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Chapter 17: Absorption, Variable, and Throughput CostingMULTIPLE CHOICE QUESTIONS1. Under variable costing, fixed manufacturing overhead is:A. expensed immediately when incurred.B. never expensed.C. applied directly to Finished-Goods Inventory.D. applied directly to Work-in-Process Inventory.E. treated in the same manner as variable manufacturing overhead.Answer: A LO: 1 Type: RC2. All of the following are inventoried under variable costing except:A. direct materials.B. direct labor.C. variable manufacturing overhead.D. fixed manufacturing overhead.E. items "C" and "D" above.Answer: D LO: 1 Type: RC3. All of the following are expensed under variable costing except:A. variable manufacturing overhead.B. fixed manufacturing overhead.C. variable selling and administrative costs.D. fixed selling and administrative costs.E. items "C" and "D" above.Answer: A LO: 1 Type: RC4. All of the following costs are inventoried under absorption costing except:A. direct materials.B. direct labor.C. variable manufacturing overhead.D. fixed manufacturing overhead.E. fixed administrative salaries.Answer: E LO: 1 Type: RC5. All of the following are inventoried under absorption costing except:A. direct labor.B. raw materials used in production.C. utilities cost consumed in manufacturing.D. sales commissions.E. machine lubricant used in production.Answer: D LO: 1 Type: N528Hilton, Managerial Accounting, Seventh Edition
6. The underlying difference between absorption costing and variable costing lies in thetreatment of:A. direct labor.B. variable manufacturing overhead.C. fixed manufacturing overhead.D. variable selling and administrative expenses.E. fixed selling and administrative expenses.Answer: C LO: 1 Type: RC7. Which of the following costs would be treated differently under absorption costing andvariable YesNoD.NoNoYesE.NoNoNoAnswer: E LO: 1 Type: RC8. Lone Star has computed the following unit costs for the year just ended:Direct material usedDirect laborVariable manufacturing overheadFixed manufacturing overheadVariable selling and administrative costFixed selling and administrative cost 121825291017Under variable costing, each unit of the company's inventory would be carried at:A. 35.B. 55.C. 65.D. 84.E. some other amount.Answer: B LO: 1 Type: AChapter 17529
9. Prescott Corporation has computed the following unit costs for the year just ended:Direct material usedDirect laborVariable manufacturing overheadFixed manufacturing overheadVariable selling and administrative costFixed selling and administrative cost 18273032917Under absorption costing, each unit of the company's inventory would be carried at:A. 75.B. 107.C. 116.D. 133.E. some other amount.Answer: B LO: 1 Type: A10. Santa Fe Corporation has computed the following unit costs for the year just ended:Direct material usedDirect laborVariable manufacturing overheadFixed manufacturing overheadVariable selling and administrative costFixed selling and administrative cost 251935401732Which of the following choices correctly depicts the per-unit cost of inventory under variablecosting and absorption costing?VariableAbsorptionCostingCostingA. 79 119B. 79 151C. 96 119D. 96 151E. Some other combination of figures not listed above.Answer: A LO: 1 Type: A530Hilton, Managerial Accounting, Seventh Edition
11. Delaware has computed the following unit costs for the year just ended:Variable manufacturing costFixed manufacturing costVariable selling and administrative costFixed selling and administrative cost 85201811Which of the following choices correctly depicts the per-unit cost of inventory under variablecosting and absorption costing?A. Variable, 85; absorption, 105.B. Variable, 85; absorption, 116.C. Variable, 103; absorption, 105.D. Variable, 103; absorption, 116.E. Some other combination of figures not listed above.Answer: A LO: 1 Type: AUse the following to answer questions 12-13:Indiana Company incurred the following costs during the past year when planned production andactual production each totaled 20,000 units:Direct materials usedDirect laborVariable manufacturing overheadFixed manufacturing overheadVariable selling and administrative costsFixed selling and administrative costs 280,000120,000160,000100,00060,00090,00012. If Indiana uses variable costing, the total inventoriable costs for the year would be:A. 400,000.B. 460,000.C. 560,000.D. 620,000.E. 660,000.Answer: C LO: 1 Type: A13. The per-unit inventoriable cost under absorption costing is:A. 9.50.B. 25.00.C. 28.00.D. 33.00.E. 40.50.Answer: D LO: 1 Type: AChapter 17531
