Chapter 7

Variable Costing: A Tool for Management

Multiple Choice

16. A cost that would be included in product costs under both absorption
C costing and variable costing would be:
Easy a. supervisory salaries.
b. equipment depreciation.
c. variable manufacturing costs.
d. variable selling expenses.

17. An allocated portion of fixed manufacturing overhead is included in

C product costs under:
Easy
CPA Absorption Variable
costing costing
adapted a. No No
b. No Yes
c. Yes No
d. Yes Yes

18. The variable costing method ordinarily includes in product costs the
B following:
Medium a. Direct materials cost, direct labor cost, but no manufacturing
CPA overhead cost.
b. Direct materials cost, direct labor cost, and variable
adapted manufacturing overhead cost.
c. Prime cost but not conversion cost.
d. Prime cost and all conversion cost.

19. Cay Company's fixed manufacturing overhead costs totaled $100,000, and
D variable selling costs totaled $80,000. Under variable costing, how
Easy should these costs be classified?

Period costs Product costs

a. $0 $180,000
b. $80,000 $100,000
c. $100,000 $80,000
d. $180,000 $0

20. Which of the following are considered to be product costs under

A variable costing?
Easy
I. Variable manufacturing overhead.
II. Fixed manufacturing overhead.
III. Selling and administrative expenses.

a. I.
b. I and II.
c. I and III.
d. I, II, and III.

21. What factor is the cause of the difference between net income as
B computed under absorption costing and net income as computed under
Medium variable costing?
CPA a. Absorption costing considers all manufacturing costs in the
adapted determination of net income, whereas variable costing considers
only prime costs.
b. Absorption costing allocates fixed manufacturing costs between
cost of goods sold and inventories, and variable costing considers

Managerial Accounting, 9/e 221

 all fixed manufacturing costs as period costs.
c. Absorption costing includes all variable manufacturing costs in
product costs, but variable costing considers variable
manufacturing costs to be period costs.
d. Absorption costing includes all fixed manufacturing costs in
product costs, but variable costing expenses all fixed
manufacturing costs.

22. Under variable costing, costs which are treated as period costs
C include:
Easy a. only fixed manufacturing costs.
b. both variable and fixed manufacturing costs.
c. all fixed costs.
d. only fixed selling and administrative costs.

23. Which of the following statements is true for a firm that uses
C variable costing?
Medium 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 income moves in the same direction as sales.
d. Net income is greatest in periods when production is highest.

24. Which of the following are considered to be product costs under

B absorption costing?
Easy
I. Variable manufacturing overhead.
II. Fixed manufacturing overhead.
III. Selling and administrative expenses.

a. I, II, and III.

b. I and II.
c. I and III.
d. I.

25. The term "gross margin" for a manufacturing company refers to the
C excess of sales over
Easy 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.

26. Net income determined using full absorption costing can be reconciled
A to net income determined using variable costing by computing the
Medium difference between:
CPA a. Fixed manufacturing overhead costs deferred in or released from
adapted inventories.
b. Inventoried discretionary costs in the beginning and ending
inventories.
c. Gross margin (absorption costing method) and contribution
margin (variable costing method).
d. Sales as recorded under the variable costing method and sales as
recorded under the absorption costing method.

27. Net income reported under absorption costing will exceed net income
B reported under variable costing for a given period if:
Medium a. production equals sales for that period.
CMA b. production exceeds sales for that period.
adapted c. sales exceed production for that period.
d. the variable manufacturing overhead exceeds the fixed

222Managerial Accounting, 9/e

 manufacturing overhead.

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224Managerial Accounting, 9/e
28. What will be the difference in net income between variable costing and
D absorption costing if the number of units in work in process and
Medium finished goods inventories increase?
CPA a. There will be no difference in net income.
adapted b. Net income computed using variable costing will be higher.
c. The difference in net income cannot be determined from the
information given.
d. Net income computed using variable costing will be lower.

29. The costing method that can be used most easily with break-even
A analysis and other cost-volume-profit techniques is:
Easy a. variable costing.
b. absorption costing.
c. process costing.
d. job-order costing.

