production of 5,500 units resulted in a $6,000 unfavorable volume variance. What normal capacity was used to determine the fixed overhead rate?a. 5,000b. 5,500c. 6,000d. Cannot be determined without further information.

d 50. Madison Industries manufactures a single product using standard costing. Variable production costs are $26 and fixed production costs are $250,000. Madison uses a normal activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in inventory, produced 11,000 units, and sold 11,500 units. The standard cost of goods sold under absorption costing would bea. $230,000.b. $299,000.c. $506,000.d. $529,000.

True-False

F 1. Absorption costing incomes are always higher than variable costing incomes.

F 2. Income under standard variable costing is not influenced by the total amount of fixed manufacturing costs.

T 3. A multiproduct company using standard absorption costing calculates standard fixed costs for each product using a standard fixed overhead rate based on an input factor such as direct labor hours.

T 4. A major difference between standard costing and normal costing is that one uses actual hours to apply overhead and the other uses standard hours.

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T 5. Proponents of variable costing for external reporting argue that while fixed production costs benefit production as a whole, they do not benefit any particular unit of product.

T 6. A company using absorption costing can increase its income by increasing production without increasing sales.

F 7. A company using variable costing can increase its income by increasing production without increasing sales.

F 8. Variable costing must be used for internal reporting.

F 9. According to GAAP, absorption costing must be used for internal reporting.

T 10. According to GAAP, absorption costing must be used for external financial reporting.

Problems

1. Whitehall Company sells a single product for $25. It had no beginning inventories. Operating data follow.

Sales, 27,000 units $675,000Normal capacity 30,000 unitsProduction costs:

Variable per unit $13Fixed production $150,000

Selling and administrative expenses:Variable per unit sold $2Fixed selling $20,000

Number of units produced 32,500 units

Assume the actual costs were as budgeted. a. Find contribution margin per unit.

b. Compute the ending inventory under standard variable costing.

c. Compute the income under standard variable costing.

Assume standard absorption costing using normal capacity as the basis for computing the standard fixed cost per unit. Compute

d. Standard gross profit per unit.

e. Ending inventory.

f. Volume variance.

g. Income.

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SOLUTION:

a. $10 ($25 - $13 -$2) b. $71,500 [$13 x ending inventory of 5,500 units (32,500 - 27,000)]

c. $100,000 [(27,000 x $10) - ($150,000 + $20,000)]

d. $7 [$25 - $13- ($150,000/30,000)]

e. $99,000 [5,500 x ($13 + $5)]

f. $12,500 F [(32,500 - 30,000) x $5 standard fixed cost per unit]

g. $127,500 [(27,000 x $7) + $12,500 - (27,000 x $2) - $20,000]

2. Lund Company sells a single product for $25. It had no beginning inventories. Operating data follow.

Sales, 55,000 units $1,375,000Normal capacity 60,000 unitsProduction costs:




Assume the actual costs were as budgeted.

a. Compute income under standard variable costing.

b. Compute income under standard absorption costing.

SOLUTION:

a. $210,000 [55,000 x ($25 - 13 - 2) - ($300,000 + $40,000)]

b. $265,000 {$1,375,000 - 55,000 x [$13 + ($300,000/60,000)] - 55,000 x $2 - $40,000 + $30,000 volume variance}

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3. Maiden Rock Company sells a single product for $25. It had no beginning inventories. Operating data follow.





Assume the actual costs were as budgeted. a. Find Maiden Rock’s income under standard variable costing.

b. Find Maiden Rock’s income under standard absorption costing.

SOLUTION:

a. $30,000 [20,000 x ($25 - 13 - 2) - ($150,000 + $20,000)]

b. $92,500 {$500,000 - 20,000 x [$13 + [$150,000/30,000)] - 20,000 x $2 - $20,000 + $12,500 volume variance}

4. Genco Inc. makes a single product that sells for $50. The standard variable manufacturing cost is $32.50 and the standard fixed manufacturing cost is $7.50, based on producing 20,000 units. During the year Genco produced 22,000 units and sold 21,000 units. Actual fixed manufacturing costs were $157,000; actual variable manufacturing costs were $735,000. Selling and administrative expenses, all fixed, were $75,000. There were no beginning inventories.

a. Prepare a standard absorption costing income statement.

b. Prepare a standard variable costing income statement.

SOLUTION:

a. Sales (21,000 x $50) $1,050,000Cost of Goods Sold (21,000 x $40) $840,000 Variances: Variable Spending $20,000 Un Fixed Spending 7,000 Un Volume (15,000) F 12,000Adjusted Cost of Goods Sold 852,000Gross Profit $198,000Selling & Administrative 75,000Net Income $123,000

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b. Sales $1,050,000Variable Costs (21,000 x $32.50) $682,500

Variable Spending Variance 20,000 UnAdjusted Variable Cost of Goods Sold 702,500Contribution Margin $347,500Fixed Costs:

Manufacturing $157,000Selling & Administrative 75,000 232,000

Net Income $115,500

5. Brahms Corp. has the following data:

Normal capacity 25,000Practical capacity 30,000Budgeted production 20,000Actual production 22,000Actual sales ($25 per unit) 21,000Standard variable production cost per unit $15Budgeted fixed production costs $120,000

There were no variable cost variances for the year. Fixed costs incurred were equal to the budgeted amount. There were no beginning inventories and no selling or administrative expenses.

a. Compute the absorption costing income if fixed costs per unit are determined using normal capacity.

b. Compute the absorption costing income if fixed costs per unit are determined using practical capacity.

c. Compute the absorption costing income if fixed costs per unit are determined using budgeted production.

d. Compute the variable costing income.

