nobles finmgr5 crsppt 21

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Chapter 21
Variable
Costing
© 2016 Pearson Education Inc.
1. A variable costing system
considers:
a) variable selling and administrative
costs as product cost.
b) fixed selling and administrative
costs as product cost.
c) variable manufacturing overhead as
period cost.
d) fixed manufacturing overhead as
period cost.
© 2016 Pearson Education Inc.
2. Which of the following statements is
true of absorption costing?
a) Fixed manufacturing overhead is
treated as period cost.
b) Product costs are first recorded as
assets in the inventory accounts.
c) Selling expenses are considered
product costs.
d) It cannot be used for external
reporting purposes.
© 2016 Pearson Education Inc.
3. An income statement prepared
under absorption costing:
a) follows the contribution margin
format.
b) is not permitted for external
reporting purposes.
c) shows gross profit as a line item.
d) categorizes costs by their behavior.
© 2016 Pearson Education Inc.
4.
a)
b)
c)
d)
Earth Inc. manufactured 2,000 units during the
year and incurred the following costs.
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling and administrative costs
$3
$4
$1
$2,000
$2
per unit
per unit
per unit
per year
per unit
Fixed selling and administrative costs
$1,000 per year
Calculate the difference between total unit
product cost under absorption and variable
costing.
$3
$2
$1
$4
© 2016 Pearson Education Inc.
5. Daffodils Inc. produced 1,800 units and
sold 1,600 units during its first year of
business. If Daffodils uses absorption
costing:
a) its operating profit for the period will be
lower than under variable costing.
b) its ending inventory will be lower than under
variable costing.
c) its operating profit will be the same as under
variable costing.
d) its operating profit for the period will be
higher than under variable costing.
© 2016 Pearson Education Inc.
6.
Real Tech Inc. has provided the following data for
the year.
Selling price
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling and administrative costs
Fixed selling and administrative costs
a)
b)
c)
d)
$80
$3
$2
$5
$800
$2
$2,000
per unit
per unit
per unit
per unit
per year
per unit
per year
Real Tech produced and sold 200 units. Calculate
operating income using variable costing.
$13,200
$12,400
$13,600
$10,800
© 2016 Pearson Education Inc.
7. Under absorption costing, fixed
manufacturing overhead is
expensed when:
a) the product is sold.
b) the accounting period ends.
c) the cash payment is made.
d) the production of units is complete.
© 2016 Pearson Education Inc.
8. Real Tech Inc. has provided the following data for
the year. Selling price
$80 per unit
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling and administrative costs
Fixed selling and administrative costs
$3
$2
$5
$800
$2
$2,000
per unit
per unit
per unit
per year
per unit
per year
Real Tech produced 250 units and sold 200 units.
Calculate ending inventory under absorption
costing.
a) $660
b) $500
c) $160
© 2016 Pearson Education Inc.
d) $410
9. Which of the following is the correct
formula to calculate the contribution
margin ratio?
a) Contribution margin ratio = (Sales
revenue -Variable costs) ÷ Sales revenue
b) Contribution margin ratio = (Cost of
goods sold + Fixed costs) ÷ Sales
revenue
c) Contribution margin ratio = (Sales
revenue -Variable costs - Fixed costs) ÷
Sales revenue
d) Contribution margin ratio = (Variable
costs + Fixed costs) ÷ Sales revenue
© 2016 Pearson Education Inc.
10. Calculate contribution margin ratio
from the following income statement
of Mr. Hunger Inc.
a) 50%
b) 30%
c) 90%
d) 60%
© 2016 Pearson Education Inc.
© 2016 Pearson Education Inc.
12
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