30. For the most recent year, Atlantic Company's net income computed by
C the absorption costing method was $7,400, and its net income computed
Hard 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.

31. During the most recent year, Evans Company had a net income of $90,000
B using absorption costing and $84,000 using variable costing. The fixed
Hard overhead application rate was $6 per unit. There were no beginning
inventories. If 22,000 units were produced last year, then sales for
last year were:
a. 15,000 units.
b. 21,000 units.
c. 23,000 units.
d. 28,000 units.

32. During the year just ended, Roberts Company' income under absorption
D costing was $3,000 lower than its income under variable costing. The
Hard 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.

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33. Last year, Silver Company's variable production costs totaled $7,500
C and its fixed manufacturing overhead costs totaled $4,500. The company
Hard 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 income under absorption costing for the year will be $900
lower than the net 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.

34. During the last year, Hansen Company had net income under absorption
D costing that was $5,500 lower than its income under variable costing.
Hard The company sold 9,000 units during the year, and its variable costs
were $10 per unit, of which $6 was variable selling expense. If fixed
production cost is $5 per unit under absorption costing every year,
then how many units did the company produce during the year?
a. 7,625 units.
b. 8,450 units.
c. 10,100 units.
d. 7,900 units.

35. Indiana Corporation produces a single product that it sells for $9 per
B unit. During the first year of operations, 100,000 units were produced
Medium and 90,000 units were sold. Manufacturing costs and selling and
CMA administrative expenses for the year were as follows:
adapted
Fixed Costs Variable Costs
Raw materials ............ -- $1.75 per unit produced
Direct labor ............. -- 1.25 per unit produced
Factory overhead ......... $100,000 0.50 per unit produced
Selling and administrative 70,000 0.60 per unit sold

What was Indiana Corporation's net income for the year using variable
costing?
a. $181,000.
b. $271,000.
c. $281,000.
d. $371,000.

226Managerial Accounting, 9/e

36. Last year, fixed manufacturing overhead was $30,000, variable
C production costs were $48,000, fixed selling and administration costs
Medium were $20,000, and variable selling administrative expenses were
$9,600. There was no beginning inventory. During the year, 3,000 units
were produced and 2,400 units were sold at a price of $40 per unit.
Under variable costing, net income would be:
a. a profit of $6,000.
b. a profit of $4,000.
c. a loss of $2,000.
d. a loss of $4,400.

37. West Co.'s manufacturing costs are as follows:

D
Easy Direct materials and direct labor ....... $700,000
CPA Other variable manufacturing costs ...... 100,000
adapted Depreciation of factory building and
manufacturing equipment ............. 80,000
Other fixed manufacturing overhead ...... 18,000

What amount should be considered product costs for external reporting

purposes?
a. $700,000.
b. $800,000.
c. $880,000.
d. $898,000.

38. At the end of last year, Lee Company had 30,000 units in its ending
C inventory. Lee's variable production costs are $10 per unit and its
Hard fixed manufacturing overhead costs are $5 per unit every year. The
company's net 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.

39. During the last year, Moore Company's variable production costs
B totaled $10,000 and its fixed manufacturing overhead costs totaled
Medium $6,800. The company produced 5,000 units during the year and sold
4,600 units. There were no units in the beginning inventory. Which of
the following statements is true?
a. The net income under absorption costing for the year will be $800
higher than net income under variable costing.
b. The net income under absorption costing for the year will be $544
higher than net income under variable costing.
c. The net income under absorption costing for the year will be $544
lower than net income under variable costing.
d. The net income under absorption costing for the year will be $800
lower than net income under variable costing.

Managerial Accounting, 9/e 227

40. Last year, Ben Company's income under absorption costing was $4,400
B lower than its income under variable costing. The company sold 8,000
Hard 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.