SOLUTION:

a. $94,800 [$525,000 - (21,000 x $19.80) - $14,400 volume variance]

Volume variance $14,400 = $120,000/25,000 x 22,000 - $120,000

b. $94,000 [$525,000 - (21,000 x $19) - $32,000 volume variance]


c. $96,000 [$525,000 - (21,000 x $21) + $12,000 volume variance]


d. $90,000 [$525,000 - (21,000 x $15) - $120,000]

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6. Cumberland Company sells a single product for $30. It had no beginning inventories. Operating data follow.





Assume the actual costs were as budgeted. a. Find contribution margin per unit.

b. Compute the ending inventory under standard variable costing.

c. Compute the income under standard variable costing. Assume standard absorption costing using normal capacity as the basis for

computing the standard fixed cost per unit. Compute

d. Standard gross profit per unit.

e. Ending inventory.

f. Volume variance.

g. Income.

SOLUTION:

a. $10 ($30 - $15 - $5) b. $15,000 [$15 x ending inventory of 1,000 units (13,000 - 12,000)]

c. $20,000 [(12,000 x $10) - ($75,000 + $25,000)]

d. $11.25 [$30 - $15 - ($75,000/20,000)]

e. $18,750 [1,000 x ($15 + $3.75)]

f. $26,250 U [(20,000 - 13,000) x $3.75 standard fixed cost per unit]

g. $23,750 [(12,000 x $11.25) - $26,250 - (12,000 x $5) - $25,000]

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7. Acme Company sells a single product for $30. It had no beginning inventories. Operating data follow.





Assume the actual costs were as budgeted.

a. Compute income under standard variable costing.

b. Compute income under standard absorption costing.

SOLUTION:

a. $(4,000) [(12,000 x ($30 - $17 - $5) - ($75,000 + $25,000)]

b. $3,500 {$360,000 - 12,000 x [$17 + ($75,000/15,000)] - 12,000 x $5 - $25,000 - $7,500 volume variance}

8. Carlson Company sells a single product for $30. It had no beginning inventories. Operating data follow.





Assume the actual costs were as budgeted. a. Find Carlson’s income under standard variable costing.

b. Find Carlson’s income under standard absorption costing.

SOLUTION:

a. $ -0- [12,500 x ($30 - $17 - $5) - ($75,000 + $25,000)]

b. $2,500 {$375,000 – 12,500 x [$17 + ($75,000/15,000)] – 12,500 x $5 - $25,000 - $10,000 volume variance}

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9. Bach Inc. makes a single product that sells for $40. The standard variable manufacturing cost is $22 and the standard fixed manufacturing cost is $8, based on producing 30,000 units. During the year Bach produced 28,000 units and sold 26,000 units. Actual fixed manufacturing costs were $235,000; actual variable manufacturing costs were $595,000. Selling and administrative expenses were $95,000. There were no beginning inventories.

a. Prepare a standard absorption costing income statement.

b. Prepare a standard variable costing income statement.

SOLUTION:

a. Sales (26,000 x $40) $1,040,000Cost of Goods Sold (26,000 x $30) $780,000 Variances: Variable Spending $(21,000) F Fixed Spending ( 5,000) F Volume 16,000 Un (10,000)Adjusted Cost of Goods Sold 770,000Gross Profit $270,000Selling & Administrative 95,000Net Income $175,000

b. Sales $1,040,000Variable Costs (26,000 x $22) $572,000

Variable Spending Variance (21,000) FAdjusted Variable Cost of Goods Sold 551,000Contribution Margin $489,000Fixed Costs:

Manufacturing 235,000Selling & Administrative 95,000 330,000

Net Income $159,000

10. Hayden Corp. has the following data:

Normal capacity 40,000Practical capacity 45,000Budgeted production 30,000Actual production 35,000Actual sales ($20 per unit) 32,000Standard variable production cost per unit $12Budgeted fixed production costs $135,000

There were no variable cost variances for the year. Fixed costs incurred were equal to the budgeted amount. There were no beginning inventories and no selling or administrative expenses.

a. Compute the absorption costing income if fixed costs per unit are determined using normal capacity.

b. Compute the absorption costing income if fixed costs per unit are determined using practical capacity.

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c. Compute the absorption costing income if fixed costs per unit are determined using budgeted production.

d. Compute the variable costing income.

SOLUTION:

a. $131,125 [$640,000 - (32,000 x $15.375) - $16,875 volume variance]


b. $130,000 [$640,000 - (32,000 x $15) - $30,000 volume variance]


c. $134,500 [$640,000 - (32,000 x $16.50) + $22,500 volume variance]


d. $121,000 [$640,000 - (32,000 x $12) - $135,000]

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CHAPTER 13: INTRODUCTION TO PRODUCT … · Web viewPrepare a standard absorption costing income...

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