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- Variable costing:
● Unit Product cost = Direct Materials + Direct labor +Variable Manu overhead
● Unit Period cost = Fixed Manu overhead + Fixed and Variable SG&A
- Absorption costing:
● Unit Product cost = Direct Materials + Direct labor + Variable Manu overhead
+ Fixed Manu overhead = Unit product cost for Variable costing + Fixed Manu
overhead
● Unit Period cost: Fixed and Variable SG&A

- Variable costing phụ thuộc vào unit sales

- Absorption costing phụ thuộc vào units produced và unit sales. Nếu units
produce tăng à fixed Manu overhead per unit giảm à COGS giảm à NOI tăng

● Variable cost của DM, DL, MOH thì tính trên units produced
● Variable cost khác thì tính trên units sold
● Fixed cost thì tính trên units produced

● Difference in NOI of 2 methods = Fixed Manu overhead/unit * Change in

inventory
● Units produced = Units sold + Change in inventory

● Units produced > units sold à Inventory tăng thì Absorption costing > Variable
costing
● Units produced < units sold à Inventory giảm thì Absorption costing < Variable
costing
● NOI of Absorption costing = NOI of Variable costing + Fixed Manu
overhead per unit * Ending Inventory
● Beginning Inventory + Units produced – Unit sold = Ending Inventory
 Chapter 05: Absorption Costing and Variable Costing - Key

13. Under the absorption costing method, a company can increase profits by increasing
production rather than by increasing sales.
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Medium

14. Since variable costing emphasizes costs by behavior, it works well with cost-volume-
profit analysis.
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy

Multiple Choice Questions

15. Which of the following statements is true?

A. When production exceeds sales, a manufacturing company's variable costing net operating
income will usually be greater than its absorption costing net operating income.
B. The variable costing method is usually not used for external reporting purposes.
C. The absorption costing method treats fixed production costs as period costs.
D. All of these.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

16. Which of the following statements is true for a company that uses variable costing?
A. The unit product cost changes because of changes in the number of units manufactured.
B. Profit fluctuates with sales.
C. Any underapplied overhead is included in the product cost.
D. Product costs include variable administration costs.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

17. Which of the following statements is true for a company that uses variable costing?
A. The unit product cost changes as a result of changes in the number of units manufactured.
B. Both variable selling costs and variable production costs are included in the unit product
cost.
C. Net operating income moves in the same direction as sales.
D. Net operating income is greatest in periods when production is highest.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

18. Which of the following costs at a sofa manufacturing company would be treated as a
period cost under the variable costing method?
A. the cost of glue used to assemble the wood frame of each sofa produced
B. depreciation on sales vehicles
C. the salary of a factory manager
D. both B and C above

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

5-67
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 Chapter 05: Absorption Costing and Variable Costing - Key

19. A cost that would be included in product costs under both absorption costing and variable
costing would be:
A. supervisory salaries.
B. equipment depreciation.
C. variable manufacturing costs.
D. variable selling expenses.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

20. Which of the following costs at a manufacturing company would be treated as a product
cost under the absorption costing method?
A. sales commissions
B. fire insurance cost on factory building
C. advertising costs
D. All of these

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

21. Assuming that direct labor is a variable cost, product costs under variable costing include
only:
A. direct materials and direct labor.
B. direct materials, direct labor, and variable manufacturing overhead.
C. direct materials, direct labor, variable manufacturing overhead, and variable selling and
administrative expenses.
D. direct material, variable manufacturing overhead, and variable selling and administrative
expenses.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

22. Which of the following statements is true?

A. Expenses are not usually separated into variable and fixed elements in externally reported
income statements.
B. Even if there is no change in units sold, selling price, or cost structure, a company can
increase its absorption costing net operating income from one year to the next just by
producing more units.
C. When finished goods inventory decreases during a period, a manufacturing company's
absorption costing net operating income for that period will usually be greater than its
variable costing net operating income.
D. Both A and B above.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 4
Level: Medium

23. What is the cause of the difference between absorption costing net operating income and
variable costing net operating income?
A. Absorption costing deducts all manufacturing costs from net operating income; variable
costing deducts only prime costs.
B. Absorption costing allocates fixed manufacturing costs between cost of goods sold and
inventories; variable costing considers all fixed manufacturing costs to be period costs.
C. Absorption costing includes variable manufacturing costs in product costs; variable costing
considers variable manufacturing costs to be period costs.
D. Absorption costing includes fixed administrative costs in product costs; variable costing
considers fixed administrative costs to be period costs.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

5-69
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 Chapter 05: Absorption Costing and Variable Costing - Key

24. The gross margin for a manufacturing company is the excess of sales over:
A. cost of goods sold, excluding fixed manufacturing overhead.
B. all variable costs, including variable selling and administrative expenses.
C. cost of goods sold, including fixed manufacturing overhead.
D. variable costs, excluding variable selling and administrative expenses.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy

25. Weber Company computes net operating income under both the absorption costing
approach and the variable costing approach. For a given year the absorption costing net
operating income was greater than the variable costing net operating income. This fact
suggests that:
A. variable manufacturing costs were less than fixed manufacturing costs.
B. more units were produced during the year than were sold.
C. more units were sold during the year than were produced.
D. common costs were greater than variable costs for the year.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

26. Net operating income computed using variable costing would exceed net operating
income computed using absorption costing if:
A. units sold exceed units produced.
B. units sold are less than units produced.
C. units sold equal units produced.
D. the average fixed cost per unit is zero.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

5-70
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 Chapter 05: Absorption Costing and Variable Costing - Key

