Practice Question 1 In full costing, fixed manufacturing overhead is considered to be a period cost. True False

Practice Question 2 Mortenson Machines announced that production was being reduced because the company had excess inventory. Its first quarter would report a huge loss because of the use of full costing for financial reporting purposes. Which of the following is correct? With the reduction in production, fixed manufacturing overhead is spread out over fewer units and unit cost increases. With a higher unit cost, cost of goods sold will be high and profit low. With the reduction in production, fixed manufacturing overhead is spread out over more units and unit cost decreases. With a lower unit cost, cost of goods sold will be high and profit low. With the reduction in production, fixed manufacturing overhead is spread out over fewer units and unit cost increases. With a higher unit cost, cost of goods sold will be lower and profit higher. With the reduction in production, fixed manufacturing overhead is spread out over more units and unit cost decreases. With a higher unit cost, cost of goods sold will be high and profit low.

Practice Question 3 In using variable costing, how are fixed manufacturing costs classified? As period costs As part of cost of goods sold As inventoriable costs As product costs

Practice Question 4 Which statement is correct concerning how inventory costs are accounted for under variable costing? Direct materials and direct labor are product costs, while manufacturing overhead costs are period costs. Direct materials, direct labor, and variable manufacturing overhead are product costs, while fixed manufacturing costs are period costs. Direct materials, direct labor, and fixed and variable manufacturing overhead are product costs. Direct materials, direct labor, and fixed manufacturing overhead are product costs, while variable manufacturing costs are period costs.

Practice Question 5 Which one of the following indicates a difference in accounting for manufacturing overhead costs under full and variable costing? Under full costing, all manufacturing overhead costs are considered product costs; while under variable costing, fixed manufacturing overhead costs are treated as period costs. Under full costing, all manufacturing overhead costs are considered product costs, while under variable costing all manufacturing overhead costs are considered period costs. Under full costing, both variable and fixed manufacturing overhead costs are considered product costs, while under variable costing, all manufacturing overhead costs are period costs. Under full costing, fixed manufacturing overhead costs are considered product costs and variable are considered period costs, while under variable costing, variable manufacturing overhead costs are product costs, while fixed are considered period costs.

Practice Question 6 If variable costing is used, direct materials, direct labor, and all manufacturing overhead costs are subtracted from sales revenue to arrive at the contribution margin. True False

Practice Question 7 The following are amounts determined by Clockworks, Inc. for the production of 800 clocks during April: Sales price $80 per unit Variable manufacturing costs $8 per unit Fixed manufacturing costs $6 per unit Variable administrative costs $5 per unit Fixed administrative costs $3 per unit If 800 clocks are sold during April, how much is total contribution margin? $52,800 $74,400 $53,600 $46,400

Practice Question 8 The following costs were incurred by Oregon, Inc. for the production of 600 life jackets during May: Sales price $21 per unit Variable manufacturing costs $6 per unit Variable administrative costs $4 per unit Fixed manufacturing costs $3 per unit Fixed operating costs $2 per unit How much is income if 450 units are sold and variable costing is used? $4,950 $3,750 $2,700 $1,950

Practice Question 9 Last month, Gregson Industries produced 100,000 units and sold 85,000 of them at a price of $10 per unit. Manufacturing costs consisted of direct materials of $220,000, direct labor of $125,000, variable manufacturing overhead of $65,000 and fixed manufacturing overhead of $175,500. Fixed general and administrative costs totaled $90,000. Using variable costing, what is Gregsons net income for the month? $174,500 $236,000 $457,000 $324,500

Practice Question 10 Quad Squad experienced the following costs during the year: Direct materials $2.20/unit Direct labor $2.05/unit Variable manufacturing overhead $1.40/unit Variable selling costs $1.60/unit Fixed manufacturing overhead $22,000 Fixed selling costs $15,000 Fixed administrative costs $13,000 During the year, the company manufactured and sold 10,000 quads at $25 each. How much will appear on the companys income statement as contribution margin? $72,500 $177,500 $200,000 $127,500

Practice Question 11 Home Health manufacturers and sells CPAP machines for $250 each. The company experienced the following costs to produce 400 machines during the year: Direct materials $50.00/unit Direct labor $40.00/unit Variable manufacturing overhead $25.00/unit Fixed manufacturing overhead $13,000 Additional costs incurred by the company for the year follow: Fixed selling costs $5,000 Fixed administrative costs $8,000 Variable selling costs $21.50/unit During the year, the company sold all 400 units. How much will appear on the companys income statement as contribution margin? $54,600 $45,400 $19,400 $71,400

Practice Question 12 Full costing is used for internal reporting and variable costing is used for external reporting. True False

Practice Question 13 In variable costing, only variable production costs are included in inventory costs. True False

Practice Question 14 When units produced equals the number of units sold, then net income under variable costing and full costing are equal. True False

Practice Question 15 If the quantity of units produced is greater than the quantity sold, full costing yields a lower income than variable costing. True False

Practice Question 16 Which conclusion is obvious from reading variable and full costing income statements? A contribution margin is calculated using full costing. Variable and fixed costs are separated under variable costing. Net income would be the same under both the methods regardless of the difference between the number of units produced and the number of units sold. The cost of goods sold account is used under variable costing.

