Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
manufactured. B. Profits Profits fluctu fluctuate ate with t h sales sales C. An idle idle facility facility #ariation #ariation is calculated culated D. Product costs costs include /direct0 -#ariable -#ariable administra administrati#e ti#e costs.
C. VARIABLE COSTING AND SEGMENTED REPORTING THEORIES: Direct costing 1. A basic tenet tenet of direct direct costing is that that period period costs should should be currently currently expensed expensed.. What is the rationale behind this procedure? A. Period costs are uncontrollable and should not be charged to a specific product. product. B. Period costs are generally immaterial immaterial in amount and the cost cost of assigning the amounts to specific products would outweigh the benefits. C. Allocation Allocation of period period costs is arbitrary at best and could lead lead to erroneous erroneous decisions decisions by management. D. Because period costs will occur whether whether or not production occurs it is improper improper to allocate these costs to production and defer a current costs of doing business.
. Which of the following is an argument argument against the use of direct rect -#ariable costing? A. Absorption costing costing o#erstates the balance balance sheet #alue of in#entories. B. 2ariabl 2ariable factory factory o#erhead o#erhead is a period period cost. cost. C. 3ixed factory factory o#erhead o#erhead is difficult difficult to allocate allocate properly properly.. D. 3ixed factory factory o#erhead o#erhead is necessary necessary for the productio productionn of a product. 14. Ad#ocates Ad#ocates of #ariable costing costing for internal internal reporting reporting purposes do not rely on which of the following points? A. &he mat matchi ching n g conce concept pt B. Price*#olum Price*#olumee relationsh relationships ips C. Absorption Absorption costing costing does not include include selling selling and administrati strati#e #e expenses expenses as part of in#entoriable cost D. Production Production influence influencess income under under absorption on costing
1!. "n a #ariable costing system product cost includes includes A. direc directt materials materials direct direct labor labor #ariable #ariable o#erhead o#erhead B. direct direct materials materials direct direct labor labor fixed o#erhead o#erhead C. direct direct labor labor #ariable o#erhead o#erhead fixed o#erhead o#erhead D. direct direct materials materials #ariable #ariable o#erhead o#erhead fixed fixed o#erhead o#erhead
1(. Which costing method is not acceptable acceptable to the '3A' '3A' external reporting? A. absorption costing C. full costing B. #a #ari riab able le costi costing ng D. all of these are acceptable acceptable
$. Which of the following owing must must be %nown about about production production process process in order to institute institute a direct costing system? A. &he #ariable #ariable and fixed components components of all costs related to production. B. &he controllable controllable and noncontrollable noncontrollable components components of all costs related related to production. production. C. 'tandard production production rates and times for all elements elements of production. D. Contribution margin margin and brea%e#en point for all goods in production. production.
15. 2ariable costing can be used for A. extern external al report reporting ing B. int intern ernal al rep report orting ing C. either either external external reporting ng or internal internal reportin reportingg D. neither neither external external reporting reporting nor internal internal reporting reporting
(. )nder the direct direct costing concept concept unit product product cost would most li%ely be increased by A. A decrease decrease in the remaining remaining useful useful life of factory factory machinery machinery depre depreciate ciatedd on the units*of* units*of* production method. B. A decrease decrease in the number number of of units produc produced. ed. C. An increase increase in the remaining remaining useful life of factory factory machinery machinery depreciated ated on the sum*of* sum*of* the*years+*digits method. D. An increase in the commission commission paid to salesmen for each unit unit sold.
1$. Which of the following following is not true of #ariable costing? costing? A. Profits may may increase increase though though sales decrease decrease.. B. Profits Profits fluctu fluctuate ate with t h sales. sales. C. &he cost of of the product product consists consists of all #ariable #ariable production production costs. costs. D. &he income income stateme statement nt under under #ariable a ble costing costing does not include u de o#erhead o#erhead #olume #olume #ariance.
