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Exam 6: Variable Costing and Analysis

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Question 51

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Which of the following statements is true regarding absorption costing?

A) It is not the traditional costing approach.
B) It is not permitted to be used for financial reporting.
C) It is not permitted to be used for tax reporting.
D) It assigns all manufacturing costs to products.
E) It requires only variable costs to be treated as product costs.

F) A) and E)
G) B) and E)

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Question 52

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Swisher, Incorporated reports the following annual cost data for its single product: This product is normally sold for $48 per unit. If Swisher increases its production to 50,000 units, while sales remain at the current 30,000 unit level, by how much would the company's income increase or decrease under absorption costing?

A) $60,000 decrease.
B) $90,000 decrease.
C) There is no change in income.
D) $90,000 increase.
E) $60,000 increase.

F) B) and D)
G) A) and E)

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Question 53

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Income ________ when there is zero beginning inventory and all inventory units produced are sold.

The bottom line of a contribution margin report is net income.

Reporting contribution margin by market segment is useful in assessing the profitability of each segment.

Using absorption costing, which of the following manufacturing costs are assigned to products?

Contribution margin is the excess of sales over total variable costs.

Given the following data, total product cost per unit under absorption costing will be greater than total product cost per unit under variable costing.

Absorption costing is usually used for internal management purposes, and variable costing is usually used for external reporting purposes.

Which of the following best describes costs assigned to the product under the variable costing method? Direct labor (DL) Direct materials (DM) Variable selling and administrative (VSA) Variable manufacturing overhead (VOH) Fixed selling and administrative (FSA) Fixed manufacturing overhead (FOH)

Income under absorption costing will always be different than income under variable costing.

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. Income calculated under variable costing is determined to be $315,000. How much income is reported under absorption costing?

Under variable costing, product costs consist of direct labor, direct materials, and variable overhead.

Swola Company reports the following annual cost data for its single product. This product is normally sold for $25 per unit. If Swola increases its production to 200,000 units, while sales remain at the current 75,000 unit level, by how much would the company's income increase or decrease under variable costing?

Sales less total variable costs equals manufacturing margin.

What costs are treated as product costs under the variable costing method?

A company is currently operating at 65% capacity producing 12,000 units. Cost information relating to this current production is shown in the following table: The company has been approached by a customer with a request for a special order for 2,000 units. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Absorption costing is required under GAAP.

Given the following data, total product cost per unit under variable costing will be greater than total product cost under absorption costing.

Information presented in a variable costing format can assist management when making short-term pricing decisions.