41. Last year, Stephen Company had 20,000 units in its ending inventory.
C During the year, Stephen's variable production costs were $12 per
Hard unit. The fixed manufacturing overhead cost was $8 per unit in the
beginning inventory. The company's net income for the year was $9,600
higher under variable costing than it was under absorption costing.
Given these facts, the number of units of product in the beginning
inventory last year must have been:
a. 21,200.
b. 19,200.
c. 18,800.
d. 19,520.

Reference: 7-1
Aaker Company, which has only one product, has provided the following data concerning
its most recent month of operations:

Selling price ............................ $99

Units in beginning inventory ............. 0

Units produced ........................... 6,300
Units sold ............................... 6,000
Units in ending inventory ................ 300

Variable costs per unit:

Direct materials ....................... $12
Direct labor ........................... 42
Variable manufacturing overhead ........ 6
Variable selling and administrative .... 6

Fixed costs:
Fixed manufacturing overhead ........... $170,100
Fixed selling and administrative ....... 24,000

228Managerial Accounting, 9/e

42. What is the unit product cost for the month under variable costing?
D a. $66
Easy b. $93
Refer To: c. $87
7-1 d. $60

43. What is the unit product cost for the month under absorption costing?
A a. $87
Easy b. $60
Refer To: c. $66
7-1 d. $93

44. The total contribution margin for the month under the variable costing
D approach is:
Medium a. $72,000.
Refer To: b. $27,900.
7-1 c. $234,000.
d. $198,000.

45. The total gross margin for the month under the absorption costing
C approach is:
Medium a. $98,100.
Refer To: b. $198,000.
7-1 c. $72,000.
d. $12,000.

46. What is the total period cost for the month under the variable costing
A approach?
Hard a. $230,100
Refer To: b. $194,100
7-1 c. $170,100
d. $60,000

47. What is the total period cost for the month under the absorption
B costing approach?
Hard a. $170,100
Refer To: b. $60,000
7-1 c. $230,100
d. $24,000

48. What is the net income for the month under variable costing?
B a. $8,100
Medium b. $3,900
Refer To: c. $12,000
7-1 d. ($14,100)

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49. What is the net income for the month under absorption costing?
C a. $3,900
Medium b. ($14,100)
Refer To: c. $12,000
7-1 d. $8,100

Reference: 7-2
Last year, Walsh Company manufactured 25,000 units and sold 22,000 units. Production
costs were as follows:

Direct material .................. $100,000

Direct labor ..................... 75,000
Variable manufacturing overhead .. 50,000
Fixed manufacturing overhead ..... 75,000

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.

50. Under absorption costing, the unit product cost would be:
B a. $9.00.
Easy b. $12.00.
Refer To: c. $13.40.
7-2 d. $14.00.

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

A a. $176,000.
Medium b. $242,000.
Refer To: c. $ 66,000.
7-2 d. $ 21,000.

52. The contribution margin per unit would be:

D a. $15.00.
Medium b. $11.00.
Refer To: c. $ 8.00.
7-2 d. $ 6.00.

53. Under variable costing, the total amount of fixed manufacturing cost
A in the ending inventory would be:
Easy a. $ 0.
Refer To: b. $ 9,000.
7-2 c. $14,400.
d. $27,000.

54. The net income under variable costing would be:

C a. $ 2,000.
Medium b. $21,000.
Refer To: c. $12,000.
7-2 d. $ 9,000.

230Managerial Accounting, 9/e

55. The net income under absorption costing would be:
D a. $ 9,000.
Medium b. $12,000.
Refer To: c. $ 2,000.
7-2 d. $21,000.

