During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. What is the value of ending inventory under absorption costing?

Multiple Choice

• $60,000
• $110,000
• $50,000
• $250,000
• $310,000

Milton Company reports the following information for the current year:

Units produced this year		45,000	units
Units sold this year		53,000	units
Direct materials	$	5	per unit
Direct labor	$	2	per unit
Variable overhead	$	6	per unit
Fixed overhead		?	in total

If the company's cost per unit of finished goods using absorption costing is $18, what is total fixed overhead?

Multiple Choice

• $225,000
• $180,000
• $270,000
• $315,000
• $720,000

Which of the following is not a product cost under variable costing?

Multiple Choice

• Direct materials.
• Fixed manufacturing overhead.
• Direct labor.
• Variable manufacturing overhead.
• All variable manufacturing costs.

Magenta Inc. reports the following information for the current year, which is its first year of operations:

Units produced this year		750,000	units
Units sold this year		740,000	units
Direct materials	$	18.30	per unit
Direct labor	$	14.20	per unit
Variable overhead		?	in total
Fixed overhead	$	4,500,000	in total

If the company's cost per unit of finished goods using absorption costing is $39.75, what is total variable overhead?

Multiple Choice

• $925,000
• $877,500
• $937,500
• $865,800
• $5,437,500

Brush Industries reports the following information for May:

Sales	$	900,000
Fixed cost of goods sold		100,000
Variable cost of goods sold		250,000
Fixed selling and administrative costs		100,000
Variable selling and administrative costs		125,000

Calculate the operating income for May under absorption costing.

Multiple Choice

• $650,000
• $325,000
• $525,000
• $550,000
• $350,000

Chance, Inc. sold 3,000 units of its product at a price of $72 per unit. Total variable cost per unit is $51, consisting of $32 in variable production cost and $19 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.

Multiple Choice

• $96,000
• $63,000
• $120,000
• $216,000
• ($90,000)

Alexis Co. reported the following information for May:

	Part A
Units sold		5,000	units
Selling price per unit	$	800
Variable manufacturing cost per unit		520
Sales commission per unit - Part A		80

What is the manufacturing margin for Part A?

Multiple Choice

• $1,000,000
• $1,400,000
• $3,600,000
• $2,600,000
• $2,400,000

Vision Tester, Inc., a manufacturer of optical glass, began operations on February 1 of the current year. During this time, the company produced 900,000 units and sold 800,000 units at a sales price of $12 per unit. Cost information for this year is shown in the following table:

Production costs
Direct materials	$	0.80	per unit
Direct labor	$	0.70	per unit
Variable overhead	$	500,000	in total
Fixed overhead	$	450,000	in total
Non-production costs
Variable selling and administrative	$	30,000	in total
Fixed selling and administrative	$	490,000	in total

Given this information, which of the following is true?

Multiple Choice

• Net income under variable costing will exceed net income under absorption costing by $50,000.
• Net income under absorption costing will exceed net income under variable costing by $50,000.
• Net income will be the same under both absorption and variable costing.
• Net income under variable costing will exceed net income under absorption costing by $60,000.
• Net income under absorption costing will exceed net income under variable costing by $60,000.

Swola Company reports the following annual cost data for its single product.

Normal production level		75,000	units
Direct materials	$	1.25	per unit
Direct labor	$	2.50	per unit
Variable overhead	$	3.75	per unit
Fixed overhead	$	300,000	in total

This product is normally sold for $25 per unit. If Swola increases its production to 200,000 units, while sales remain at the current 75,000 unit level, by how much would the company's income increase or decrease under variable costing?

Multiple Choice

• $187,500 increase.
• $112,500 increase.
• There will be no change in income.
• $112,500 decrease.
• $187,500 decrease.

Mentor Corp. has provided the following information for the current year:

Units produced		3,500	units
Sale price	$	200	per unit
Direct materials	$	70	per unit
Direct labor	$	55	per unit
Variable manufacturing overhead	$	20	per unit
Fixed manufacturing overhead	$	350,000	per year
Variable selling and administrative costs	$	30	per unit
Fixed selling and administrative costs	$	150,000	per year

Calculate the unit product cost using variable costing.

Multiple Choice

• $245
• $275
• $55
• $145
• $125

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

Sales (23,000 $45)	$	1,035,000
Cost of goods sold (23,000 $22)		506,000
Gross margin	$	529,000
Selling and administrative expenses		115,000
Net income	$	414,000

60% of total selling and administrative expenses are variable. Compute net income under variable costing.

Multiple Choice

• $414,000
• $399,000
• $529,000
• $429,000
• $644,000

Aces, Inc., a manufacturer of tennis rackets, began operations this year. The company produced 6,000 rackets and sold 4,900. At year-end, the company reported the following income statement using absorption costing.

Sales (4,900 $90)	$	441,000
Cost of goods sold (4,900 $38)		186,200
Gross margin	$	254,800
Selling and administrative expenses		75,000
Net income	$	179,800

Production costs per tennis racket total $38, which consists of $25 in variable production costs and $13 in fixed production costs (based on the 6,000 units produced). Ten percent of total selling and administrative expenses are variable. Compute net income under variable costing.