Practice Question 17 Which of the following is the correct reporting by manufacturing companies? Internal reports should be produced using variable costing. External reports should be produced using variable costing. Both variable and full costing reports should be provided to external parties to enhance decision making. Internal reports should be based on full costing to comply with GAAP.

Practice Question 18 Zigzag Tools manufactures power drills. The following costs per unit are provided: Direct materials $40 per unit Direct labor 10 per unit Variable manufacturing overhead 35 per unit Fixed manufacturing overhead 20 per unit In calculating inventory under full costing and variable costing, what are the respective per unit costs? $105, $75 $85, $65 $85, $55 $105, $85

Practice Question 19 Last month, Gregson Industries produced 100,000 units and sold 85,000 of them at a price of $10 per unit. Manufacturing costs consisted of direct materials of $220,000, direct labor of $125,000, variable manufacturing overhead of $65,000 and fixed manufacturing overhead of $175,500. Fixed general and administrative costs totaled $90,000. Using full costing, what is Gregsons net income for the month? $324,500 $350,000 $457,000 $262,325

Practice Question 20 Which items differ between full costing and variable costing when units produced and units sold are not the same? Differences in the income statement format and differences in product costs Differences in total overhead incurred by a company and differences in product costs Differences in product costs, and differences in total overhead incurred by a company Differences in income statement format and differences in total overhead incurred by a company

Practice Question 21 For which one of the following is variable costing acceptable? For GAAP reporting. For reporting to shareholders. As a substitute for absorption costing. For internal use by management.

Practice Question 22 The Cell Phone Experience had the following costs during the year: Direct materials $10.20/unit Direct labor $10.05/unit Variable manufacturing overhead $5.40/unit Variable selling costs $0.60/unit Fixed manufacturing overhead $22,000 Fixed selling costs $15,000 Fixed administrative costs $13,000 During the year, the company manufactured 10,000 and sold 9,000 cell phones at $96 each. If the company uses variable costing, at what amount would the ending inventory be valued on the companys balance sheet? $96,000 $70,350 $25,650 $30,650

Practice Question 23 Home Health manufacturers and sells CPAP machines for $250 each. The company experienced the following costs to produce 400 machines during the year: Direct materials $50.00/unit Direct labor $40.00/unit Variable manufacturing overhead $25.00/unit Fixed manufacturing overhead $13,000 Additional costs incurred by the company for the year follow: Fixed selling costs $5,000 Fixed administrative costs $8,000 Variable selling costs $21.50/unit During the year, the company produced 400, but sold only 350 of the machines. If the company uses full costing, at what amount would the ending inventory be valued on the companys balance sheet? $7,375 $9,000 $59,000 $12,500

Practice Question 24 The difference between variable and full costing income is likely to be very small for companies that use JIT. True False

Practice Question 25 What effect has JIT inventory had on companys variable and full costing income amounts? An increase in inventories, causing cost of goods sold to be smaller and profits to be larger under variable costing than under full costing. A decrease in inventories causes the number of units produced to be close to the number of units sold, creating a huge difference between full costing and variable costing incomes. An increase in inventories causes cost of goods sold to be larger and profits to be smaller under full costing than under variable costing. A decrease in inventories causes the number of units produced to be close to the number of units sold, creating only a minimal difference between full costing and variable costing incomes.

Practice Question 26 Which statement is true for companies that use JIT inventory management systems? The total costs incurred will be greater under a full costing system as compared to a variable costing system because variable costing systems incur no fixed costs. The number of units produced will be very close to the number of units sold under both a full and a variable costing system. Net income under variable costing with a JIT system is usually significantly less than under full costing with a JIT system because fixed costs are treated differently. Cost of goods sold will equal the cost of ending inventory regardless of whether a full or variable costing system is used.

Practice Question 27 Digger Company uses variable costing with a JIT system. If the company changes to full costing and creates new financial statements for the same year, which amounts will most likely change significantly? Cost of units produced and cost of goods sold Net income and ending inventory None of these Net income and cost of goods sold

Practice Question 28 Variable costing facilitates CVP analysis. True False

Practice Question 29 Which one of the following is not a benefit of variable costing? It is the method most companies use for external reporting. It does not allow managers to artificially inflate profit by producing more units than they can sell. It facilitates C-V-P analysis. It is useful for estimating the impact of changes in sales on profit.

Practice Question 30 Under what situation might managers be able to inflate earnings? When fewer units are produced than sold and full costing is utilized. When units sold equal units produced and variable costing is utilized. When more units are produced than sold and variable costing is utilized. When more units are produced than sold and full costing is utilized.

Practice Question 31 Why is a manager able to inflate income by producing more units than sold when using a full costing system, but not under a variable costing system? None of the manufacturing fixed costs can be included in ending inventory under full costing, so all fixed manufacturing costs end up as a period expense on the income statement. Under full costing, because fixed manufacturing overhead costs are included in ending inventory, they can be shifted from one period to the next by selling products in different time periods. Under variable costing, fixed manufacturing overhead must be expensed periodically. All products are assumed to be sold under a variable costing system. Additional sales create additional profits. Some costs must remain in inventory under full costing. Fixed manufacturing costs under variable costing systems are not part of cost of goods sold, so profits will always be higher than full costing because it excludes these fixed costs from product costs.