Exam 7: Income Effects of Alternative Cost Accumulation Systems

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

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

Laguna Company had a net income of £25,000 using variable costing and a net income of £34,600 using absorption costing. The product cost using variable costing was £10.20 and using absorption costing was £15. If 10,000 units were sold, how many units were produced during?

Under which of the following conditions is net income higher under absorption costing (relative to 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. Required: a. Prepare income statements using the variable costing and absorption costing. b. Reconcile the net income under absorption and variable costing.

Figure 7-2 Steele Ltd. has the following information for January, February, and March 2011: Production costs per unit (based on 10,000 units) are as follows: There were no beginning inventories for January 2011, and all units were sold for £50. Costs are stable over the three months. -The following information pertains to Stark Ltd.: What is the value of ending inventory 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?

Steele Ltd. has the following information for January, February, and March 2011: There were no beginning inventories for January 2011, and all units were sold for £50. Costs are stable over the three months. What is the February ending inventory for Steele Ltd. using the absorption costing method?

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?

Figure 7-2 Steele Ltd. has the following information for January, February, and March 2011: Production costs per unit (based on 10,000 units) are as follows: 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?

What is the central theoretical issue in the variable costing debate?

Figure 7-2 Steele Ltd. has the following information for January, February, and March 2011: Production costs per unit (based on 10,000 units) are as follows: There were no beginning inventories for January 2011, and all units were sold for £50. Costs are stable over the three months. -Ramon Company reported the following units of production and sales for June and July 2011: 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 June using variable costing?

Figure 7-4 The following information pertains to Stark Ltd.: -Refer to Figure 7-4. What is the value of ending inventory using the absorption costing method?

Using absorption costing, a company can ____ net operating income by simply producing more than it sells.

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

Provide an argument in favor of using variable costing and an argument against the use of variable costing.

The variable costing income statement for Jackson Company for 2011 is as follows: Required: Prepare an absorption costing income statement for 2011.

Baker Company produced 30,000 units and sold 28,000 units in 2011. Beginning inventory was zero. During the period, the following costs were incurred: Required: Compute the monetary amount of ending inventory using: a. Absorption costing b. Variable costing

Figure 7-2 Steele Ltd. has the following information for January, February, and March 2011: Production costs per unit (based on 10,000 units) are as follows: 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?

Ivy, SA., produces a single product that sells for £60 per unit. There were no inventories of work in process or finished goods. Costs for the year were as follows: During the first three months of the year, production and sales in units were as follows: The company uses an actual cost system. There were no work-in-process inventories at the end of any month, and the company uses FIFO costing. Required: a. Determine the unit cost of production under variable costing for each of the three months. b. Determine the unit cost of production under absorption costing for each of the three months. c. Determine income under variable costing for each of the three months. d. Determine income under absorption costing for each of the three months.