Question 1

In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the quantity factor.

Accepted Answer

A) True 
 B)False

Question 2

The level of inventory of a manufactured product has increased by 7,000 units during a period. The following data are also available:  What would be the effect on income from operations if absorption costing is used rather than variable costing?

Accepted Answer

A)  $42,000 decrease 
B)  $42,000 increase 
C)  $52,500 increase 
D)  $52,500 decrease

Question 3

In the short run, the selling price of a product should normally not be less than the variable costs and expenses of making and selling it.

Accepted Answer

A) True 
 B)False

Question 4

A business operated at 100% of capacity during its first month and incurred the following costs:  If 1,500 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

Accepted Answer

A)  $62,500 
B)  $73,500 
C)  $60,000 
D)  $52,500

Question 5

A business operated at 100% of capacity during its first month and incurred the following costs:  If 1,600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

Accepted Answer

A)  $64,000 
B)  $56,000 
C)  $66,400 
D)  $78,400

Question 6

The contribution margin ratio is computed as contribution margin divided by sales.

Accepted Answer

A) True 
 B)False

Question 7

Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable factory overhead.

Accepted Answer

A) True 
 B)False

Question 8

If the variable cost of goods sold totaled $80,000 for the year (16,000 units at $5.00 each) and the planned variable cost of goods sold totaled $86,250 (15,000 units at $5.75 each), the effect of the quantity factor on the change in contribution margin is:

Accepted Answer

A)  $5,000 decrease 
B)  $5,000 increase 
C)  $5,750 increase 
D)  $5,750 decrease

Question 9

Fixed costs are $50 per unit and variable costs are $125 per unit.  Production was 130,000 units, while sales were 125,000 units. Determine (a) whether variable costing income from operations is less than or greater than absorption costing income from operations, and (b) the difference in variable costing and absorption costing income from operations.

Accepted Answer

The answer of Fixed costs are $50 per unit and...

Question 10

Sales mix is generally defined as the relative distribution of sales among the various products sold.

Accepted Answer

A) True 
 B)False

Question 11

The actual price for a product was $50 per unit, while the planned price was $44 per unit. The volume increased by 4,000 to 60,000 total units. 
Determine: 
(a) the quantity factor 
(b) the price factor for sales.

Accepted Answer

The answer of The actual price for a product was...

Question 12

On the variable costing income statement, variable selling and administrative expenses are deducted from manufacturing margin to yield contribution margin.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following would be included in the cost of a product manufactured according to variable costing?

Accepted Answer

A)  sales commissions 
B)  office supply costs 
C)  interest expense 
D)  direct materials

Question 14

If sales totaled $200,000 for the current year (10,000 units at $20 each) and planned sales totaled $212,500 (12,500 units at $17 each), the effect of the unit price factor on the change in sales is a:

Accepted Answer

A)  $30,000 increase 
B)  $12,500 increase 
C)  $7,500 increase 
D)  $30,000 decrease

Question 15

The absorption costing income statement does not distinguish between variable and fixed costs.

Accepted Answer

A) True 
 B)False

Question 16

On January 1 of the current year, Townsend Co. commenced operations. It operated its plant at 100% of capacity during January. The following data summarized the results for January:  
(a) Prepare an income statement using absorption costing. 
(b) Prepare an income statement using variable costing.

Accepted Answer

The answer of On January 1 of the current year,...

Question 17

In contribution margin analysis, the increase or decrease in unit sales price or unit cost on the number of units sold is referred to as the:

Accepted Answer

A)  sales factor 
B)  cost of goods sold factor 
C)  quantity factor 
D)  unit price or unit cost factor

Question 18

The factory superintendent's salary would be included as part of the cost of products manufactured under the absorption costing concept.

Accepted Answer

A) True 
 B)False

Question 19

Accountants prefer the variable costing method over absorption costing method for evaluating the performance of a company because

Accepted Answer

A)  by using the absorption costing method, income could appear to be higher by producing more inventory. 
B)  by using the absorption costing method, income could appear to be lower by producing more inventory. 
C)  by using the variable costing method, the cost of goods sold will be higher as more units are manufactured and sales remain the same. 
D)  by using the variable costing method, all fixed and variable costs are included in the unit cost of the product manufactured.

Question 20

For a period during which the quantity of inventory at the end equals the inventory at the beginning, income from operations reported under variable costing will be smaller than income from operations reported under absorption costing.

Accepted Answer

A) True 
 B)False

Exam 6: Variable Costing for Management Analysis

In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the quantity factor.

The level of inventory of a manufactured product has increased by 7,000 units during a period. The following data are also available: What would be the effect on income from operations if absorption costing is used rather than variable costing?

In the short run, the selling price of a product should normally not be less than the variable costs and expenses of making and selling it.

A business operated at 100% of capacity during its first month and incurred the following costs: If 1,500 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

A business operated at 100% of capacity during its first month and incurred the following costs: If 1,600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

The contribution margin ratio is computed as contribution margin divided by sales.

Under absorption costing, the cost of finished goods includes only direct materials, direct labor, and variable factory overhead.

If the variable cost of goods sold totaled $80,000 for the year (16,000 units at $5.00 each) and the planned variable cost of goods sold totaled $86,250 (15,000 units at $5.75 each) , the effect of the quantity factor on the change in contribution margin is:

Sales mix is generally defined as the relative distribution of sales among the various products sold.

The actual price for a product was $50 per unit, while the planned price was $44 per unit. The volume increased by 4,000 to 60,000 total units. Determine: (a) the quantity factor (b) the price factor for sales.

On the variable costing income statement, variable selling and administrative expenses are deducted from manufacturing margin to yield contribution margin.

Which of the following would be included in the cost of a product manufactured according to variable costing?

If sales totaled $200,000 for the current year (10,000 units at $20 each) and planned sales totaled $212,500 (12,500 units at $17 each) , the effect of the unit price factor on the change in sales is a:

The absorption costing income statement does not distinguish between variable and fixed costs.

On January 1 of the current year, Townsend Co. commenced operations. It operated its plant at 100% of capacity during January. The following data summarized the results for January: (a) Prepare an income statement using absorption costing. (b) Prepare an income statement using variable costing.

In contribution margin analysis, the increase or decrease in unit sales price or unit cost on the number of units sold is referred to as the:

The factory superintendent's salary would be included as part of the cost of products manufactured under the absorption costing concept.

Accountants prefer the variable costing method over absorption costing method for evaluating the performance of a company because

For a period during which the quantity of inventory at the end equals the inventory at the beginning, income from operations reported under variable costing will be smaller than income from operations reported under absorption costing.