,. Which of the following owing statements statements is true for a firm that that uses #ariable -direct costing? costing? A. &he cost cost of a unit of product product changes changes because because of changes changes in the number number of units
Contribution margin format income statement 1 5 7
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
1. When #ariable costing is used the income income statement is usually usually prepared using A. a contri contribution bution margin margin forma formatt C. a funct function ional al form format at B. an operational format D. all of these
produced e7ual units sold. D. Absorpt Absorption ion costing costing net income income exce exceeds eds #ariable #ariable costing costing net income income whe whenn uni units ts produced are greater than units sold. $$. >et earnings earnings determine determinedd using full absorption absorption costing costing can be reconciled ed to net earnings earnings determined using direct costing by computing the difference between A. "n#entoried fixed fixed costs in the beginning and ending ending in#entories in#entories and any deferred o#er* or underapplied fixed factory o#erhead. B. "n#entoried discretionary costs in the beginning and ending in#entories. C. 8ross margin margin -absorpti -absorption on costing ng method method and contribu contribution tion margin margin -direct -direct costing ng method. D. 'ales 'ales as recorded under under the direct costing method method and sales sales as recorded under under the absorption costing method.
Absorption costing 6. Absorption on costing of in#entories in#entories as re7uired re7uired by 8AAP has been been critici9ed for encouraging encouraging managers managers to increase year*end year*end in#entories in#entories in order to boost reported profits. Which of the following techni7ues is the most effecti#e at resol#ing this problem? A. 'enior management management control of in#entory in#entory le#els le#els B. Adoption on of :ust*in*time me -;"& product production ion system system C.
$(. >et profit under absorption costing may may differ from net profit determined under under direct costing. ow is this difference calculated? A. Change in the 7uantity of all units units in in#entory in#entory times the rele#ant fixed costs per unit. B. Change in the 7uantity of all units units produced times the rele#ant rele#ant fixed costs per unit. C. Change in the 7uantity of all units units in in#entory times the the rele#ant #ariable cost per unit. D. Change in the 7uantity of all units units produced times the the rele#ant #ariable cost per unit.
$1. )nabsorbed fixed o#erhead o#erhead costs in an absorption costing system are A. 3ixed factory factory costs costs not allocated allocated to units units produced. produced. B. 2ariabl 2ariable o#erhead o#erhead costs not allocated allocated to units ts produced. produced. C. =xcess =xcess #ariable able o#erhead o#erhead costs. D. Costs that shoul should be controlled. controlled.
Sensiti"it# n!#sis $4. &he le#el of production affects affects income under which of the following methods? methods? A. ab absor sorpti ption on cos costin tingg C. #ariab #ariable le costin costingg B. both both abs absor orpt ptio ionn and and #aria #ariabl blee cost costin ingg D. neith neither er abs absor orpt ptio ionn nor nor #aria #ariabl blee cost costin ingg
Vrib!e costing "s. Absorption costing 5. What is the primary primary difference difference between #ariable #ariable and and absorption on costing? costing? A. inclusion on of fixed fixed selling ng expenses expenses in product costs B. inclusion on of #ariable able factory factory o#erhead o#erhead in period costs C. inclusion on of #ariable #ariable selling selling expenses expenses in product product costs D. inclusion on of fixed fixed factory factory o#erhead o#erhead in product product costs costs
16. 2ariable*costing income income will usually exceed absorption absorption costing income when A. sales e s exceed exceed prod product uction ion C. produc productio tionn exceeds exceeds sales sales B. production and sales are e7ual D. none of these 1@. 2ariabl 2ariable costing net income income is A. higher than absorption net net income when when more units units are sold than produced B. lower than absorption net income when more units are are produced than sold C. the same as absorption net income when all units produced are sold D. al alll of the the abo abo#e #e
!. Which Which of the following o wing statemen statements ts is true? A. Absorpt Absorption ion costing costing net income income exceeds exceeds #ariable #ariable costing costing net income income when when units units produced and sold are e7ual. B. 2ariab 2ariable le costing costing net income income exceeds exceeds absorpt absorption ion costing costing net income income when when units units produced exceed units sold. C. 2ariab 2ariable le costing costing net income income exceeds exceeds absorpt absorption ion costing costing net income income when when units units