Reference: 7-3
Farron Company, which has only one product, has provided the following data
concerning its most recent month of operations:

Selling price ............................ $92

Units in beginning inventory ............. 0

Units produced ........................... 8,700
Units sold ............................... 8,300
Units in ending inventory ................ 400

Variable costs per unit:

Direct materials ....................... $13
Direct labor ........................... 55
Variable manufacturing overhead ........ 1
Variable selling and administrative .... 5

Fixed costs:
Fixed manufacturing overhead ........... $130,500
Fixed selling and administrative ....... 8,300

56. What is the unit product cost for the month under variable costing?
A a. $69
Easy b. $84
Refer To: c. $89
7-3 d. $74

57. What is the unit product cost for the month under absorption costing?
D a. $74
Easy b. $89
Refer To: c. $69
7-3 d. $84

58. What is the net income for the month under variable costing?
A a. $10,600
Medium b. ($17,000)
Refer To: c. $16,600
7-3 d. $6,000

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59. What is the net income for the month under absorption costing?
B a. ($17,000)
Medium b. $16,600
Refer To: c. $6,000
7-3 d. $10,600

Reference: 7-4
Jarvix Company, which has only one product, has provided the following data
concerning its most recent month of operations:

Selling price ............................ $111

Units in beginning inventory ............. 400

Units produced ........................... 8,800
Units sold ............................... 8,900
Units in ending inventory ................ 300

Variable costs per unit:

Direct materials ....................... $34
Direct labor ........................... 37
Variable manufacturing overhead ........ 3
Variable selling and administrative .... 9

Fixed costs:
Fixed manufacturing overhead ........... $ 61,600
Fixed selling and administrative ....... 169,100

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.

60. What is the unit product cost for the month under variable costing?
B a. $83
Medium b. $74
Refer To: c. $90
7-4 d. $81

61. What is the unit product cost for the month under absorption costing?
C a. $90
Medium b. $74
Refer To: c. $81
7-4 d. $83

62. What is the net income for the month under variable costing?
D a. $25,900
Medium b. $2,100
Refer To: c. $17,800
7-4 d. $18,500

232Managerial Accounting, 9/e

63. What is the net income for the month under absorption costing?
D a. $2,100
Medium b. $25,900
Refer To: c. $18,500
7-4 d. $17,800

Reference: 7-5
Hatfield Company, which has only one product, has provided the following data
concerning its most recent month of operations:

Selling price ............................ $123

Units in beginning inventory ............. 0

Units produced ........................... 6,400
Units sold ............................... 6,100
Units in ending inventory ................ 300

Variable costs per unit:

Direct materials ....................... $45
Direct labor ........................... 30
Variable manufacturing overhead ........ 1
Variable selling and administrative .... 8

Fixed costs:
Fixed manufacturing overhead ........... $140,800
Fixed selling and administrative ....... 91,500

64. What is the unit product cost for the month under variable costing?
C a. $98
Easy b. $84
Refer To: c. $76
7-5 d. $106

65. The total contribution margin for the month under the variable costing
A approach is:
Medium a. $237,900.
Refer To: b. $97,100.
7-5 c. $152,500.
d. $286,700.

66. What is the total period cost for the month under the variable costing
D approach?
Hard a. $140,300
Refer To: b. $140,800
7-5 c. $232,300
d. $281,100

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67. What is the net income for the month under variable costing?
B a. $6,600
Medium b. $5,600
Refer To: c. ($17,200)
7-5 d. $12,200

Reference: 7-6
Iancu Company, which has only one product, has provided the following data concerning
its most recent month of operations:

Selling price ............................ $149

Units in beginning inventory ............. 0

Units produced ........................... 4,200
Units sold ............................... 3,900
Units in ending inventory ................ 300

Variable costs per unit:

Direct materials ....................... $27
Direct labor ........................... 46
Variable manufacturing overhead ........ 5
Variable selling and administrative .... 9

Fixed costs:
Fixed manufacturing overhead ........... $155,400
Fixed selling and administrative ....... 70,200

68. What is the unit product cost for the month under variable costing?
C a. $124
Easy b. $115
Refer To: c. $78
7-6 d. $87

69. What is the net income for the month under variable costing?
B a. $27,300
Medium b. $16,200
Refer To: c. ($7,200)
7-6 d. $11,100

234Managerial Accounting, 9/e

Reference: 7-7
The Pacific Company manufactures a single product. The following data relate to the
year just completed:

Variable cost per unit:

Production .................... $43
Selling and administrative .... $15

Fixed costs in total:

Production .................... $145,000
Selling and administrative .... $ 95,000

During the last year, 5,000 units were produced and 4,800 units were sold. There were
no beginning inventories.

