Exam 7: Income Effects of Alternative Cost Accumulation Systems

When production is less than sales volume, net income under absorption costing will be ____ profits using variable costing procedures.

During this past year, Bouncy Company experienced no change in inventory. Sales were 40,000 units at a selling price of £3 per unit. Variable manufacturing costs were £1.25 per unit, and total manufacturing costs were £55,000. Under absorption costing, net income was calculated at £53,000. What was net income under variable costing?

Jensen Company produced 10,000 cases of cookies this year. It sold 9,500 cases for £10 each. There were no beginning inventories. Variable manufacturing costs were £30,000, and fixed manufacturing expenses were £50,000. Selling and administrative expenses were £10,000, all fixed. a.Prepare income statements using the variable costing and absorption costing. b.Reconcile the net income under absorption and variable costing.

All of the following costs are included in inventory under absorption costing EXCEPT

Figure 7-2 Steele Ltd. has the following information for January, February, and March 2011: January February March Units produced 10,000 10,000 10,000 Units sold 7,000 8,500 10,500 Production costs per unit (based on 10,000 units) are as follows: Direct materials £12 Direct labour 8 Variable factory overhead 6 Fixed factory overhead 4 Variable selling and admin. expenses 10 Fixed selling and admin. expenses 4 There were no beginning inventories for January 2011, and all units were sold for £50. Costs are stable over the three months. -Refer to Figure 7-2. What is the March ending inventory for Steele Ltd. using the variable costing method?

Figure 7-3 Eastwood Company has the following information for 2011: Selling price £150 per unit Variable production costs £40 per unit produced Variable selling and admin. expenses £16 per unit sold Fixed production costs £200,000 Fixed selling and admin. expenses £140,000 Units produced 10,000 units Units sold 8,000 units There were no beginning inventories. -Refer to Figure 7-3. What is the ending inventory for Eastwood using the variable costing method?

Assuming sales prices and cost behaviour remain unchanged, when absorption costing is used, overproducing creates which of the following situations?

Figure 7-3 Eastwood Company has the following information for 2011: Selling price £150 per unit Variable production costs £40 per unit produced Variable selling and admin. expenses £16 per unit sold Fixed production costs £200,000 Fixed selling and admin. expenses £140,000 Units produced 10,000 units Units sold 8,000 units There were no beginning inventories. -Refer to Figure 7-3. What is the net income for Eastwood using the variable costing method?

Figure 7-4 The following information pertains to Stark Ltd.: Beginning inventory 0 units Ending inventory 5,000 units Direct labour per unit £20 Direct materials per unit 16 Variable overhead per unit 4 Fixed overhead per unit 10 Variable selling costs per unit 12 Fixed selling costs per unit 16 -Refer to Figure 7-4. Absorption costing net income would be ____ the variable costing net income.

Focus Picture Company sold 5,600 units and produced 6,000 units this past year. Unit variable costs were £15 (including variable selling costs of £3), and total fixed manufacturing costs totaled £16,500. Which costing system (variable or absorption) will show a higher net income and by how much?

Which costing approach assumes fixed overhead costs only expire when product is sold?

Proponents of ____ costing believe that fixed costs are incurred to provide the capacity to produce during a given period, and these costs expire with the passage of time.

Ramon Company reported the following units of production and sales for June and July 2011: Units Month Froduced Sold June 2011 100,000 90,000 July 2011 100,000 105,000 Net income under absorption costing for June was £40,000; net income under variable costing for July was £50,000. Fixed manufacturing costs were £600,000 for each month. How much was net income for July using absorption costing?

The efficient level of activity performance is called

Toshi Company incurred the following costs in manufacturing desk calculators: Direct materials £14 Indirect materials (variable) 4 Direct labour 8 Indirect labour (variable) 6 Other variable factory overhead 10 Fixed factory overhead 28 Variable selling expenses 20 Fixed selling expenses 14 During the period, the company produced and sold 1,000 units. What is the inventory cost per unit using absorption costing?

Eastwood Company has the following information for 2011: Selling price £150 per unit Variable production costs £40 per unit produced Variable selling and admin. expenses £16 per unit sold Fixed production costs £200,000 Fixed selling and admin. expenses £140,000 Units produced 10,000 units Units sold 8,000 units There were no beginning inventories. What is the net income for Eastwood using the absorption costing method?

Figure 7-1 The following information pertains to Mayberry Ltd.: Beginning inventory 1,000 units Ending inventory 6,000 units Direct labour per unit £40 Direct materials per unit 20 Variable overhead per unit 10 Fixed overhead per unit 30 Variable selling and admin. costs per unit 6 Fixed selling and admin. costs per unit 14 -Refer to Figure 7-1. Absorption costing net income would be ____ variable costing net income.

Which of the following statements is TRUE?

Figure 7-2 Steele Ltd. has the following information for January, February, and March 2011: January February March Units produced 10,000 10,000 10,000 Units sold 7,000 8,500 10,500 Production costs per unit (based on 10,000 units) are as follows: Direct materials £12 Direct labour 8 Variable factory overhead 6 Fixed factory overhead 4 Variable selling and admin. expenses 10 Fixed selling and admin. expenses 4 There were no beginning inventories for January 2011, and all units were sold for £50. Costs are stable over the three months. -Refer to Figure 7-2. What is the February contribution margin for Steele Ltd. using the variable costing method?

In the month just ended, Aldebraun Industries produced 40,000 units and sold 37,000 units. There were 2,000 units in finished goods inventory at the start of the month. Manufacturing costs are stable from month to month. The fixed overhead rate was £8 per unit. Aldebraun uses absorption costing. If Aldebraun used variable costing, the difference in net income would have been