@. A manufacturin manufacturingg company prepares prepares income statements statements using both absorption absorption and #ariable #ariable 1 5 8
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
1. When #ariable costing is used the income income statement is usually usually prepared using A. a contri contribution bution margin margin forma formatt C. a funct function ional al form format at B. an operational format D. all of these
produced e7ual units sold. D. Absorpt Absorption ion costing costing net income income exce exceeds eds #ariable #ariable costing costing net income income whe whenn uni units ts produced are greater than units sold. $$. >et earnings earnings determine determinedd using full absorption absorption costing costing can be reconciled ed to net earnings earnings determined using direct costing by computing the difference between A. "n#entoried fixed fixed costs in the beginning and ending ending in#entories in#entories and any deferred o#er* or underapplied fixed factory o#erhead. B. "n#entoried discretionary costs in the beginning and ending in#entories. C. 8ross margin margin -absorpti -absorption on costing ng method method and contribu contribution tion margin margin -direct -direct costing ng method. D. 'ales 'ales as recorded under under the direct costing method method and sales sales as recorded under under the absorption costing method.
Absorption costing 6. Absorption on costing of in#entories in#entories as re7uired re7uired by 8AAP has been been critici9ed for encouraging encouraging managers managers to increase year*end year*end in#entories in#entories in order to boost reported profits. Which of the following techni7ues is the most effecti#e at resol#ing this problem? A. 'enior management management control of in#entory in#entory le#els le#els B. Adoption on of :ust*in*time me -;"& product production ion system system C.
$(. >et profit under absorption costing may may differ from net profit determined under under direct costing. ow is this difference calculated? A. Change in the 7uantity of all units units in in#entory in#entory times the rele#ant fixed costs per unit. B. Change in the 7uantity of all units units produced times the rele#ant rele#ant fixed costs per unit. C. Change in the 7uantity of all units units in in#entory times the the rele#ant #ariable cost per unit. D. Change in the 7uantity of all units units produced times the the rele#ant #ariable cost per unit.
$1. )nabsorbed fixed o#erhead o#erhead costs in an absorption costing system are A. 3ixed factory factory costs costs not allocated allocated to units units produced. produced. B. 2ariabl 2ariable o#erhead o#erhead costs not allocated allocated to units ts produced. produced. C. =xcess =xcess #ariable able o#erhead o#erhead costs. D. Costs that shoul should be controlled. controlled.
Sensiti"it# n!#sis $4. &he le#el of production affects affects income under which of the following methods? methods? A. ab absor sorpti ption on cos costin tingg C. #ariab #ariable le costin costingg B. both both abs absor orpt ptio ionn and and #aria #ariabl blee cost costin ingg D. neith neither er abs absor orpt ptio ionn nor nor #aria #ariabl blee cost costin ingg
Vrib!e costing "s. Absorption costing 5. What is the primary primary difference difference between #ariable #ariable and and absorption on costing? costing? A. inclusion on of fixed fixed selling ng expenses expenses in product costs B. inclusion on of #ariable able factory factory o#erhead o#erhead in period costs C. inclusion on of #ariable #ariable selling selling expenses expenses in product product costs D. inclusion on of fixed fixed factory factory o#erhead o#erhead in product product costs costs
16. 2ariable*costing income income will usually exceed absorption absorption costing income when A. sales e s exceed exceed prod product uction ion C. produc productio tionn exceeds exceeds sales sales B. production and sales are e7ual D. none of these 1@. 2ariabl 2ariable costing net income income is A. higher than absorption net net income when when more units units are sold than produced B. lower than absorption net income when more units are are produced than sold C. the same as absorption net income when all units produced are sold D. al alll of the the abo abo#e #e