70. Under variable costing, the unit product cost would be:
D a. $91.00.
Easy b. $72.00.
Refer To: c. $58.00.
7-7 d. $43.00.

71. The carrying value of finished goods inventory at the end of the year
C under variable costing would be:
Medium a. $8,800 greater than under absorption costing.
Refer To: b. $8,800 less than under absorption costing.
7-7 c. $5,800 less than under absorption costing.
d. The same as absorption costing.

72. Under absorption costing, the cost of goods sold for the year would
B be:
Medium a. $206,400.
Refer To: b. $345,600.
7-7 c. $278,400.
d. $360,000.

Managerial Accounting, 9/e 235

Reference: 7-8
Crystal Company's variable costing income statement for the month of May appears
below:

Crystal Company
Income Statement
For the month ended May 31

Sales ($10 per unit) .............. $900,000

Less variable costs:
Variable cost of goods sold:
Beginning inventory ......... $125,000
Add variable cost of goods
manufactured .............. 400,000
Goods available for Sale .... 525,000
Less ending inventory ....... 75,000
Variable cost of goods sold . 450,000
Variable selling expense ..... 90,000
Total variable costs ..... 540,000
Contribution margin ............... 360,000
Fixed costs:
Fixed manufacturing overhead ... 240,000
Fixed selling and admin. ....... 90,000
Total fixed costs ........ 330,000
Net income ........................ $ 30,000

The company produces 80,000 units each month. Variable production costs per unit and
total fixed costs have remained constant over the past several months.

73. The dollar value of the company's inventory on May 31 under the
A absorption costing method would be:
Hard a. $120,000.
Refer To: b. $ 90,000.
7-8 c. $ 75,000.
d. $ 60,000.

74. Under absorption costing, for the month ended May 31, the company
B would report a:
Hard a. $30,000 loss.
Refer To: b. $0 profit.
7-8 c. $30,000 profit.
d. $60,000 profit.

236Managerial Accounting, 9/e

Reference: 7-9
The following data were provided by Green Enterprises for the most recent period:

Units in beginning inventory ........ -0-

Units produced ...................... 8,000
Units sold .......................... 6,000

Variable costs per unit:

Manufacturing ..................... $15
Selling and administrative ........ 5
Fixed costs, in total:
Manufacturing ..................... $24,000
Selling and administrative ........ 16,000

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

C a. $20.
Easy b. $18.
Refer To: c. $15.
7-9 d. $22.

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

B a. $20.
Easy b. $18.
Refer To: c. $15.
7-9 d. $25.

77. For the period above, one would expect the net income under absorption
A costing to be:
Easy a. higher than the net income under variable costing.
Refer To: b. lower than the net income under variable costing.
7-9 c. the same as the net income under variable costing.
d. The relation between absorption costing net income and variable
costing net income cannot be determined.

Reference: 7-10
The following data pertain to one month's operations of Whitney, Inc.:

Units in beginning inventory ....... -0-

Units produced ..................... 9,000
Units sold ......................... 8,000

Variable costs per unit:

Manufacturing .................... $10
Selling and administrative ....... 6
Fixed costs in total:
Manufacturing .................... $18,000
Selling and administrative ....... 27,000

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78. The carrying value on the balance sheet of the ending finished goods
B inventory under variable costing would be:
Easy a. $16,000.
Refer To: b. $10,000.
7-10 c. $19,000.
d. $12,000.

79. The carrying value on the balance sheet of the ending finished goods
C inventory under absorption costing would be:
Easy a. $16,000.
Refer To: b. $10,000.
7-10 c. $12,000.
d. $21,000.

80. For the month referred to above, net income under variable costing
B will be:
Medium a. higher than net income under absorption costing.
Refer To: b. lower than net income under absorption costing.
7-10 c. the same as net income under absorption costing.
d. The relation between variable costing and absorption costing net
income cannot be determined.