Multiple Choice

• $194,100
• $165,500
• $311,000
• $240,500
• $233,000

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

Direct labor	$	8	per unit
Direct materials	$	3	per unit
Overhead
Total variable overhead	$	30,000
Total fixed overhead	$	85,000
Expected units to be produced		50,000	units

Multiple Choice

• $7 per unit
• $13.30 per unit
• $11.00 per unit
• $11.60 per unit
• $16.50 per unit

Pact Company had net income of $972,000 based on variable costing. Beginning and ending inventories were 7,800 units and 5,200 units, respectively. Assume the fixed overhead per unit was $3.61 for both the beginning and ending inventory. What is net income under absorption costing?

Multiple Choice

• $962,614
• $1,018,923
• $925,077
• $969,400
• $981,379

Gage Company reports the following information for its first year of operations:

Units produced this year		7,000	units
Units sold this year		6,500	units
Direct materials	$	22	per unit
Direct labor	$	30	per unit
Variable overhead		?	in total
Fixed overhead	$	56,000	in total

If the company's cost per unit of finished goods using variable costing is $63, what is total variable overhead?

Multiple Choice

• $21,000
• $71,500
• $77,000
• $19,500
• $16,590

A company reports the following information for its first year of operations:

Units produced this year		?	units
Units sold this year		1,500	units
Direct materials	$	9	per unit
Direct labor	$	5	per unit
Variable overhead	$	7	per unit
Fixed overhead	$	24,000	in total

If the company's cost per unit of finished goods using absorption costing is $27, how many units were produced?

Multiple Choice

• 4,000 units.
• 3,600 units.
• 1,846 units.
• 2,667 units.
• 2,000 units.

A company is currently operating at 75% capacity and producing 3,000 units. Current cost information relating to this production is shown in the table below:

	Per Unit
Sales price	$	43
Direct material	$	7
Direct labor	$	6
Variable overhead	$	4
Fixed overhead	$	4

The company has been approached by a customer with a request for a 200-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Multiple Choice

• Any amount over $43 per unit.
• Any amount over $17 per unit.
• Any amount over $21 per unit.
• Any amount over $13 per unit.
• Any amount over $22 per unit.

Swisher, Incorporated reports the following annual cost data for its single product:

Normal production level		30,000	units
Direct materials	$	6.40	per unit
Direct labor	$	3.93	per unit
Variable overhead	$	5.80	per unit
Fixed overhead	$	150,000	in total

This product is normally sold for $48 per unit. If Swisher increases its production to 50,000 units, while sales remain at the current 30,000 unit level, by how much would the company's income increase or decrease under variable costing?

Multiple Choice

• $60,000 decrease.
• $90,000 decrease.
• There is no change in income.
• $90,000 increase.
• $60,000 increase.

A company is currently operating at 80% capacity producing 5,000 units. Current cost information relating to this production is shown in the table below:

	Per Unit
Sales price	$	34
Direct material	$	2
Direct labor	$	3
Variable overhead	$	4
Fixed overhead	$	5

The company has been approached by a customer with a request for a 100-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Multiple Choice

• Any amount over $34 per unit.
• Any amount over $20 per unit.
• Any amount over $14 per unit.
• Any amount over $9 per unit.
• Any amount over $5 per unit.

Jeter Corporation had net income of $212,000 based on variable costing. Beginning and ending inventories were 6,000 units and 10,000 units, respectively. Assume the fixed overhead per unit was $4 for both the beginning and ending inventory. What is net income under absorption costing?

Multiple Choice

• $252,000
• $228,000
• $244,000
• $276,000
• $212,000

Income __________ when there is zero beginning inventory and all inventory units produced are sold.

Multiple Choice

• Will be lower under variable costing than absorption costing
• Will be the same under both variable and absorption costing
• Will be higher under variable costing than absorption costing
• Will be higher than gross margin under variable costing
• Will be lower than administrative costs under absorption costing

Which of the following statements is true regarding variable costing?

Multiple Choice

• It is a traditional costing approach.
• Only manufacturing costs that change in total with changes in production level are included in product costs.
• It is not permitted to be used for managerial reporting.
• It treats overhead in the same manner as absorption costing.
• It makes it easier to manipulate earnings with changes in production levels.

Sea Company reports the following information regarding its production costs:

Units produced		42,000	units
Direct labor	$	35	per unit
Direct materials	$	28	per unit
Variable overhead	$	17	per unit
Fixed overhead	$	105,000	in total

Compute the product cost per unit under absorption costing.

Multiple Choice

• $28.00
• $82.50
• $80.00
• $63.00
• $35.00

Which of the following statements is true regarding absorption costing?

Multiple Choice

• It is not the traditional costing approach.
• It is not permitted to be used for financial reporting.
• It is not permitted to be used for tax reporting.
• It assigns all manufacturing costs to products.
• It requires only variable costs to be treated as product costs.

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. Income calculated under variable costing is determined to be $315,000. How much income is reported under absorption costing?

Multiple Choice

• $315,000
• $265,000
• $565,000
• $365,000
• $290,000