27. The costing method that can be used most easily with break-even analysis and other cost-
volume-profit techniques is:
A. variable costing.
B. absorption costing.
C. process costing.
D. job-order costing.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Level: Easy

28. Silver Company produces a single product. Last year, the company's variable production
costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company
produced 3,000 units during the year and sold 2,400 units. There were no units in the
beginning inventory. Which of the following statements is true?
A. Under variable costing, the units in the ending inventory will be costed at $4 each.
B. The net operating income under absorption costing for the year will be $900 lower than the
net operating income under variable costing.
C. The ending inventory under variable costing will be $900 lower than the ending inventory
under absorption costing.
D. Under absorption costing, the units in ending inventory will be costed at $2.50 each.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Hard

5-71
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 Chapter 05: Absorption Costing and Variable Costing - Key

29. Charrd Corporation manufactures a gas operated barbecue grill. The following
information relates to Charrd's operations for last year:

What is Charrd's variable costing unit product cost?

A. $29
B. $34
C. $58
D. $63

Unit fixed manufacturing overhead = $300,000 25,000 = $12

Unit variable product cost = Unit product cost - Unit manufacturing overhead
= $46 - $12 = $34

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

5-72
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 Chapter 05: Absorption Costing and Variable Costing - Key

30. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:

What is the variable costing unit product cost for the month?
A. $97
B. $90
C. $68
D. $75

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead
= $20 + $41 + $7
= $68

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

5-73
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 Chapter 05: Absorption Costing and Variable Costing - Key

31. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:

What is the absorption costing unit product cost for the month?
A. $107
B. $94
C. $87
D. $114

Unit fixed manufacturing overhead = $130,000 6,500 = $20

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost +
Fixed manufacturing overhead cost
= $26 + $55 + $6 + $20
= $107

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

5-74
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 Chapter 05: Absorption Costing and Variable Costing - Key

32. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:

What is the total period cost for the month under variable costing?
A. $151,800
B. $51,800
C. $100,000
D. $125,900

Total variable selling and administrative cost = $7 x 3,700 = $25,900

Period cost = Total variable selling and administrative cost + Fixed manufacturing overhead +
Fixed selling and administrative cost
= $25,900 + $100,000 + $25,900
= $151,800

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

5-75
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 Chapter 05: Absorption Costing and Variable Costing - Key

33. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:

What is the total period cost for the month under absorption costing?
A. $48,000
B. $275,100
C. $86,400
D. $188,700

Total variable selling and administrative cost = $8 x 4,800 = $38,400

Period cost = Variable selling and administrative cost + Fixed selling and administrative cost
= $38,400 + $48,000
= $86,400

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

5-76
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 Chapter 05: Absorption Costing and Variable Costing - Key

34. Yoshihara Corporation produces a single product and has the following cost structure:

The absorption costing unit product cost is:

A. $140
B. $197
C. $133
D. $227

Unit fixed manufacturing overhead = $228,000 4,000 = $57

Unit product cost = $57 + $62 + $71 + $7
= $197

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

5-77
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 Chapter 05: Absorption Costing and Variable Costing - Key

35. Sharko Corporation produces a single product and has the following cost structure:

The variable costing unit product cost is:

A. $89
B. $86
C. $164
D. $87

Unit product cost = $66 + $18 + $2

= $86

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

5-78
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 Chapter 05: Absorption Costing and Variable Costing - Key

36. Gallipeau Inc., which produces a single product, has provided the following data for its
most recent month of operations:

There were no beginning or ending inventories. The absorption costing unit product cost was:
A. $219
B. $151
C. $150
D. $300

Unit fixed manufacturing overhead = $68,000 1,000 = $68

Unit product cost = $68 + $79 + $71 + $1
= $219

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

5-79
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 Chapter 05: Absorption Costing and Variable Costing - Key

37. Baylor Inc., which produces a single product, has provided the following data for its most
recent month of operations:

There were no beginning or ending inventories. The variable costing unit product cost was:
A. $91
B. $67
C. $69
D. $61

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead
= $40 + $19 + $8
= $67

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

5-80
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 Chapter 05: Absorption Costing and Variable Costing - Key

38. Indiana Corporation produces a single product that it sells for $9 per unit. During the first
year of operations, 100,000 units were produced and 90,000 units were sold. Manufacturing
costs and selling and administrative expenses for the year were as follows:

What was Indiana Corporation's net operating income for the year using variable costing?
A. $181,000
B. $271,000
C. $281,000
D. $371,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium
Source: CMA, adapted

5-81
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 Chapter 05: Absorption Costing and Variable Costing - Key

39. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:

The total contribution margin for the month under variable costing is:
A. $83,900
B. $221,400
C. $135,000
D. $270,000

Total contribution margin = $41 x 5,400 = $221,400

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy

5-82
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 Chapter 05: Absorption Costing and Variable Costing - Key

40. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:

The total gross margin for the month under absorption costing is:
A. $163,800
B. $7,800
C. $170,800
D. $312,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Easy

5-83
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 Chapter 05: Absorption Costing and Variable Costing - Key

41. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:

What is the net operating income for the month under variable costing?
A. $15,800
B. $5,000
C. $20,800
D. $3,800

Unit product cost = $39 + $15 + $6 = $60

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

5-84
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 Chapter 05: Absorption Costing and Variable Costing - Key

42. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:

What is the net operating income for the month under absorption costing?
A. $(15,900)
B. $19,200
C. $10,200
D. $9,000