Reference: 7-11
Bateman Company, which has only one product, has provided the following data
concerning its most recent month of operations:

Selling price ............................ $117

Units in beginning inventory ............. 0

Units produced ........................... 4,700
Units sold ............................... 4,400
Units in ending inventory ................ 300

Variable costs per unit:

Direct materials ....................... $36
Direct labor ........................... 38
Variable manufacturing overhead ........ 4
Variable selling and administrative .... 11

Fixed costs:
Fixed manufacturing overhead ........... $89,300
Fixed selling and administrative ....... 26,400

81. What is the unit product cost for the month under variable costing?
D a. $89
Easy b. $97
Refer To: c. $108
7-11 d. $78

82. What is the unit product cost for the month under absorption costing?
A a. $97
Easy b. $108
Refer To: c. $78
7-11 d. $89

Reference: 7-12
During the last year, Snyder Co. produced 10,000 units of Product S. Costs incurred
by Snyder during the year were as follows:

Direct materials ................... $11,000

238Managerial Accounting, 9/e

 Direct labor ....................... 21,000
Variable manufacturing overhead .... 6,100
Variable selling and general ....... 3,100
Fixed manufacturing overhead ....... 9,000
Fixed selling and general .......... 4,100
Total .............................. $54,300

83. The unit product cost under absorption costing would have been:
C a. $5.43.
Medium b. $3.81.
Refer To: c. $4.71.
7-12 d. $4.12.

84. The unit product cost under variable costing would have been:
B a. $3.20.
Medium b. $3.81.
Refer To: c. $4.12.
7-12 d. $3.51.

Reference: 7-13
During the past year, Carr Company manufactured 25,000 units and sold 20,000 units.
Production costs for the year were as follows:

Fixed manufacturing overhead ...... $250,000

Variable manufacturing overhead ... $210,000
Direct labor ...................... $120,000
Direct materials .................. $180,000

Sales totaled $850,000, variable selling expenses totaled $110,000, and fixed selling
and administrative expenses totaled $170,000. There were no units in beginning
inventory. Assume that direct labor is a variable cost.

85. The contribution margin per unit would be:

D a. $12.10.
Medium b. $22.10.
Refer To: c. $17.70.
7-13 d. $16.60.

86. Under absorption costing, the ending inventory for the year would be
D valued at:
Medium a. $179,500.
Refer To: b. $213,500.
7-13 c. $222,000.
d. $152,000.

87. The net income for the year under variable costing would be:
C a. $28,000 lower than under absorption costing.
Medium b. $28,000 higher than under absorption costing.
Refer To: c. $50,000 lower than under absorption costing.
7-13 d. $50,000 higher than under absorption costing.

Reference: 7-14
Last year, Harris Company manufactured 17,000 units and sold 13,000 units. Production
costs for the year were as follows:

Direct materials...................... $153,000

Direct labor.......................... 110,500
Variable manufacturing overhead....... 204,000
Fixed manufacturing overhead.......... 255,000

Managerial Accounting, 9/e 239

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.

88. The contribution margin per unit was:

D a. $17.50.
Medium b. $32.50.
Refer To: c. $27.30.
7-14 d. $25.70.

89. Under absorption costing, the carrying value on the balance sheet of
B the ending inventory for the year would be:
Medium a. $190,800.
Refer To: b. $170,000.
7-14 c. $230,800.
d. $ 0.

90. Under variable costing, the company's net income for the year would
d be:
Hard a. $60,000 higher than under absorption costing.
Refer To: b. $108,000 higher than under absorption costing.
7-14 c. $108,000 lower than under absorption costing.
d. $60,000 lower than under absorption costing.

240Managerial Accounting, 9/e

Reference: 7-15
Fahey Company manufactures a single product which it sells for $25 per unit. The
company has the following cost structure:

Variable costs per unit:

Manufacturing .................... $9
Selling and Administrative ....... 3
Fixed costs in total:
Manufacturing .................... $72,000
Selling and Administrative ....... 54,000

There were no units in beginning inventory. During the year, 18,000 units were
produced and 15,000 units were sold.