14. Consider the following comments about absorption- and variable-costing income statements:I.II.III.A variable-costing income statement discloses a firm's contribution margin.Cost of goods sold on an absorption-costing income statement includes fixed costs.The amount of variable selling and administrative cost is the same on absorption- andvariable-costing income statements.Which of the above statements is (are) true?A. I only.B. II only.C. I and II.D. II and III.E. I, II, and III.Answer: E LO: 2, 3 Type: N15. Roberts, which began business at the start of the current year, had the following data:Planned and actual production: 40,000 unitsSales: 37,000 units at 15 per unitProduction costs:Variable: 4 per unitFixed: 260,000Selling and administrative costs:Variable: 1 per unitFixed: 32,000The gross margin that the company would disclose on an absorption-costing income statementis:A. 97,500.B. 147,000.C. 166,500.D. 370,000.E. some other amount.Answer: C LO: 2 Type: A532Hilton, Managerial Accounting, Seventh Edition
16. McAfee, which began business at the start of the current year, had the following data:Planned and actual production: 40,000 unitsSales: 37,000 units at 15 per unitProduction costs:Variable: 4 per unitFixed: 260,000Selling and administrative costs:Variable: 1 per unitFixed: 32,000The contribution margin that the company would disclose on an absorption-costing incomestatement is:A. 0.B. 147,000.C. 166,500.D. 370,000.E. some other amount.Answer: A LO: 2 Type: A17. Chicago began business at the start of the current year. The company planned to produce25,000 units, and actual production conformed to expectations. Sales totaled 22,000 units at 30 each. Costs incurred were:Fixed manufacturing overheadFixed selling and administrative costVariable manufacturing cost per unitVariable selling and administrative cost per unit 150,000100,00082If there were no variances, the company's absorption-costing net income would be:A. 190,000.B. 202,000.C. 208,000.D. 220,000.E. some other amount.Answer: C LO: 2 Type: AChapter 17533
18. Norton, which began business at the start of the current year, had the following data:Planned and actual production: 40,000 unitsSales: 37,000 units at 15 per unitProduction costs:Variable: 4 per unitFixed: 260,000Selling and administrative costs:Variable: 1 per unitFixed: 32,000The contribution margin that the company would disclose on a variable-costing incomestatement is:A. 97,500.B. 147,000.C. 166,500.D. 370,000.E. some other amount.Answer: D LO: 3 Type: A19. Madison began business at the start of the current year. The company planned to produce30,000 units, and actual production conformed to expectations. Sales totaled 28,000 units at 32 each. Costs incurred were:Fixed manufacturing overheadFixed selling and administrative costVariable manufacturing cost per unitVariable selling and administrative cost per unit 150,00090,000112If there were no variances, the company's variable-costing net income would be:A. 270,000.B. 292,000.C. 308,000.D. 532,000.E. some other amount.Answer: B LO: 3 Type: A534Hilton, Managerial Accounting, Seventh Edition
20. The following data relate to Lobo Corporation for the year just ended:Sales revenueCost of goods sold:Variable portionFixed portionVariable selling and administrative costFixed selling and administrative cost 750,000370,000110,00050,00075,000Which of the following statements is correct?A. Lobo’s variable-costing income statement would reveal a gross margin of 270,000.B. Lobo’s variable costing income statement would reveal a contribution margin of 330,000.C. Lobo’s absorption-costing income statement would reveal a contribution margin of 330,000.D. Lobo’s absorption costing income statement would reveal a gross margin of 330,000.E. Lobo’s absorption-costing income statement would reveal a gross margin of 145,000.Answer: B LO: 2, 3 Type: AUse the following to answer questions 21-22:Franz began business at the start of this year and had the following costs: variable manufacturing costper unit, 9; fixed manufacturing costs, 60,000; variable selling and administrative costs per unit, 2;and fixed selling and administrative costs, 220,000. The company sells its units for 45 each.Additional data follow.Planned production in unitsActual production in unitsNumber of units soldThere were no variances.10,00010,0008,50021. The net income (loss) under absorption costing is:A. (7,500).B. 9,000.C. 15,000.D. 18,000.E. some other amount.Answer: D LO: 2 Type: A22. The net income (loss) under variable costing is:A. (7,500).B. 9,000.C. 15,000.D. 18,000.E. some other amount.Answer: B LO: 3 Type: AChapter 17535