Unit fixed manufacturing overhead = $227,800 6,700 = $34

Unit product cost = $34 + $43 + $35 + $5 = $117

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

5-85
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 Chapter 05: Absorption Costing and Variable Costing - Key

43. Atlantic Company produces a single product. For the most recent year, the company's net
operating income computed by the absorption costing method was $7,400, and its net
operating income computed by the variable costing method was $10,100. The company's unit
product cost was $17 under variable costing and $22 under absorption costing. If the ending
inventory consisted of 1,460 units, the beginning inventory must have been:
A. 920 units
B. 1,460 units
C. 2,000 units
D. 12,700 units

Fixed manufacturing overhead per unit

= Unit cost under absorption costing - Unit cost under variable costing
= $22 - $17 = $5
Difference in income between absorption and variable costing
= Fixed manufacturing overhead per unit x Change in inventory in units
($10,100 - $7,400) = $5 x Change in inventory in units
Change in inventory in units = 540 units
Since variable costing net income is greater than absorption costing net income, then
inventory must have decreased since the beginning of the year. Therefore, beginning
inventory must have been 2,000 units (1,460 units + 540 units).

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard

5-86
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 Chapter 05: Absorption Costing and Variable Costing - Key

44. Roberts Company produces a single product. During the year just ended, the company's
net operating income under absorption costing was $3,000 lower than under variable costing.
The company sold 9,000 units during the year, and its variable costs were $9 per unit, of
which $3 was variable selling expense. If production cost is $11 per unit under absorption
costing every year, then how many units did the company produce during the year?
A. 8,000
B. 10,000
C. 9,600
D. 8,400

Direct material + Direct labor + Variable manufacturing overhead

= Variable unit product cost = $9 - $3 = $6
Unit fixed manufacturing overhead = $11 - $6 = $5
Difference in net income between methods Unit fixed manufacturing overhead
= ($3,000) $5 = (600) units
Units produced = Units sold + Change in inventory = 9,000 + (600) = 8,400

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard

5-87
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 Chapter 05: Absorption Costing and Variable Costing - Key

45. Lee Company produces a single product. At the end of last year, the company had 30,000
units in its ending inventory. Lee's variable production costs are $10 per unit and its fixed
manufacturing overhead costs are $5 per unit every year. The company's net operating income
for the year was $12,000 higher under variable costing than under absorption costing. Given
these facts, the number of units of product in inventory at the beginning of the year must have
been:
A. 28,800 units
B. 27,600 units
C. 32,400 units
D. 42,000 units

Unit fixed manufacturing overhead

= Difference in net income Change in inventory
= $12,000 Change in inventory = $5
Change in inventory = 2,400 units
Beginning inventory = 2,400 + 30,000 = 32,400 units

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard

5-88
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 Chapter 05: Absorption Costing and Variable Costing - Key

46. Ben Company produces a single product. Last year, the company's net operating income
under absorption costing was $4,400 lower than 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. How many units did the company produce during the year?
A. 12,400 units
B. 3,600 units
C. 7,120 units
D. 7,450 units

Unit fixed manufacturing overhead

= (Difference in income / Change in inventory)
= $4,400 Change in inventory = $1
Change in inventory = 4,400 units
Units produced during the year
= 8,000 units sold - 4,400 units change in inventory
= 3,600 units

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Hard

47. Mcferrin Corporation manufactures a variety of products. Last year, the company's
variable costing net operating income was $53,200. Fixed manufacturing overhead costs
released from inventory under absorption costing amounted to $32,900. What was the
absorption costing net operating income last year?
A. $86,100
B. $20,300
C. $32,900
D. $53,200

Absorption costing net income = Variable costing net income - fixed manufacturing overhead
costs released from inventory
= $53,200 - $32,900 = $20,300

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

5-89
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 Chapter 05: Absorption Costing and Variable Costing - Key

48. Last year, Wardrup Corporation's variable costing net operating income was $67,200.
Fixed manufacturing overhead costs released from inventory under absorption costing
amounted to $600. What was the absorption costing net operating income last year?
A. $67,800
B. $66,600
C. $67,200
D. $600

Absorption costing net income = Variable costing net income - fixed manufacturing overhead
costs released from inventory
= $67,200 - $600 = $66,600

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

49. Schrick Inc. manufactures a variety of products. Variable costing net operating income
was $86,800 last year and ending inventory increased by 1,900 units. Fixed manufacturing
overhead cost was $6 per unit. What was the absorption costing net operating income last
year?
A. $86,800
B. $75,400
C. $98,200
D. $11,400

Fixed manufacturing overhead deferred = $6 x 1,900 = $11,400

Absorption costing net income = Variable costing net operating income + Fixed
manufacturing overhead deferred
= $86,800 + $11,400
= $98,200

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AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

50. Last year, Gransky Corporation's variable costing net operating income was $52,100 and
its ending inventory increased by 400 units. Fixed manufacturing overhead cost was $7 per
unit. What was the absorption costing net operating income last year?
A. $52,100
B. $2,800
C. $54,900
D. $49,300

Fixed manufacturing overhead deferred = $7 x 400 = $2,800

Absorption costing net income = Variable costing net operating income + Fixed
manufacturing overhead deferred
= $52,100 + $2,800
= $54,900

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AICPA FN: Measurement
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and
sold 13,000 units. Production costs for the year were as follows:

Sales were $780,000 for the year, variable selling and administrative expenses were $88,400,
and fixed selling and administrative expenses were $170,000. There was no beginning
inventory. Assume that direct labor is a variable cost.

