16.
McAfee, which began business at the start of the current year, had the following data:
Planned and actual production: 40,000 units
Sales: 37,000 units at $15 per unit
Production costs:
Variable: $4 per unit
Fixed: $260,000
Selling and administrative costs:
Variable: $1 per unit
Fixed: $32,000
The contribution margin that the company would disclose on an absorption-costing income statement is:
A.
$0.
B.
$147,000.
C.
$166,500.
D.
$370,000.
E.
some other amount.
Answer: A LO: 2 Type: A
17.
Chicago began business at the start of the current year. The company planned to produce 25,000 units,
and actual production conformed to expectations. Sales totaled 22,000 units at $30 each. Costs incurred were:
Fixed manufacturing overhead
$150,000
Fixed selling and administrative cost
100,000
Variable manufacturing cost per unit 8
Variable selling and administrative cost per unit 2
If 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.
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Answer: C LO: 2 Type: A
18.
Norton, which began business at the start of the current year, had the following data:
Planned and actual production: 40,000 units
Sales: 37,000 units at $15 per unit
Production costs:
Variable: $4 per unit
Fixed: $260,000
Selling and administrative costs:
Variable: $1 per unit
Fixed: $32,000
The contribution margin that the company would disclose on a variable-costing income statement is:
A.
$97,500.
B.
$147,000.
C.
$166,500.
D.
$370,000.
E.
some other amount.
Answer: D LO: 3 Type: A
19.
Madison began business at the start of the current year. The company planned to produce 30,000 units,
and actual production conformed to expectations. Sales totaled 28,000 units at $32 each. Costs incurred were:
Fixed manufacturing overhead
$150,000
Fixed selling and administrative cost 90,000
Variable manufacturing cost per unit 11
Variable selling and administrative cost per unit 2
If 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.
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E.
some other amount.
Answer: B LO: 3 Type: A
20.
The following data relate to Lobo Corporation for the year just ended:
Sales revenue
$750,000
Cost of goods sold:
Variable portion
370,000
Fixed portion
110,000
Variable selling and administrative cost
50,000
Fixed selling and administrative cost 75,000
Which 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: A
Use the following to answer questions 21-22:
Franz began business at the start of this year and had the following costs: variable manufacturing cost per 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 units 10,000
Actual production in units
10,000
Number of units sold
8,500
There were no variances.
21.
The net income (loss) under absorption costing is:
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A.
$(7,500).
B.
$9,000.
C.
$15,000.
D.
$18,000.
E.
some other amount.
Answer: D LO: 2 Type: A
22.
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: A
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: RC
24.
Gomez's inventory increased during the year. On the basis of this information, income reported 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 be determined from the
information given.
E.
will be less than that reported in the previous period.
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Answer: B LO: 4 Type: N
25.
Which of the following conditions would cause absorption-costing net income to be lower than 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: N
26.
Which of the following situations would cause variable-costing net income to be lower than absorption-
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: N
27.
I.
Consider the following statements about absorption- and variable-costing net income:
Yearly income reported under absorption costing will differ from income reported under variable costing if
production and sales volumes differ.
II.
Long-run, total income reported under absorption costing will often be close to that reported under variable costing.
III.
Differences in income under absorption and variable costing can often be reconciled by multiplying the change in
inventory (in units) by the variable manufacturing overhead cost per unit.
Which of the above statements is (are) true?
A.
I only.
B.
II only.
C.
III only.
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D.
I and II.
E.
II and III.
Answer: D LO: 4 Type: RC
28.
Which of the following formulas can often reconcile the difference between absorption- and variable-
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 per unit.
Answer: C LO: 4 Type: RC
29.
Monex reported $65,000 of net income for the year by using absorption costing. The company had no
beginning inventory, planned and actual production of 20,000 units, and sales of 18,000 units. Standard variable
manufacturing costs were $20 per unit, and total budgeted fixed manufacturing overhead was $100,000. If there were no
variances, net income under variable costing would be:
A.
$15,000.
B.
$55,000.
C.
$65,000.
D.
$75,000.
E.
$115,000.
Answer: B LO: 4 Type: A
30.
Canyon reported $106,000 of net income for the year by using variable costing. The company had no
beginning inventory, planned and actual production of 50,000 units, and sales of 47,000 units. Standard variable
manufacturing costs were $15 per unit, and total budgeted fixed manufacturing overhead was $150,000. If there were no
variances, net income under absorption costing would be:
A.
$52,000.
B.
$97,000.
C.
$106,000.
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D.
$115,000.
E.
$160,000.
Answer: D LO: 4 Type: A
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