!. Which Which of the following o wing statemen statements ts is true? A. Absorpt Absorption ion costing costing net income income exceeds exceeds #ariable #ariable costing costing net income income when when units units produced and sold are e7ual. B. 2ariab 2ariable le costing costing net income income exceeds exceeds absorpt absorption ion costing costing net income income when when units units produced exceed units sold. C. 2ariab 2ariable le costing costing net income income exceeds exceeds absorpt absorption ion costing costing net income income when when units units
@. A manufacturin manufacturingg company prepares prepares income statements statements using both absorption absorption and #ariable #ariable 1 5 8
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
costing methods. At the end of a period actual sales re#enues total gross profit and total contribution margin approximated budgeted figures whereas net income was substantially greater than the budgeted amount. &here were no beginning or ending in#entories. &here most li%ely explanation of the net income increase is that compared to budget actual A. anufactu anufacturing ring fixed fixed costs costs had increase increased. d. B. 'elling ng and administrat administrati#e i#e fixed expenses expenses had decrease decreased. d. C. 'ales prices and #ariable #ariable costs had increased increased proportionately. proportionately. D. 'ales prices had declined declined proportionately proportionately less than #ariable costs.
(4. "ndicate which of the following costs would be be a#oided if a segment is eliminated. eliminated. 1. #ariab #ariable le manufac manufactur turing ing costs costs $. dire direct ct fixed x ed costs costs (. comm common on fixed x ed costs costs ,. #ariab #ariable le sell selling ing costs costs . direct direct fixed x ed sell selling i ng cost costss 5. common common fixe fixedd sellin sellingg costs costs A. $ $ ( 5 C. $ $ ( , B . 1 $ $ , , D . 1 , , 5
1,. When #ariable #ariable costing is used used fixed manufactur manufacturing ing o#erhead o#erhead is recogni9ed recogni9ed as an expense expense when the A. co cost st is is incu incurre rredd C. prod produc uctt is sol soldd B. product is completed D. product is in#entoried
$6. Which of the following costs would continue continue to be incurred e#en if a segment segment is eliminated? A. direct direct fixe fixedd expen expenses ses B. com common mon fix fixed ed cos costs ts C. #ariable #ariable cost of goods goods sold sold D. #ariable #ariable selling ng and administ administrati#e rati#e expense expensess
Seg$ent reporting $,. A segment is any part of an organi9ation organi9ation about which a manager manager see%s A. cost data C. 7uantitati#e data B. re#e re#enu nuee data data D. an anyy of the the abo abo#e #e
Cost !!oction po!ic# (1. Which of the following is a good reason reason for allocating indirect costs to operating departments? departments? A. &he company company could lose lose money if the operating operating department departmentss do not pay for the ser#ices ser#ices they use. B. &o remind remind managers managers of the need need to co#er indirect indirect costs. costs. C. &o encourage encourage manager managerss to use more ser#ices. ser#ices. D. &o determine determine the true costs costs of operating ng departmen departments. ts.
$5. Which of the following following could be considered considered a segment? segment? A. di#ision C. product line B. sale saless terri territory t ory D. all of of thes thesee $. &he guideline-s guideline-s used in assigning costs to a segment segment include-s whether A. costs are fixed C. costs are directly traceable B. costs costs are #ariab #ariable le D. al alll of the the abo abo#e #e
((. &he cost allocation policy most li%ely to encourage encourage use of a ser#ice is based on A. budgeted budgeted total total costs costs of the ser#ice ser#ice departm department ent B. actual actual total costs costs of the ser#ice ser#ice depart department ment C. budg budgeted eted #ariable able costs costs for the ser#ice departme department nt D. actual actual #ariable #ariable costs for the the ser#ice departm department ent
$!. 'egment 'egment margin margin is e7ual e7ual to A. sales e s less less #aria #ariable ble cost costss B. sales less ess #ariable able costs costs and direct direct fixed fixed costs costs C. sales less less #ariable #ariable costs and and indirect indirect fixed costs costs D. sales less cost of of goods goods sold sold
($. &he term /dual /dual rates0 rates0 refers to A. allocatin allocatingg costs to se#eral se#eral operating ng departmen departments ts B. allocating fixed costs based on capacity re7uirements re7uirements and #ariable costs based based on use C. allocatin allocatingg both actual actual costs and and budgeted budgeted costs costs D. using the budgeted rate rate to allocate allocate some costs the actual rate to allocate allocate others
$@.
