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Exam 6: Variable Costing and Performance Reporting

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Question 31

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Home Base, Inc.reports the following production cost information: $\begin{array}{ll}\text { Units produced } & 97,000 \text { units } \\\text { Units sold } & 92,000 \text { units } \\\text { Direct labor } & \$ 17 \text { per unit } \\\text { Direct materials } & \$ 34 \text { per unit } \\\text { Variable overhead } & \$ 2,522,000 \text { in total } \\\text { Fixed overhead } & \$ 1,940,000 \text { in total }\end{array}$ a.Compute production cost per unit under variable costing. b.Compute production cost per unit under absorption costing. c.Determine the cost of ending inventory using variable costing. d.Determine the cost of ending inventory using absorption costing.

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a.$17 DL + $34 DM + ($2,522,000/97,000)V...

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Question 32

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Assume a company sells a given product for $83 per unit.Variable selling costs are $20.75 per unit and variable production costs are $49.80 per unit.If the company breaks even when selling 300,000 units, what are total fixed costs?

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$83 - $20.75 - $49.80 = $12.45...

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Question 33

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Product costs consist of direct labor, direct materials, and overhead.

Absorption costing is also called ________________________ costing.

Assume a company sells a given product for $75 per unit.How many units must be sold to break-even if variable selling costs are $12 per unit, variable production costs are $23 per unit, and total fixed costs are $700,000?

Assume that the following information is available for Coldwrap, Inc.: $\begin{array}{|l|r|r|r|}\hline & {\begin{array}{c}\text { Light- } \\\text { weight } \\\text { Down } \\\text { Comforter }\end{array}} & \begin{array}{c}\text { Medium- } \\\text { weight } \\\text { Down } \\\text { Comforter }\end{array} & \begin{array}{c}\text { Heavy- } \\\text { weight } \\\text { Down } \\\text { Comforter }\end{array} \\\hline \text { Sales } & \$ 525,000 & \$ 262,500 & \$ 660,000 \\\hline \text { Variable expenses } & & & \\\hline \text { Variable production } & \$ 105,000 & \$ 28,875 & \$ 135,000 \\\hline \text { Variable advertising } & \$ 15,750 & \$ 5,250 & \$ 33,000 \\\hline \text { Variable shipping } & \$ 18,000 & \$ 21,000 & \$ 42,000 \\\hline\end{array}$ Compute contribution margin ratio for each product line.

Swola Company reports the following annual cost data for its single product. $\begin{array}{ll}\text { Normal production level } & 75,000 \text { units } \\\text { Direct materials } & \$ 1.25 \text { per unit } \\\text { Direct labor } & \$ 2.50 \text { per unit } \\\text { Variable overhead } & \$ 3.75 \text { per unit } \\\text { Fixed overhead } & \$ 300,000 \text { in total }\end{array}$ 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 gross margin increase or decrease under variable costing?

A company is currently operating at 70% capacity producing 8,000 units.Cost information relating to this current production is shown in the following table: $\begin{array} { | l | r | } \hline & \text { Per Urit } \\\hline \text { Sales price } & \$ 15 \\\hline \text { Direct rraterial } & \$ 3.20 \\\hline \text { Direct labor } & \$ 7.10 \\\hline \begin{array} { l } \text { Variable } \\\text { overhead }\end{array} & \$ 0.05 \\\hline \text { Fixed overhead } & \$ 0.60 \\\hline\end{array}$ The company has been approached by a customer with a request for a special order for 1,500 units.The sales price per unit for this special order is $10.Should the company accept the special order?

Aces, Inc., a manufacturer of tennis rackets, began operations this year.The company produced 6,000 rackets and sold 4,900.At year-end, the company reported the following income statement using absorption costing. $\begin{array}{lr}\text { Sales } (4,900 \times \$ 90) &\$ 441,000 \\\text { Cost of goods sold }(4,900 \times \$ 38) &\underline{186,200} \\\text { Gross margin } &\$ 254,800 \\\text { Selling and administrative expenses } &\underline{75,000 }\\\text { Net income } &\underline{\$ 179,800}\end{array}$ Production costs per tennis racket total $38, which consists of $25 in variable production costs and $13 in fixed production costs (based on the 6,000 units produced) .Ten percent of total selling and administrative expenses are variable.Compute net income under variable costing.

Which of the following statements is true?

A company reports the following information for its first year of operations: $\begin{array}{ll}\text { Units produced this year } & 43,000 \text { units } \\\text { Units sold this year } & 39,000 \text { units } \\\text { Direct materials } & \$ 0.57 \text { per unit } \\\text { Direct labor } & \$ 0.83 \text { per unit } \\\text { Variable overhead } & \$ 26,660 \text { in total } \\\text { Fixed overhead } & ? \text { in total }\end{array}$ If the company's cost per unit of finished goods using variable costing is $2.02, what is the amount of total fixed overhead?

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

Clear Company reports the following information for its first year of operations: $\begin{array}{ll}\text { Units produced this year } & 50,000 \text { units } \\\text { Units sold this year } & 49,000 \text { units } \\\text { Direct materials } & \$ 7 \text { per unit } \\\text { Direct labor } & \$ 3 \text { per unit } \\\text { Variable overhead } & \$ 210,000 \text { in total } \\\text { Fixed overhead } & ? \text { in total }\end{array}$ If the company's cost per unit of finished goods using absorption costing is $19.30, what is total fixed overhead?

Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year.During this time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit.Cost information for this period is shown in the following table: $\begin{array}{l}\text { Production costs }\\\begin{array}{ll}\text { Direct materials } & \$ 2.00 \text { per unit } \\\text { Direct labor } & \$ 80 \text { per unit } \\\text { Variable overhead } & \$ 814,000 \text { in total } \\\text { Fixed overhead } & \$ 481,000 \text { in total } \\\text { Jonproduction costs } & \\\text { Variable selling and administrative } & \$ 78,000 \text { in total } \\\text { Fixed selling and administrative } & \$ 210,000 \text { in total }\end{array}\end{array}$ a.Prepare Wrap-It's December 31^t income statement for the current year under absorption costing. b.Prepare Wrap-It's December 31 income statement for the current year under variable costing.

________________ is the amount remaining from sales revenues after cost of goods sold has been deducted.

Shore Company reports the following information regarding its production cost. $\begin{array}{ll}\text { Units produced } & 28,000 \text { units } \\\text { Direct labor } & \$ 23 \text { per unit } \\\text { Direct materials } & \$ 24 \text { per unit } \\\text { Variable overhead } & \$ 280,000 \text { in total } \\\text { Fixed overhead } & \$ 94,920 \text { in total }\end{array}$ Compute production cost per unit under absorption costing.

The data needed for cost-volume-profit analysis is readily available if the income statement is prepared using a contribution format.

Sales less variable costs equals manufacturing margin.

Product costs consist of direct labor, direct materials, and _________________.

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