51. The contribution margin per unit was:

A. $17.50
B. $32.50
C. $27.30
D. $25.70

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Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

52. Under absorption costing, the carrying value on the balance sheet of the ending inventory
for the year would be:
A. $190,800
B. $170,000
C. $230,800
D. $0

Unit fixed manufacturing overhead = $255,000 17,000 = $15

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead +
Fixed manufacturing overhead = ($153,000 17,000) + ($110,500 17,000) + ($204,000
17,000) + $15 = $42.50
Carrying value = Unit product cost x Ending inventory in units = $42.50 x (17,000 - 13,000) =
$42.50 x 4,000 = $170,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Medium

53. Under variable costing, the company's net operating income for the year would be:
A. $60,000 higher than under absorption costing
B. $108,000 higher than under absorption costing
C. $108,000 lower than under absorption costing
D. $60,000 lower than under absorption costing

Unit fixed manufacturing overhead x Change in inventory in units

= ($255,000 17,000) x (17,000 - 13,000)
= $15 x 4,000
= $60,000
Since the units produced are greater than the units sold (inventory increased), net income
under absorption costing will be higher than net income under variable costing.Level: Hard

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3

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 Chapter 05: Absorption Costing and Variable Costing - Key

Abdol Company, which has only one product, has provided the following data concerning its
most recent month of operations:

54. What is the unit product cost for the month under variable costing?
A. $73
B. $44
C. $79
D. $38

Direct materials + Direct labor + Variable manufacturing overhead

= $22 + $12 + $4
= $38

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AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

55. What is the unit product cost for the month under absorption costing?
A. $38
B. $73
C. $44
D. $79

Unit fixed manufacturing overhead = $231,000 6,600 = $35

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead +
Fixed manufacturing overhead
= $22 + $12 + $4 + $35 = $73

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

56. The total contribution margin for the month under the variable costing approach is:
A. $273,000
B. $42,000
C. $84,500
D. $312,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

57. The total gross margin for the month under the absorption costing approach is:
A. $13,000
B. $91,800
C. $273,000
D. $84,500

Unit fixed manufacturing overhead = $231,000 6,600 = $35

Unit product cost under absorption costing = $22 + $12 + $4 + $35 = $73

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

58. What is the total period cost for the month under the variable costing approach?
A. $263,500
B. $71,500
C. $302,500
D. $231,000

Variable selling and administrative cost + Fixed costs

= ($6 x 6,500) + ($231,000 + $32,500)
= $39,000 + $263,500
= $302,500

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

59. What is the total period cost for the month under the absorption costing approach?
A. $32,500
B. $71,500
C. $302,500
D. $231,000

Variable selling and administrative cost + Fixed selling and administrative cost
= ($6 x 6,500) + $32,500
= $39,000 + $32,500
= $71,500

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

60. What is the net operating income for the month under variable costing?
A. $13,000
B. $5,700
C. $9,500
D. $3,500

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

61. What is the net operating income for the month under absorption costing?
A. $9,500
B. $3,500
C. $5,700
D. $13,000

Unit fixed manufacturing overhead = $231,000 6,600 = $35

Unit product cost under absorption costing = $22 + $12 + $4 + $35 = $73

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Walsh Company produces a single product. Last year, the company manufactured 25,000
units and sold 22,000 units. Production costs were as follows:

Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed
selling and administrative expenses were $45,000. There was no beginning inventory.
Assume that direct labor is a variable cost.

62. Under absorption costing, the unit product cost would be:
A. $9.00
B. $12.00
C. $13.40
D. $14.00

Unit product cost under absorption costing

= ($100,000 25,000) + ($75,000 25,000) + ($50,000 25,000) + ($75,000 25,000)
= $4 + $3 + $2 + $3
= $12.00

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

63. Under absorption costing, the gross margin would be:

A. $176,000
B. $242,000
C. $66,000
D. $21,000

Unit fixed manufacturing overhead = $75,000 25,000 = $3

Unit product cost under absorption costing
= ($100,000 25,000) + ($75,000 25,000) + ($50,000 25,000) + ($75,000 25,000)
= $4 + $3 + $2 + $3
= $12

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

64. The contribution margin per unit would be:

A. $15.00
B. $11.00
C. $8.00
D. $6.00

Variable product cost

= ($100,000 25,000) + ($75,000 25,000) + ($50,000 25,000) = $9

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

65. Under variable costing, the total amount of fixed manufacturing cost in the ending
inventory would be:
A. $0
B. $9,000
C. $14,400
D. $27,000

Under variable costing, all fixed manufacturing overhead is expensed in the period in which it
is incurred. No fixed manufacturing overhead is added to the cost of inventory.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

66. The net operating income under variable costing would be:
A. $2,000
B. $21,000
C. $12,000
D. $9,000

Variable product cost

= ($100,000 25,000) + ($75,000 25,000) + ($50,000 25,000) = $9
Variable selling and administrative cost
= $110,000 22,000 = $5

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

67. The net operating income under absorption costing would be:
A. $9,000
B. $12,000
C. $2,000
D. $21,000

Unit direct material = $100,000 25,000 = $4

Unit direct labor = $75,000 25,000 = $3
Unit variable manufacturing overhead = $50,000 25,000 = $2
Unit fixed manufacturing overhead = $75,000 25,000 = $3
Unit product cost under absorption costing = $4 + $3 + $2 + $3 = $12

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Faxon Company, which has only one product, has provided the following data concerning its
most recent month of operations:

68. What is the unit product cost for the month under variable costing?
A. $122
B. $108
C. $99
D. $131

Direct materials + Direct labor + Variable manufacturing overhead

= $40 + $53 + $6
= $99

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AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

69. What is the unit product cost for the month under absorption costing?
A. $99
B. $131
C. $122
D. $108

Unit fixed manufacturing overhead = $69,000 3,000 = $23

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead +
Fixed manufacturing overhead
= $40 + $53 + $6 + $23
= $122

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

70. What is the net operating income for the month under variable costing?
A. $2,300
B. $(600)
C. $9,300
D. $11,600

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

71. What is the net operating income for the month under absorption costing?
A. $11,600
B. $2,300
C. $(600)
D. $9,300

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead +
Fixed manufacturing overhead
= $40 + $53 + $6 + $23
= $122

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Jarmon 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.