(,. &he W<'& method of allocating ser#ice ser#ice department costs is to allocate 1 5 9
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
costing methods. At the end of a period actual sales re#enues total gross profit and total contribution margin approximated budgeted figures whereas net income was substantially greater than the budgeted amount. &here were no beginning or ending in#entories. &here most li%ely explanation of the net income increase is that compared to budget actual A. anufactu anufacturing ring fixed fixed costs costs had increase increased. d. B. 'elling ng and administrat administrati#e i#e fixed expenses expenses had decrease decreased. d. C. 'ales prices and #ariable #ariable costs had increased increased proportionately. proportionately. D. 'ales prices had declined declined proportionately proportionately less than #ariable costs.
(4. "ndicate which of the following costs would be be a#oided if a segment is eliminated. eliminated. 1. #ariab #ariable le manufac manufactur turing ing costs costs $. dire direct ct fixed x ed costs costs (. comm common on fixed x ed costs costs ,. #ariab #ariable le sell selling ing costs costs . direct direct fixed x ed sell selling i ng cost costss 5. common common fixe fixedd sellin sellingg costs costs A. $ $ ( 5 C. $ $ ( , B . 1 $ $ , , D . 1 , , 5
1,. When #ariable #ariable costing is used used fixed manufactur manufacturing ing o#erhead o#erhead is recogni9ed recogni9ed as an expense expense when the A. co cost st is is incu incurre rredd C. prod produc uctt is sol soldd B. product is completed D. product is in#entoried
$6. Which of the following costs would continue continue to be incurred e#en if a segment segment is eliminated? A. direct direct fixe fixedd expen expenses ses B. com common mon fix fixed ed cos costs ts C. #ariable #ariable cost of goods goods sold sold D. #ariable #ariable selling ng and administ administrati#e rati#e expense expensess
Seg$ent reporting $,. A segment is any part of an organi9ation organi9ation about which a manager manager see%s A. cost data C. 7uantitati#e data B. re#e re#enu nuee data data D. an anyy of the the abo abo#e #e
Cost !!oction po!ic# (1. Which of the following is a good reason reason for allocating indirect costs to operating departments? departments? A. &he company company could lose lose money if the operating operating department departmentss do not pay for the ser#ices ser#ices they use. B. &o remind remind managers managers of the need need to co#er indirect indirect costs. costs. C. &o encourage encourage manager managerss to use more ser#ices. ser#ices. D. &o determine determine the true costs costs of operating ng departmen departments. ts.
$5. Which of the following following could be considered considered a segment? segment? A. di#ision C. product line B. sale saless terri territory t ory D. all of of thes thesee $. &he guideline-s guideline-s used in assigning costs to a segment segment include-s whether A. costs are fixed C. costs are directly traceable B. costs costs are #ariab #ariable le D. al alll of the the abo abo#e #e
((. &he cost allocation policy most li%ely to encourage encourage use of a ser#ice is based on A. budgeted budgeted total total costs costs of the ser#ice ser#ice departm department ent B. actual actual total costs costs of the ser#ice ser#ice depart department ment C. budg budgeted eted #ariable able costs costs for the ser#ice departme department nt D. actual actual #ariable #ariable costs for the the ser#ice departm department ent
$!. 'egment 'egment margin margin is e7ual e7ual to A. sales e s less less #aria #ariable ble cost costss B. sales less ess #ariable able costs costs and direct direct fixed fixed costs costs C. sales less less #ariable #ariable costs and and indirect indirect fixed costs costs D. sales less cost of of goods goods sold sold
($. &he term /dual /dual rates0 rates0 refers to A. allocatin allocatingg costs to se#eral se#eral operating ng departmen departments ts B. allocating fixed costs based on capacity re7uirements re7uirements and #ariable costs based based on use C. allocatin allocatingg both actual actual costs and and budgeted budgeted costs costs D. using the budgeted rate rate to allocate allocate some costs the actual rate to allocate allocate others
$@.