91. Under absorption costing, the unit product cost would be:
C a. $ 9.
Easy b. $12.
Refer To: c. $13.
7-15 d. $16.

92. The company's net income for the year under variable costing would be:
D a. $60,000.
Medium b. $81,000.
Refer To: c. $57,000.
7-15 d. $69,000.

Reference: 7-16
Erie Company manufactures a single product. Assume the following data for the year
just completed:

Fixed costs in total:

Selling and Administrative ... $60,000
Production ................... $82,500

Variable costs per unit:

Selling and Administrative ... $5
Production ................... $8

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.

93. Under absorption costing, the unit product cost would be:
D a. $8.
Easy b. $17.75.
Refer To: c. $13.
7-16 d. $10.75.

Managerial Accounting, 9/e 241

94. The company's net income under variable costing would be:
A a. $407,500.
Medium b. $421,250.
Refer To: c. $431,250.
7-16 d. $417,500.

Reference: 7-17
Chown Company, which has only one product, has provided the following data concerning
its most recent month of operations:

Selling price ............................ $110

Units in beginning inventory ............. 0

Units produced ........................... 8,000
Units sold ............................... 7,800
Units in ending inventory ................ 200

Variable costs per unit:

Direct materials ....................... $22
Direct labor ........................... 31
Variable manufacturing overhead ........ 3
Variable selling and administrative .... 4

Fixed costs:
Fixed manufacturing overhead ........... $248,000
Fixed selling and administrative ....... 140,400

95. The total contribution margin for the month under the variable costing
B approach is:
Medium a. $179,400.
Refer To: b. $390,000.
7-17 c. $421,200.
d. $142,000.

96. The total gross margin for the month under the absorption costing
B approach is:
Medium a. $196,800.
Refer To: b. $179,400.
7-17 c. $390,000.
d. $7,800.

242Managerial Accounting, 9/e

Reference: 7-18
Delvin Company, which has only one product, has provided the following data
concerning its most recent month of operations:

Selling price ............................ $120

Units in beginning inventory ............. 0

Units produced ........................... 1,800
Units sold ............................... 1,500
Units in ending inventory ................ 300

Variable costs per unit:

Direct materials ....................... $40
Direct labor ........................... 42
Variable manufacturing overhead ........ 2
Variable selling and administrative .... 9

Fixed costs:
Fixed manufacturing overhead ........... $7,200
Fixed selling and administrative ....... 28,500

97. What is the total period cost for the month under the variable costing
B approach?
Hard a. $42,000
Refer To: b. $49,200
7-18 c. $35,700
d. $7,200

98. What is the total period cost for the month under the absorption
A costing approach?
Hard a. $42,000
Refer To: b. $7,200
7-18 c. $49,200
d. $28,500

Managerial Accounting, 9/e 243

Reference: 7-19
Gabbert Company, which has only one product, has provided the following data
concerning its most recent month of operations:

Selling price ............................ $90

Units in beginning inventory ............. 0

Units produced ........................... 3,600
Units sold ............................... 3,400
Units in ending inventory ................ 200

Variable costs per unit:

Direct materials ....................... $23
Direct labor ........................... 11
Variable manufacturing overhead ........ 2
Variable selling and administrative .... 8

Fixed costs:
Fixed manufacturing overhead ........... $93,600
Fixed selling and administrative ....... 61,200

99. The total contribution margin for the month under the variable costing
D approach is:
Medium a. $62,800.
Refer To: b. $95,200.
7-19 c. $183,600.
d. $156,400.

100. The total gross margin for the month under the absorption costing
A approach is:
Medium a. $95,200.
Refer To: b. $156,400.
7-19 c. $6,800.
d. $107,600.

