Exam 8: Variable Costing: A Tool for Management

Bateman Company, which has only one product, has provided the following data concerning its most recent month of operations: -What was the unit product cost for the month under absorption costing?

Which of the following statements is true for a firm that uses variable costing?

The Hadfield Company manufactures and sells a unique electronic part.The company's plant is highly automated with low variable and high fixed manufacturing costs.Operating results on an absorption costing basis for the first three years of activity were as follows: Additional information about the company is as follows: -Variable manufacturing costs (direct labour, direct materials, and variable manufacturing overhead) total $3 per unit, and fixed manufacturing overhead costs total $400,000. -Fixed manufacturing costs are applied to units of product on the basis of the number of units produced each year (i.e., a new fixed overhead rate is computed each year). -The company uses a FIFO inventory flow assumption. -Variable selling and administrative expenses are $2 per unit sold. Fixed selling and administrative expenses total $100,000. -Production and sales information for the three years is as follows: Required: a) Compute operating income for each year under the variable costing approach. b) Prepare a reconciliation from your Operating Income (loss) under variable costing to Absorption Costing operating income for year 3. c) Referring to the absorption costing income statements above, explain why operating income was higher in Year 2 than in Year 1 under absorption costing, in light of the fact that fewer units were sold in Year 2 than in Year 1. d) Referring again to the absorption costing income statements, explain why the company suffered an operating loss in Year 3 but reported a positive operating income in Year 1, although the same number of units was sold in each year. e) If the company had used just-in-time (JIT) during Year 2 and Year 3 and produced only what could be sold, what would have been the company's operating income (loss) for each year under absorption costing.

The following data pertain to one month's operations of Whitney, Inc.: -What was the carrying value on the balance sheet of the ending finished goods inventory under variable costing?

Farron Company, which has only one product, has provided the following data concerning its most recent month of operations: -What was the unit product cost for the month under variable costing?

When sales exceeds production for a period,absorption costing operating income will generally be greater than variable costing operating income.

The Pacific Company manufactures a single product. The following data relate to the year just completed: During the year, 5,000 units were produced and 4,800 units were sold. There were no beginning inventories. -Which of the following would best describe the relationship between the carrying value of the finished goods inventory at the end of the year under variable costing as opposed to under absorption costing?

During the last year,Hansen Company had operating income under absorption costing that was $5,500 lower than its operating income under variable costing.The company sold 9,000 units during the year,and its variable costs were $10 per unit,of which $6 was variable selling expense.If fixed production cost is $5 per unit under absorption costing every year,how many units did the company produce during the year?

Khanam Company, which has only one product, has provided the following data concerning its most recent month of operations: The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. -What is the operating income for the month under absorption costing?

Iancu Company, which has only one product, has provided the following data concerning its most recent month of operations: -What was the unit product cost for the month under variable costing?

Farron Company, which has only one product, has provided the following data concerning its most recent month of operations: -What was the operating income (loss)for the month under absorption costing?

It is generally true that if production and sales are NOT equal there are income statement differences in terms of operating incomes under absorption costing and variable costing. Required: a)Which elements,if any,of the balance sheet are also likely to be different under absorption and variable costing? Explain.

Aaker Company, which has only one product, has provided the following data concerning its most recent month of operations: -What is the unit product cost for the month under variable costing?

DeAnne Company's variable costing income statement for August appears below: The company produces 35,000 units each month. Variable production costs per unit and total fixed costs have remained constant over the past several months. -Under absorption costing,what operating income (loss)did the company report for the month ending August 31?

During the past year, Carr Company manufactured 25,000 units and sold 20,000 units. Production costs for the year were as follows: Total sales were $850,000, total variable selling expenses were $110,000, and total fixed selling and administrative expenses were $170,000. There were no units in beginning inventory. Assume that direct labour is a variable cost. -What was the operating income for the year under variable costing as opposed to absorption costing?

What factor is the cause of the difference between operating income computed using absorption costing and operating income computed using variable costing?

During the past year, Carr Company manufactured 25,000 units and sold 20,000 units. Production costs for the year were as follows: Total sales were $850,000, total variable selling expenses were $110,000, and total fixed selling and administrative expenses were $170,000. There were no units in beginning inventory. Assume that direct labour is a variable cost. -Under absorption costing,what was the value of the ending inventory for the year?

Crystal Company's variable costing income statement for the month of May appears below: The company produces 80,000 units each month. Variable production costs per unit and total fixed costs have remained constant over the past several months. -Under absorption costing,what was the reported operating income (loss)for the month ending May 31?

Direct labour is always considered to be a product cost under variable costing.

The following information pertains to Malcolm Corporation for a period: a) Assume the unit standard costs data for the beginning and ending inventories remained constant during the period. What was the total standard cost of the ending inventory under absorption costing? b) Ignoring the effects of income taxes, what is your best estimate of the difference in retained earnings at the end of the period under absorption costing and variable costing?