(,. &he W<'& method of allocating ser#ice ser#ice department costs is to allocate 1 5 9
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
A. B. C. D.
total actual actual costs costs based based on actual actual use use of the ser#ice ser#ice total budgete budgetedd costs based on long*te long*term rm expected expected use of the ser#ice ser#ice total budgete budgetedd cost based based on actual actual use of the ser#ice ser#ice none of the abo#e because all the abo#e are e7ually undesirable
PROBLEMS: Vrib!e costing =nding in#entory 1 . &he following following information information pertains pertains to 'harapo#a 'harapo#a Corporation Corporation Beginning in#entory =nding in#entory Direct labor per unit Direct materials per unit 2ariable o#erhead per unit 3ixed o#erhead per unit 2ariable selling costs per unit 3ixed selling costs per unit What is the #alue of ending in#entory using the #ariable costing method? A . P 1 1 44 44 4 C . P 14 14 4 4 44 44 4 B. P1$444 D. P1 P 1@444
"nterest on loan (44 Based on the abo#e data the gross margin percentage for the last period -rounded to nearest percent was A. ,1E C. ,5E B. ,,E D. ,@E
Vrib!e costing "s. Absorption costing )nit costs ( . During During ay ay
4 units 444 un i t s P 14 6 $ 5 6
Difference in income , . Consi Consider d er the fol follo lowin wing g 'ales price per unit P16 per unit 'tandard absorption cost rate P1$ per unit 'tandard #ariable cost rate P6 per unit 2ariable selling expense rate P$ per unit 3ixed selling and administrati#e expenses P,4444 3ixed manufacturing o#erhead P54444 Hast period 1(444 units were produced. "n the current period 1444 units were produced. "n each period 1(444 units were sold. What is the difference in reported income under absorption and #ariable costing for the current period? A. &he #ariable*costin #ariable*costingg income exceeded exceeded absorption*costi absorption*costing ng income by P,444. P,444. B. &he absorption*cos absorption*costing ting income exceeded exceeded #ariable*costi #ariable*costing ng income by P6444. P6444. C. &he #ariable*costin #ariable*costingg income exceeded exceeded absorption*costi absorption*costing ng income by P5444. P5444. D. >et income income will not be be different different between between the two methods. methods.
Absorption costing 8ross margin $ . A company company manufacture manufacturess a single product product for its customers customers by contracting contracting in ad#ance ad#ance of production. &herefore the company only produces produces units that will be sold by the end of each each period. During the last period the following sales were made and costs incurred 'ales P,4444 Direct materials @44 Direct labor 5444