72. What is the unit product cost for the month under variable costing?
A. $78
B. $105
C. $73
D. $110

Direct materials + Direct labor + Variable manufacturing overhead

= $45 + $27 + $1
= $73

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AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

73. What is the unit product cost for the month under absorption costing?
A. $78
B. $73
C. $105
D. $110

Unit fixed manufacturing overhead = $41,600 1,300 = $32

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead +
Fixed manufacturing overhead
= $45 + $27 + $1 + $32
= $105

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Medium

74. What is the net operating income for the month under variable costing?
A. $4,500
B. $10,900
C. $25,500
D. $12,800

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

75. What is the net operating income for the month under absorption costing?
A. $4,500
B. $12,800
C. $25,500
D. $10,900

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead +
Fixed manufacturing overhead
= $45 + $27 + $1 + $32
= $105

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Hackney Company, which has only one product, has provided the following data concerning
its most recent month of operations:

76. What is the unit product cost for the month under variable costing?
A. $92
B. $107
C. $100
D. $85

Direct materials + Direct labor + Variable manufacturing overhead

= $30 + $52 + $3
= $85

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

77. The total contribution margin for the month under the variable costing approach is:
A. $47,000
B. $117,500
C. $12,600
D. $84,600

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

78. What is the total period cost for the month under the variable costing approach?
A. $42,300
B. $81,400
C. $114,300
D. $72,000

Period cost = Variable selling and administrative cost + Fixed manufacturing overhead +
Fixed selling and administrative cost
= ($7 x 4,700) + $72,000 + $9,400
= $32,900 + $72,000 + $9,400
= $114,300

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

79. What is the net operating income for the month under variable costing?
A. $4,700
B. $(5,300)
C. $1,500
D. $3,200

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Ilford Company, which has only one product, has provided the following data concerning its
most recent month of operations:

80. What is the unit product cost for the month under variable costing?
A. $87
B. $64
C. $68
D. $83

Product cost = Direct materials + Direct labor + Variable manufacturing overhead

= $27 + $35 + $2
= $64

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

81. What is the net operating income for the month under variable costing?
A. $1,200
B. $5,700
C. $6,900
D. $(18,000)

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Crystal Company produces a single product. The company's variable costing income
statement for the month of May appears below:

The company produced 80,000 units in May and the beginning inventory consisted of 25,000
units. Variable production costs per unit and total fixed costs have remained constant over the
past several months.

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 Chapter 05: Absorption Costing and Variable Costing - Key

82. The dollar value of the company's inventory on May 31 under the absorption costing
method would be:
A. $120,000
B. $90,000
C. $75,000
D. $60,000

Units sold = $900,000 $10 = 90,000

Ending inventory = Beginning inventory + Units produced - Units sold
= 25,000 + 80,000 - 90,000
= 15,000
Unit fixed manufacturing overhead = $240,000 80,000 = $3
Unit product cost
= ($450,000 90,000) + $3
= $5 + $3
= $8
Value of ending inventory = Unit product cost x Units in ending inventory
= $8 x 15,000 = $120,000

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AICPA FN: Measurement
Learning Objective: 1
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

83. Under absorption costing, for the month ended May 31, the company would report a:
A. $30,000 loss
B. $0 profit
C. $30,000 profit
D. $60,000 profit

Unit fixed manufacturing cost = $240,000 80,000 = $3

Unit product cost
= ($450,000 90,000) + $3
= $5 + $3
= $8
Units sold = $900,000 $10 = 90,000

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Learning Objective: 2
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

Erie Company manufactures a single product. Assume the following data for the year just
completed:

There were no units in inventory at the beginning of the year. During the year 30,000 units
were produced and 25,000 units were sold. Each unit sells for $35.

84. Under absorption costing, the unit product cost would be:
A. $8.00
B. $17.75
C. $13.00
D. $10.75

Unit fixed product cost = $82,500 30,000 = $2.75

Unit product cost = Variable product cost + Fixed product cost
= $8.00 + $2.75
= $10.75

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AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

85. The company's net operating income under variable costing would be:
A. $407,500
B. $421,250
C. $431,250
D. $417,500

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Gallager Company, which has only one product, has provided the following data concerning
its most recent month of operations:

86. The total contribution margin for the month under the variable costing approach is:
A. $303,600
B. $132,000
C. $356,400
D. $72,400

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

87. The total gross margin for the month under the absorption costing approach is:
A. $303,600
B. $132,000
C. $19,800
D. $148,600

Unit fixed manufacturing overhead = $231,200 6,800 = $34

Unit product cost = $22 + $23 + $4 + $34 = $83

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Medium

88. What is the total period cost for the month under the variable costing approach?
A. $290,600
B. $112,200
C. $231,200
D. $343,400

Period cost = Variable selling and administrative cost + Fixed manufacturing overhead +
Fixed selling and administrative cost
= $8 x 6,600 + $231,200 + $59,400
= $52,800 + $231,200 + $59,400
= $343,400

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

89. What is the total period cost for the month under the absorption costing approach?
A. $59,400
B. $112,200
C. $343,400
D. $231,200

Period cost = Variable selling and administrative cost + Fixed selling and administrative cost
= $8 x 6,600 + $59,400
= $112,200

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Level: Hard

During its first year of operations, Holt Manufacturing Company incurred the following costs
to produce 200,000 units of its only product:

Holt also incurred the following costs in the sale of 180,000 units of product during its first
year:

Assume that direct labor is a variable cost.

