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MAS

The document provides a test on accounting concepts related to absorption costing and variable costing methods. It includes multiple choice, true/false, and problems questions calculating inventory and income statements under both methods. The problems have students calculate unit costs, income statements, ending inventory values, and reconcile differences between the absorption and variable costing net incomes for various production and sales scenarios.

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267 views5 pages

MAS

The document provides a test on accounting concepts related to absorption costing and variable costing methods. It includes multiple choice, true/false, and problems questions calculating inventory and income statements under both methods. The problems have students calculate unit costs, income statements, ending inventory values, and reconcile differences between the absorption and variable costing net incomes for various production and sales scenarios.

Uploaded by

Music Last
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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UNIVERSITY OF CEBU-MAIN

COLLEGE OF BSBA AND ACCOUNTANCY


ACCTG 120D: CHAPTER 5

NAME: MA. WENDY M. CABANES DATE: OCTOBER 12, 2020


COURSE AND YEAR: BSMA-3

TEST I: MULTIPLE CHOICE. Encircle the letter of the best answer.


1. In absorption costing, as contrasted with direct costing, the following are absorbed into inventory.
Ⓐ All the elements of fixed and variable manufacturing overhead
b. Only the fixed manufacturing overhead
c. Only the variable manufacturing overhead
d. Neither fixed nor variable manufacturing overhead

2. Under the direct costing, which is classified as product costs?


Ⓐ Only variable production costs c. All variable costs
b. Only direct costs d. All variable and fixed production costs

3. If production is greater than sales(units), then absorption costing net income will generally be
Ⓐ greater than direct costing net income
b. less than direct costing net income
c. equal to direct costing net income
d. additional data is needed to be able to answer

4. Which of the following statements is correct?


a. When production is higher than sales, absorption costing net income is lower than variable costing net
income
Ⓑ If all the products manufactured during the period are sold in that period, variable costing net income
is equal to absorption costing net income
c. When production is lower than sales, variable costing net income is lower than absorption costing net
income
d. When production and sales level are equal, variable costing net income is lower than absorption
costing net income

5. In an income statement prepared as an internal report using the direct(variable) costing method, fixed
selling and administrative expenses would
a. Not be used
b. Be used in the computation of the contribution margin
© Be used in the computation of operating income but not in the computation of the contribution
margin
d. Be treated the same as variable selling and administrative expense

TEST II. TRUE OR FALSE


TRUE1. In an income statement prepared as an internal report using the variable costing method,
variable selling and administrative expense would be used in the computation of the contribution
margin
TRUE 2. Direct costing and variable costing are different terms that mean the same thing
TRUE 3. In a variable costing income statement, sales revenue is typically lower than in absorption
costing income statement
FALSE4. Product costs, also called inventoriable costs or deferrable costs, are charged outright as
expenses, regardless of whether the units are sold or unsold
FALSE 5. The difference between absorption and variable costing methods lies on how the variable
overhead is treated.

TEST III. PROBLEMS

A. Northern Bicycle produces an inexpensive motorbike that sells for P12,000. Selected data for
the company’s operations last year follow:

Units in beginning inventory 300

Units produced 1,000

Variable costs per unit: Direct materials P1,200

Direct labor 1,400

Manufacturing overhead 500

Selling and administrative 200

Fixed costs per year: Manufacturing overhead P4,000,000

Selling and administrative 2,000,000

Case A: Assuming that the units sold totals 800 units.

1. Compute the unit costs under absorption and variable costing methods

ABSORTION COSTING VARIABLE COSTING


DIRECT MATERIALS 1200 1200
DIRECT LABOR 1400 1400
VARIABLE MANUFACTURING 500 500
OVERHEAD
FIXED MANUFACTURING 4000 -
OVERHEAD
UNIT COST 7100 3100

SOLUTION: Fixed manufacturing overhead 4,0000,000/100=4000


2. Prepare the income statement under absorption and variable costing methods
ABSORTION COSTING
Sales (800x12,000) P 9,600,000
COGS (800x 7100) (5,680,000)
Gross Profit 3,920,000
OPEX (Var. (200x800)-160,000 x Fixed – 2,000,000) (2,160,000)
Net Income P 1,760,000

VARIABLE COSTING
Sales (800x12,000) 9,600,000

Variable Cost(Mftg, {800x3100}=2,480,000+ S&A {200x800}=160,000) (2,640,000)

Contribution Margin 6,960,000

Fixed Cost (Mftg-4,000,000+ S&A- 2,000,000) (6,000,000)

Net Income P 960,000

3. Compute the value of ending inventory under absorption and variable costing methods
Beginning Inventory 300
Production 1000
1300
Sales (800)
Ending Inventory 500

Absorption Costing Variable Costing


Ending Inventory 500x7,100 500x3,100
=3,550,000 =1,550,000
*Increase of 200 in ending inventory

4. Reconcile the difference in operating income under the absorption and variable costing methods

Variable Costing Net Income 960,000

Add: 200x4,000 800,000

Absorption Net Income 1,760,000

Case

B: Assuming that the units sold totals 1,100 units.

5. Prepare the income statement under absorption and variable costing methods

ABSORTION COSTING
Sales (1,100x12,000) P 13,200,000
COGS (1,100x 7100) (7,810,000)
Gross Profit 3,920,000
OPEX (Var. (200x1,100)=220,000 + Fixed – 2,000,000) (2,2220,000)
Net Income P 3,170,000

VARIABLE COSTING
Sales (1,100x12,000) 13,200,000

Variable Cost(Mftg, {1,100x3100}=3,410,000+ S&A {200x1,100}=220,000) (3,630,000)

Contribution Margin 9,570,000

Fixed Cost (Mftg-4,000,000+ S&A- 2,000,000) (6,000,000)

Net Income P 3,570,000

6. Compute the value of ending inventory under absorption and variable costing methods

Beginning Inventory 300


Production 1000
1300
Sales (1100)
Ending Inventory 200

Absorption Costing Variable Costing


Ending Inventory 200x7,100 200x3,100
=1,420,000 =620,000
*Decrease of 100 in ending inventory

7. Reconcile the difference in operating income under the absorption and variable costing methods Case

VARIABLE COSTING NET INCOME 3570,000

LESS: 100X4000 400,000

ABSORTION NET INCOME 3,170,000

C: Assuming that the units sold totals 1,000 units

8. Prepare the income statement under absorption and variable costing methods

ABSORTION COSTING
Sales (1000x12,000) P 12,000,000
COGS (1000x 7100) (7,100,000)
Gross Profit 4,900,000
OPEX (Var. (200x1000)=200,000 x Fixed – 2,000,000) (2,200,000)
Net Income P 2,700,000
VARIABLE COSTING
Sales (1000x12,000) 12,000,000

Variable Cost(Mftg, {1000x3100}=3,100,000+ S&A {200x1000}=200,000) (3,300,000)

Contribution Margin 8,700,000

Fixed Cost (Mftg-4,000,000+ S&A- 2,000,000) (6,000,000)

Net Income P 2,700,000

9. Compute the value of ending inventory under absorption and variable costing methods

Beginning Inventory 300


Production 1000
1300
Sales (1000)
Ending Inventory 300

Absorption Costing Variable Costing


Ending Inventory 300x7,100 300x3,100
=2,130,000 =9300,000

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