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
A. B. C. D.
total actual actual costs costs based based on actual actual use use of the ser#ice ser#ice total budgete budgetedd costs based on long*te long*term rm expected expected use of the ser#ice ser#ice total budgete budgetedd cost based based on actual actual use of the ser#ice ser#ice none of the abo#e because all the abo#e are e7ually undesirable
PROBLEMS: Vrib!e costing =nding in#entory 1 . &he following following information information pertains pertains to 'harapo#a 'harapo#a Corporation Corporation Beginning in#entory =nding in#entory Direct labor per unit Direct materials per unit 2ariable o#erhead per unit 3ixed o#erhead per unit 2ariable selling costs per unit 3ixed selling costs per unit What is the #alue of ending in#entory using the #ariable costing method? A . P 1 1 44 44 4 C . P 14 14 4 4 44 44 4 B. P1$444 D. P1 P 1@444
"nterest on loan (44 Based on the abo#e data the gross margin percentage for the last period -rounded to nearest percent was A. ,1E C. ,5E B. ,,E D. ,@E
Vrib!e costing "s. Absorption costing )nit costs ( . During During ay ay
4 units 444 un i t s P 14 6 $ 5 6
Difference in income , . Consi Consider d er the fol follo lowin wing g 'ales price per unit P16 per unit 'tandard absorption cost rate P1$ per unit 'tandard #ariable cost rate P6 per unit 2ariable selling expense rate P$ per unit 3ixed selling and administrati#e expenses P,4444 3ixed manufacturing o#erhead P54444 Hast period 1(444 units were produced. "n the current period 1444 units were produced. "n each period 1(444 units were sold. What is the difference in reported income under absorption and #ariable costing for the current period? A. &he #ariable*costin #ariable*costingg income exceeded exceeded absorption*costi absorption*costing ng income by P,444. P,444. B. &he absorption*cos absorption*costing ting income exceeded exceeded #ariable*costi #ariable*costing ng income by P6444. P6444. C. &he #ariable*costin #ariable*costingg income exceeded exceeded absorption*costi absorption*costing ng income by P5444. P5444. D. >et income income will not be be different different between between the two methods. methods.
Absorption costing 8ross margin $ . A company company manufacture manufacturess a single product product for its customers customers by contracting contracting in ad#ance ad#ance of production. &herefore the company only produces produces units that will be sold by the end of each each period. During the last period the following sales were made and costs incurred 'ales P,4444 Direct materials @44 Direct labor 5444
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
.
&he Blue Compan Companyy has failed to reach reach its planned planned acti#ity ty le#el during during its first two years years of operation. &he following table shows shows the relationship between units units produced sales and normal acti#ity for these years and the pro:ected relationship for Iear (. All prices and costs ha#e remained the same for the last two years and are expected to do so in Iear Iear (. "ncome has been positi#e in both Iear 1 and Iear $. )nits Produced 'ales Planned Acti#ity Iear 1 @4444 @4444 144444 Iear $ @444 @444 144444 Iear ( @4444 @4444 144444 Because Blue Company uses an absorption costing system one would predict gross margin for Iear ( to be A. 8reate 8reaterr than than Iea Iearr 1. C. =7u =7ual al to Iear 1. B. 8reater than Iear $. D. =7ual to Iear $.
&otal fixed costs incurred P144444 &otal #ariable costs incurred 4444 &otal period costs incurred !4444 &otal #ariable period costs incurred (4444 )nits produced $4444 )nits sold 1$444 )nit sales Price P 1$ Based on #ariable costing if 'oulmate Co. had sold 1$441 units instead of 1$444 its income before taxes would ha#e been A. P @.4 higher C. P11.44 higher B. P 6.4 6.4 hi high gher er D. P 6.(( 6.(( high higher er @
.
Reconci!ition "ncome under absorption costing 5 . A company company had income income of P444 P44444 using direct direct costing costing for a gi#en period. period. Beginning nning and ending in#entories for that period were 1(444 units and 16444 units respecti#ely. respecti#ely. "gnoring income taxes if the fixed o#erhead application rate were P$.44 per unit what would the income ha#e been using absorption costing? A . P ,4 ,4 44 444 B . P 4 4 44 444 C . P 54 54 44 444 D. Cannot Cannot be determine determinedd from the informa information tion gi#en. gi#en.
