Exam 6: Variable Costing and Analysis

Quaker Corporation sold 6,600 units of its product at a price of $42.40 per unit. Total variable cost per unit is $19.25, consisting of $10.15 in variable production cost and $9.10 in variable selling and administrative cost. Compute contribution margin for the company.

The use of absorption costing can result in misleading product cost information.

A company is currently operating at 60% capacity producing 10,000 units. Cost information relating to this current production is shown in the following table: The company has been approached by a customer with a request for a special order for 5,000 units. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Since fixed costs remain constant in the short run, special orders should be accepted as long as the order price is greater than the variable costs.

Given the following data, calculate the total product cost per unit under absorption costing.

The biggest problems with producing too much are lost sales and customer dissatisfaction.

Fields Cutlery, a manufacturer of gourmet knife sets, produced 20,000 sets and sold 23,000 units during the current year. Beginning inventory under absorption costing consisted of 3,000 units valued at $66,000 (Direct materials $12 per unit; Direct labor, $3 per unit; Variable Overhead, $2 per unit, and Fixed overhead, $5 per unit.) All manufacturing costs have remained constant over the 2-year period. At year-end, the company reported the following income statement using absorption costing: 60% of total selling and administrative expenses are variable. Compute net income under variable costing.

Chilly Chips, Inc., a producer of ice cream, began operations this year. During this year, the company produced 160,000 cartons of ice cream and sold 145,000. At year-end, the company reported the following income statement using absorption costing: Production costs per carton total $3.50, which consists of $2.30 in variable production costs and $1.20 in fixed production costs (based on the 16,000 units produced). Sixty percent of total selling and administrative expenses are variable. Compute net income under variable costing.

32 Degrees, Inc., a manufacturer of frozen food, began operations on July 1 of the current year. During this time, the company produced 140,000 units and sold 140,000 units at a sales price of $125 per unit. Cost information for this period is shown in the following table: a. Prepare 32 Degree's December 31^st income statement for the current year under absorption costing. b. Prepare 32 Degree's December 31^st income statement for the current year under variable costing.

The traditional income statement format used for financial reporting is called the contribution margin format.

Sea Company reports the following information regarding its production cost. Compute the product cost per unit under variable costing.

Under absorption costing, a company had the following unit costs when 9,000 units were produced. Compute the total product cost per unit under variable costing if 30,000 units had been produced.

Given the following data, total product cost per unit under absorption costing will be $400 greater than total product cost per unit under variable costing.

Accurate Metal Company sold 32,000 units of its product at a price of $250 per unit. Total variable cost per unit is $150, consisting of $145 in variable production cost and $5 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.

Given the Scavenger Company data, what is net income using variable costing?

What is the formula to compute manufacturing margin?

The product costing approach required by GAAP is referred to as ________.

Sea Company reports the following information regarding its production costs: Compute the product cost per unit under absorption costing.

A company is currently operating at 75% capacity and producing 3,000 units. Current cost information relating to this production is shown in the table below: The company has been approached by a customer with a request for a 200-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Assuming fixed costs remain constant, and a company produces and sells the same number of units, then income under absorption costing is less than income under variable costing.