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 Chapter 05: Absorption Costing and Variable Costing - Key

90. What would be the cost per unit of Holt's finished goods inventory at the end of the first
year of operations under the variable costing method?
A. $2.34
B. $2.74
C. $4.50
D. $6.30

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead
= ($144,000 200,000) + ($108,000 200,000) + ($216,000 200,000)
= $0.72 + $0.54 + $1.08
= $2.34

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Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

91. What would be the cost per unit of Holt's finished goods inventory at the end of the first
year of operations under the absorption costing method?
A. $2.34
B. $2.74
C. $4.50
D. $6.30

Unit fixed manufacturing overhead = $432,000 200,000 = $2.16

= ($144,000 200,000) + ($108,000 200,000) + ($216,000 200,000) + $2.16
= $0.72 + $0.54 + $1.08 + $2.16
= $4.50

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

92. If Holt's variable costing net operating income for this first year is $397,800, what would
its absorption costing net operating income be for this first year?
A. $354,600
B. $441,000
C. $445,800
D. $473,800

Unit fixed manufacturing overhead = $432,000 200,000 = $2.16

Variable costing net income = Absorption costing net income - (Unit fixed manufacturing
overhead x Change in inventory in units)
$397,800 = Absorption costing net income - [$2.16 x (200,000 - 180,000)]
$397,800 = Absorption costing net income - $43,200
Absorption costing net income = $441,000

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AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Ross Company produces a single product. The company has direct materials costs of $8 per
unit, direct labor costs of $6 per unit, and manufacturing overhead of $10 per unit. Sixty
percent of the manufacturing overhead is for fixed costs. In addition, variable selling and
administrative costs are $2 per unit, and fixed selling and administrative costs are $3 per unit
at the current activity level. Assume that direct labor is a variable cost.

93. Under absorption costing, the unit product cost is:

A. $24
B. $20
C. $26
D. $29

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost +
Fixed manufacturing overhead cost = $8 + $6 + $10* = $24
* Manufacturing overhead cost of $10 includes variable and fixed costs.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

94. Under variable costing, the unit product cost is:

A. $24
B. $20
C. $18
D. $21

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $8 +
$6 + [$10 x (100% - 60%)] = $8 + $6 + $4= $18

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

Bawcutt Company, which has only one product, has provided the following data concerning
its most recent month of operations:

95. What is the unit product cost for the month under variable costing?
A. $93
B. $62
C. $66
D. $97

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $10
+ $45 + $7 = $62

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

96. What is the unit product cost for the month under absorption costing?
A. $62
B. $93
C. $97
D. $66

Unit fixed manufacturing overhead = $263,500 8,500 = $31

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost +
Fixed manufacturing overhead cost = $10 + $45 + $7 + $31 = $93

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

Dearman Company, which has only one product, has provided the following data concerning
its most recent month of operations:

97. What is the total period cost for the month under the variable costing approach?
A. $98,700
B. $64,400
C. $65,100
D. $129,500

Total variable selling and administrative cost = $11 x 2,800 = $30,800

Period cost = Total variable selling and administrative cost + Fixed manufacturing overhead +
Fixed selling and administrative cost = $30,800 + $65,100 + $33,600 = $129,500

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AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

98. What is the total period cost for the month under the absorption costing approach?
A. $33,600
B. $65,100
C. $129,500
D. $64,400

Total variable selling and administrative cost = $11 x 2,800 = $30,800

Period cost = Variable selling and administrative cost + Fixed selling and administrative cost
= $30,800 + $33,600 = $64,400

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

Mcgougan Corporation produces a single product and has the following cost structure:

99. The unit product cost under absorption costing is:

A. $126
B. $158
C. $139
D. $121

Unit fixed manufacturing overhead = $91,000 7,000 = $13

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost +
Fixed manufacturing overhead cost = $81 + $40 + $5 + $13 = $139

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

100. The unit product cost under variable costing is:

A. $139
B. $126
C. $122
D. $127

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $81
+ $40 + $5 = $126

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

Slovick Inc., which produces a single product, has provided the following data for its most
recent month of operations:

There were no beginning or ending inventories.

101. The unit product cost under absorption costing was:

A. $161
B. $199
C. $262
D. $168

Unit fixed manufacturing overhead = $31,000 1,000 = $31

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost +
Fixed manufacturing overhead cost = $79 + $82 + $7 + $31 = $199

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

102. The unit product cost under variable costing was:

A. $168
B. $164
C. $199
D. $171

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $79
+ $82 + $7 = $168

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

Clubb Company, which has only one product, has provided the following data concerning its
most recent month of operations:

103. The total contribution margin for the month under the variable costing approach is:
A. $38,000
B. $92,000
C. $170,200
D. $119,600

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AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

104. The total gross margin for the month under the absorption costing approach is:
A. $110,000
B. $92,000
C. $119,600
D. $13,800

Unit fixed manufacturing overhead = $81,600 4,800 = $17

Unit product cost under absorption costing = $48 + $23 + $2 + $17 = $90

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Elder Company, which has only one product, has provided the following data concerning its
most recent month of operations:

105. What is the net operating income for the month under variable costing?
A. $9,800
B. $(27,400)
C. $15,400
D. $5,600

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AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

106. What is the net operating income for the month under absorption costing?
A. $(27,400)
B. $5,600
C. $9,800
D. $15,400

Unit fixed manufacturing overhead = $113,400 8,100 = $14

Unit product cost under absorption costing = $27 + $59 + $7 + $14 = $107

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Kidwell 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.