23. Income reported under absorption costing and variable costing is:A. always the same.B. typically different.C. always higher under absorption costing.D. always higher under variable costing.E. always the same or higher under absorption costing.Answer: B LO: 4 Type: RC24. Gomez's inventory increased during the year. On the basis of this information, incomereported under absorption costing:A. will be the same as that reported under variable costing.B. will be higher than that reported under variable costing.C. will be lower than that reported under variable costing.D. will differ from that reported under variable costing, the direction of which cannot bedetermined from the information given.E. will be less than that reported in the previous period.Answer: B LO: 4 Type: N25. Which of the following conditions would cause absorption-costing net income to be lowerthan variable-costing net income?A. Units sold exceeded units produced.B. Units sold equaled units produced.C. Units sold were less than units produced.D. Sales prices decreased.E. Selling expenses increased.Answer: A LO: 4 Type: N26. Which of the following situations would cause variable-costing net income to be lower thanabsorption-costing net income?A. Units sold equaled 39,000 and units produced equaled 42,000.B. Units sold and units produced were both 42,000.C. Units sold equaled 55,000 and units produced equaled 49,000.D. Sales prices decreased by 7 per unit during the accounting period.E. Selling expenses increased by 10% during the accounting period.Answer: A LO: 4 Type: N536Hilton, Managerial Accounting, Seventh Edition
27. Consider the following statements about absorption- and variable-costing net income:I.Yearly income reported under absorption costing will differ from income reported undervariable costing if production and sales volumes differ.II.Long-run, total income reported under absorption costing will often be close to thatreported under variable costing.III. Differences in income under absorption and variable costing can often be reconciled bymultiplying the change in inventory (in units) by the variable manufacturing overheadcost per unit.Which of the above statements is (are) true?A. I only.B. II only.C. III only.D. I and II.E. II and III.Answer: D LO: 4 Type: RC28. Which of the following formulas can often reconcile the difference between absorption- andvariable-costing net income?A. Change in inventory units x predetermined variable-overhead rate per unit.B. Change in inventory units predetermined variable-overhead rate per unit.C. Change in inventory units x predetermined fixed-overhead rate per unit.D. Change in inventory units predetermined fixed-overhead rate per unit.E. (Absorption-costing net income - variable-costing net income) x fixed-overhead rate perunit.Answer: C LO: 4 Type: RC29. Monex reported 65,000 of net income for the year by using absorption costing. Thecompany had no beginning inventory, planned and actual production of 20,000 units, and salesof 18,000 units. Standard variable manufacturing costs were 20 per unit, and total budgetedfixed manufacturing overhead was 100,000. If there were no variances, net income undervariable costing would be:A. 15,000.B. 55,000.C. 65,000.D. 75,000.E. 115,000.Answer: B LO: 4 Type: AChapter 17537
30. Canyon reported 106,000 of net income for the year by using variable costing. The companyhad no beginning inventory, planned and actual production of 50,000 units, and sales of47,000 units. Standard variable manufacturing costs were 15 per unit, and total budgetedfixed manufacturing overhead was 150,000. If there were no variances, net income underabsorption costing would be:A. 52,000.B. 97,000.C. 106,000.D. 115,000.E. 160,000.Answer: D LO: 4 Type: A31. Consider the following statements about absorption costing and variable costing:I.II.III.Variable costing is consistent with contribution reporting and cost-volume-profitanalysis.Absorption costing must be used for external financial reporting.A number of companies use both absorption costing and variable costing.Which of the above statements is (are) true?A. I only.B. II only.C. III only.D. I and II.E. I, II, and III.Answer: E LO: 5, 6 Type: RC32. Consider the following statements about absorption costing and variable costing:I.II.III.Variable costing is consistent with contribution reporting and cost-volume-profitanalysis.Variable costing must be used for external financial reporting.A number of companies use both absorption costing and variable costing.Which of the above statements is (are) true?A.
1. Under variable costing, fixed manufacturing overhead is: A. expensed immediately when incurred. B. never expensed. C. applied directly to Finished-Goods Inventory.
