Exam 8: Variable Costing: A Tool for Management

For the most recent year,Atlantic Company's operating income computed using the absorption costing method was $7,400,and its operating income computed using the variable costing method was $10,100.The company's unit product cost was $17 under variable costing and $22 under absorption costing.Atlantic produces the same number of units each year.What must have been the beginning inventory if the ending inventory consisted of 1,460 units?

Which of the following are considered to be product costs under absorption costing?

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 amount of fixed overhead deferred under absorption costing?

What is the costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques?

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 absorption costing?

UHF Antennas,Inc.,produces and sells a unique television antenna.The company has just opened a new plant to manufacture the antenna,and the following cost and revenue data have been reported for the first month of the new plant's operation: Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labour is a variable cost. Required: a) Assuming that the company uses absorption costing, compute the unit product cost and prepare an income statement. b) Assuming that the company uses variable costing, compute the unit product cost and prepare an income statement. c) Explain the reason for any difference in the ending inventories under the two costing methods and the impact of this difference on reported operating income.

Hatfield 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 variable costing?

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 was the operating income 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 amount of fixed overhead cost in ending inventory under absorption costing?

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

Absorption costing treats fixed manufacturing overhead as a period cost,rather than as a product cost.

For the month noted,what was the relationship between the operating income under variable costing as opposed to under absorption costing?

Aaker Company, which has only one product, has provided the following data concerning its most recent month of operations: -What is the total gross margin for the month under the absorption costing approach?

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

Last year,Ben Company's operating income under absorption costing was $4,400 lower than its operating income under variable costing.The company sold 8,000 units during the year,and its variable costs were $8 per unit,of which $3 was variable selling expense.Fixed manufacturing overhead was $1 per unit in beginning inventory under absorption costing.Ending inventory was zero.How many units did the company produce during the year?

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

Peaceman Company, which has only one product, has provided the following data concerning its most recent month of operations: -What was the total gross margin for the month?

Elliot 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 variable costing?

When the number of units in work-in-process and finished goods inventories increase,absorption costing operating income will typically be greater than variable costing operating income.

The Miller Company had the following results for its first two years of operation: In Year 1, the company produced and sold 40,000 units of its only product; in Year 2, the company again sold 40,000 units, but increased production to 50,000 units. The company's variable production cost is $5 per unit, and its fixed manufacturing overhead cost is $600,000 a year. Fixed manufacturing overhead costs are applied to the product on the basis of each year's unit production (i.e., a new fixed overhead rate is computed each year). Variable selling and administrative expenses are $2 per unit sold. Required: a) Compute the unit product cost for each year under absorption costing and under variable costing. b) Prepare an income statement for each year, using the contribution format with variable costing. c) Reconcile the variable costing and absorption costing income figures for each year. d) Explain why the operating income for Year 2 under absorption costing was higher than the operating income for Year 1, although the same number of units were sold in each year.