107. What is the net operating income for the month under variable costing?
A. $5,800
B. $5,400
C. $8,300
D. $16,000

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 Chapter 05: Absorption Costing and Variable Costing - Key

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

108. What is the net operating income for the month under absorption costing?
A. $5,800
B. $16,000
C. $5,400
D. $8,300

Unit fixed manufacturing overhead = $153,700 5,300 = $29

Unit product cost under absorption costing = $38 + $38 + $1 + $29 = $106

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Botwinick Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:

109. What was the absorption costing net operating income last year?
A. $57,000
B. $28,000
C. $58,000
D. $88,000

Absorption costing net income

= Variable costing net operating income + Fixed manufacturing overhead deferred = $58,000
+ $30,000 = $88,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

110. What was the absorption costing net operating income this year?
A. $98,000
B. $36,000
C. $68,000
D. $66,000

Absorption costing net income = Variable costing net operating income - Fixed
manufacturing overhead released
= $67,000 - $31,000
= $36,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

Schubert Corporation manufactures a variety of products. Variable costing net operating

income last year was $59,000 and this year was $70,000. Last year, $31,000 in fixed
manufacturing overhead costs were released from inventory under absorption costing. This
year, $22,000 in fixed manufacturing overhead costs were deferred in inventory under
absorption costing.

111. What was the absorption costing net operating income last year?
A. $90,000
B. $59,000
C. $28,000
D. $68,000

Absorption costing net income = Variable costing net operating income - Fixed
manufacturing overhead released
= $59,000 - $31,000
= $28,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

112. What was the absorption costing net operating income this year?
A. $92,000
B. $58,000
C. $79,000
D. $61,000

Absorption costing net income = Variable costing net operating income + Fixed
manufacturing overhead deferred
= $70,000 + $22,000
= $92,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

Dewiel Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:

113. What was the absorption costing net operating income last year?
A. $90,900
B. $96,900
C. $84,900
D. $92,100

Absorption costing net income = Variable costing net operating income + Fixed
manufacturing overhead deferred
= $90,900 + ($4 x 1,500)
= $96,900

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

114. What was the absorption costing net operating income this year?
A. $105,900
B. $115,500
C. $89,700
D. $109,500

Absorption costing net income = Variable costing net operating income - Fixed
manufacturing overhead released
= $110,700 - ($4 x 1,200)
= $105,900

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Caparros Corporation manufactures a variety of products. Variable costing net operating

income was $62,800 last year and was $74,900 this year. Last year, ending inventory
decreased by 3,300 units. This year, ending inventory increased by 1,900 units. Fixed
manufacturing overhead cost is $7 per unit.

115. What was the absorption costing net operating income last year?
A. $72,600
B. $85,900
C. $62,800
D. $39,700

Absorption costing net income = Variable costing net operating income - Fixed
manufacturing overhead released
= $62,800 - ($7 x 3,300)
= $39,700

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

116. What was the absorption costing net operating income this year?
A. $88,200
B. $65,100
C. $61,600
D. $53,000

Absorption costing net income

= Variable costing net operating income + Fixed manufacturing overhead deferred
= $74,900 + ($7 x 1,900)
= $88,200

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

Essay Questions
117. Leibson 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.

Required:

a. What is the unit product cost for the month under variable costing?

b. What is the unit product cost for the month under absorption costing?

c. Prepare a contribution format income statement for the month using variable costing.

d. Prepare an income statement for the month using absorption costing.

e. Reconcile the variable costing and absorption costing net operating incomes for the month.

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 Chapter 05: Absorption Costing and Variable Costing - Key

a. & b. Unit product costs

c. & d. Income statements

e. Reconciliation

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

118. Mafli Company, which has only one product, has provided the following data concerning
its most recent month of operations:

Required:

a. What is the unit product cost for the month under variable costing?

b. What is the unit product cost for the month under absorption costing?

c. Prepare a contribution format income statement for the month using variable costing.

d. Prepare an income statement for the month using absorption costing.

e. Reconcile the variable costing and absorption costing net operating incomes for the month.

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 Chapter 05: Absorption Costing and Variable Costing - Key

a. & b. Unit product costs

c. & d. Income statements

e. Reconciliation

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

119. Fowler Company manufactures a single product. Operating data for the company and its
absorption costing income statements for the last two years are presented below:

Variable manufacturing costs are $6 per unit. Fixed manufacturing overhead totals $72,000 in
each year. This overhead is applied at the rate of $4 per unit. Variable selling and
administrative expenses are $2 per unit sold.

Required:

a. What was the unit product cost in each year under variable costing?

b. Prepare new income statements for each year using variable costing.

c. Reconcile the absorption costing and variable costing net operating income for each year.

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 Chapter 05: Absorption Costing and Variable Costing - Key

a. The manufacturing cost of $6 per unit is the unit product cost under variable costing in
both years.

b.

c.

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Learning Objective: 2
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

120. Pachur 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.

Required:

a. What is the unit product cost for the month under variable costing?

b. Prepare a contribution format income statement for the month using variable costing.

c. Without preparing an income statement, determine the absorption costing net operating
income for the month. (Hint: Use the reconciliation method.)