101. What is the total period cost for the month under the variable costing
D approach?
Hard a. $93,600
Refer To: b. $154,800
7-19 c. $88,400
d. $182,000

102. What is the total period cost for the month under the absorption
A costing approach?
Hard a. $88,400
Refer To: b. $182,000
7-19 c. $61,200
d. $93,600

244Managerial Accounting, 9/e

Reference: 7-20
Gordon Company produces a single product that sells for $10 per unit. Last year there
were no beginning inventories, 100,000 units were produced, and 80,000 units were
sold. The company has the following cost structure:

Fixed costs Variable costs

Raw materials................ -- $2.00 per unit produced
Direct labor................. -- 1.25 per unit produced
Factory overhead............. $120,000 0.75 per unit produced
Selling and administrative... 70,000 1.00 per unit sold

103. Net income under variable costing would be:

B a. $114,000.
Medium b. $210,000.
Refer To: c. $234,000.
7-20 d. $330,000.

104. The carrying value on the balance sheet of the ending finished goods
B inventory under absorption costing would be:
Medium a. $ 80,000.
Refer To: b. $104,000.
7-20 c. $110,000.
d. $124,000.

Reference: 7-21
Elliot Company, which has only one product, has provided the following data
concerning its most recent month of operations:

Selling price ............................ $112

Units in beginning inventory ............. 0

Units produced ........................... 4,900
Units sold ............................... 4,500
Units in ending inventory ................ 400

Variable costs per unit:

Direct materials ....................... $19
Direct labor ........................... 45
Variable manufacturing overhead ........ 6
Variable selling and administrative .... 9

Fixed costs:
Fixed manufacturing overhead ........... $117,600
Fixed selling and administrative ....... 22,500

105. What is the net income for the month under variable costing?
D a. $18,000
Medium b. ($19,600)
Refer To: c. $9,600
7-21 d. $8,400

106. What is the net income for the month under absorption costing?
D a. ($19,600)
Medium b. $9,600
Refer To: c. $8,400
7-21 d. $18,000

Reference: 7-22
Khanam Company, which has only one product, has provided the following data
concerning its most recent month of operations:

Managerial Accounting, 9/e 245

 Selling price ............................ $97

Units in beginning inventory ............. 500

Units produced ........................... 8,400
Units sold ............................... 8,500
Units in ending inventory ................ 400

Variable costs per unit:

Direct materials ....................... $20
Direct labor ........................... 37
Variable manufacturing overhead ........ 1
Variable selling and administrative .... 11

Fixed costs:
Fixed manufacturing overhead ........... $ 67,200
Fixed selling and administrative ....... 161,500

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 income for the month under variable costing?
B a. $8,500
Medium b. $9,300
Refer To: c. $3,200
7-22 d. $15,100

108. What is the net income for the month under absorption costing?
A a. $8,500
Medium b. $9,300
Refer To: c. $3,200
7-22 d. $15,100

246Managerial Accounting, 9/e

Reference: 7-23
DeAnne Company's variable costing income statement for August appears below:

DeAnne Company
Income Statement
For the month ended August 31

Sales ($15 per unit) ................ $600,000

Less variable costs:
Variable cost of goods sold:
Beginning inventory .............. $ 72,000
Add variable cost of
goods manufactured ............. 315,000
Goods available for sale ......... 387,000
Less ending inventory ............ 27,000
Variable cost of goods sold ...... 360,000
Variable selling expense ......... 80,000
Total variable costs .......... 440,000
Contribution margin ................. 160,000
Fixed costs:
Fixed manufacturing .............. 105,000
Fixed selling and administrative . 35,000
Total fixed costs ............. 140,000
Net income .......................... $ 20,000

The company produces 35,000 units each month. Variable production costs per unit and
total fixed costs have remained constant over the past several months.

109. The dollar value of the company's inventory on August 31 under the
C absorption costing method would be:
Hard a. $27,000.
Refer To: b. $42,000.
7-23 c. $36,000.
d. $47,000.

110. Under absorption costing, for the month ended August 31, the company
D would report a:
Hard a. $20,000 profit.
Refer To: b. $ 5,000 loss.
7-23 c. $35,000 profit.
d. $ 5,000 profit.

Managerial Accounting, 9/e 247