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 Chapter 05: Absorption Costing and Variable Costing - Key

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

121. Qiu Company, which has only one product, has provided the following data concerning
its most recent month of operations:

Required:

a. What is the unit product cost for the month under variable costing?

b. Prepare a contribution format income statement for the month using variable costing.

c. Without preparing an income statement, determine the absorption costing net operating
income for the month. (Hint: Use the reconciliation method.)

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 Chapter 05: Absorption Costing and Variable Costing - Key

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

122. Penna Corporation produces a single product and has the following cost structure:

Required:

a. Compute the unit product cost under absorption costing. Show your work!

b. Compute the unit product cost under variable costing. Show your work!

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

123. Smolinski Corporation produces a single product and has the following cost structure:

Required:

Compute the unit product cost under absorption costing. Show your work!

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

124. Mascioli Corporation produces a single product and has the following cost structure:

Required:

Compute the unit product cost under variable costing. Show your work!

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

125. Nimocks Inc., which produces a single product, has provided the following data for its
most recent month of operation:

The company had no beginning or ending inventories.

Required:

a. Compute the unit product cost under absorption costing. Show your work!

b. Compute the unit product cost under variable costing. Show your work!

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

126. Przygocki Inc., which produces a single product, has provided the following data for its
most recent month of operation:

The company had no beginning or ending inventories.

Required:

Compute the unit product cost under absorption costing. Show your work!

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

127. Friddell Inc., which produces a single product, has provided the following data for its
most recent month of operation:

The company had no beginning or ending inventories.

Required:

Compute the unit product cost under variable costing. Show your work!

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

128. Data concerning Sonderegger Company's operations last year appear below:

Required:

a. Prepare an income statement for the year using absorption costing.

b. Prepare a contribution format income statement for the year using variable costing.

c. Prepare a report reconciling the difference in net operating income between absorption and
variable costing for the year.

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 Chapter 05: Absorption Costing and Variable Costing - Key

a.

* $6 = $2.00 + $1.00 + $1.00 + $140,000/70,000

**$150,000 + 60,000 units x $1.50 per unit

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

129. 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 labor, 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 manufacturing 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 net operating income for each year under the variable costing approach.

b. Referring to the absorption costing income statements above, explain why net 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.

c. Referring again to the absorption costing income statements, explain why the company
suffered a loss in Year 3 but reported a profit in Year 1, although the same number of units
was sold in each year.

d. If the company had used lean production during Year 2 and Year 3 and produced only what
could be sold, what would the company's net operating income (loss) have been each year
under absorption costing?

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 Chapter 05: Absorption Costing and Variable Costing - Key

b. Production increased sharply in Year 2 even though unit sales declined. The increase in
production resulted in a lower unit product cost in Year 2 than in Year 1. Furthermore,
because production exceeded sales, fixed manufacturing overhead costs were deferred in
inventories. These effects more than offset the loss of revenue due to lower sales. The
company's income thus rose even though sales were down.

c. Production decreased sharply in Year 3. This resulted in an increase in the unit product
cost. In addition, inventories decreased and as a result fixed manufacturing overhead deferred
in inventories in Year 2 were released to the income statement in Year 3.

d. If lean production had been in use, the net operating income under absorption costing
would have been the same as under variable costing in all three years. With production geared
to sales, there would have been no ending inventory, and therefore, there would have been no
fixed manufacturing overhead costs deferred in inventory to other years.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 4
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

130. Neuman 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.

Required:

a. Prepare a contribution format income statement for the month using variable costing.

b. Prepare an income statement for the month using absorption costing.

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 Chapter 05: Absorption Costing and Variable Costing - Key

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Hard

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 Chapter 05: Absorption Costing and Variable Costing - Key

131. O'Bannion Company, which has only one product, has provided the following data
concerning its most recent month of operations:

Required:

a. Prepare a contribution format income statement for the month using variable costing.

b. Prepare an income statement for the month using absorption costing.

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 Chapter 05: Absorption Costing and Variable Costing - Key

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Level: Medium

132. Boyar Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:

Required:

a. Determine the absorption costing net operating income last year. Show your work!

b. Determine the absorption costing net operating income this year. Show your work!

a. and b.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

133. Soffer Corporation manufactures a variety of products. Last year, variable costing net
operating income was $72,000. The fixed manufacturing overhead costs released from
inventory under absorption costing amounted to $24,000.

Required:

Determine the absorption costing net operating income last year. Show your work!

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

134. Last year, Jaquet Corporation's variable costing net operating income was $58,000. The
fixed manufacturing overhead costs deferred in inventory under absorption costing amounted
to $9,000.

Required:

Determine the absorption costing net operating income last year. Show your work!

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Easy

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 Chapter 05: Absorption Costing and Variable Costing - Key

135. Eagen Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:

Required:

a. Determine the absorption costing net operating income for last year. Show your work!

b. Determine the absorption costing net operating income for this year. Show your work!

a. and b.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

136. Cardwell Corporation manufactures a variety of products. Last year, the company's
variable costing net operating income was $63,900 and ending inventory increased by 900
units. Fixed manufacturing overhead cost per unit was $3.

Required:

Determine the absorption costing net operating income for last year. Show your work!

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

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 Chapter 05: Absorption Costing and Variable Costing - Key

137. Last year, Brunkow Corporation's variable costing net operating income was $93,500
and ending inventory increased by 800 units. Fixed manufacturing overhead cost per unit was
$7.

Required:

Determine the absorption costing net operating income for last year. Show your work!

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Level: Medium

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