At its present present le#el of operation operations s a small manufactu manufacturing ring firm has has total #ariable #ariable costs e7ual e7ual to !E of sales and total fixed costs e7ual to 1E of sales. Based on #ariable costing if sales change by P1.44 income will change by A. P 4.$ C. P 4.! B. P 4.1$ D. P 4.14
Seg$ente% Inco$e Stte$ent =ffect of dropping a department . Jambales Jambales ining Co. mines three three products. products. 8old re sells ls for P1444444 P1444444 per per ton #ariable #ariable costs are P544444 per ton and fixed mining costs are P444444. P444444. &he segment segment margin for $44 was P-1444444. P-1444444. &he management management of Jambales ining was considering considering dropping the mining of 8old re. nly one*half of the fixed expenses are direct and would be eliminated eliminated if the segment was dropped. dropped. "f 8old re were dropped net income income for Jambales ining would A. "ncr "ncreas easee by P1 P1444 44444 4444 C. Decreas Decreasee by P14 P1444 44444 444 B. "ncrease by P14444 D. Decrease by P144444
14
"ncome under #ariable costing . Huna Huna Company Company had income income of P5444 P5444 using using absorpti absorption o n costing costing for a gi#en gi#en period. period. Beginning and ending in#entories for that period were 1(444 units and 16444 respecti#ely. "gnoring income taxes if the fixed o#erhead application rate were P$.4 per unit what would the income ha#e been using # ariable costing? A . P ! ! ! 4 4 4 C . P $ $ 4 4 4 B. P 54444 D . P $4 4 44
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11
. Aging Company Company plans ans to discontinu discontinuee a segment segment with a P($444 P($444 segment segment margin. margin. Common expenses allocated to the segment amounted to P,444 of which P$4444 cannot be eliminated eliminated if the segment were closed. &he effect of closing down the segment segment on Aging Company+s before tax profit would be A. P1$ P1$44 4444 decrea decrease se C. P !444 !444 de decre creas asee B. P1$444 increase D. P !444 increase
)nit contribution margin 6 . &he following following information information was extracted extracted from the first first year of absorption*ba absorption*based sed accounting accounting records of 'oulmate Co.
&se t'is %t to respon% to ()estions *+ t'ro)g' *,. 1 6 1
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
.
&he Blue Compan Companyy has failed to reach reach its planned planned acti#ity ty le#el during during its first two years years of operation. &he following table shows shows the relationship between units units produced sales and normal acti#ity for these years and the pro:ected relationship for Iear (. All prices and costs ha#e remained the same for the last two years and are expected to do so in Iear Iear (. "ncome has been positi#e in both Iear 1 and Iear $. )nits Produced 'ales Planned Acti#ity Iear 1 @4444 @4444 144444 Iear $ @444 @444 144444 Iear ( @4444 @4444 144444 Because Blue Company uses an absorption costing system one would predict gross margin for Iear ( to be A. 8reate 8reaterr than than Iea Iearr 1. C. =7u =7ual al to Iear 1. B. 8reater than Iear $. D. =7ual to Iear $.
&otal fixed costs incurred P144444 &otal #ariable costs incurred 4444 &otal period costs incurred !4444 &otal #ariable period costs incurred (4444 )nits produced $4444 )nits sold 1$444 )nit sales Price P 1$ Based on #ariable costing if 'oulmate Co. had sold 1$441 units instead of 1$444 its income before taxes would ha#e been A. P @.4 higher C. P11.44 higher B. P 6.4 6.4 hi high gher er D. P 6.(( 6.(( high higher er @
.
Reconci!ition "ncome under absorption costing 5 . A company company had income income of P444 P44444 using direct direct costing costing for a gi#en period. period. Beginning nning and ending in#entories for that period were 1(444 units and 16444 units respecti#ely. respecti#ely. "gnoring income taxes if the fixed o#erhead application rate were P$.44 per unit what would the income ha#e been using absorption costing? A . P ,4 ,4 44 444 B . P 4 4 44 444 C . P 54 54 44 444 D. Cannot Cannot be determine determinedd from the informa information tion gi#en. gi#en.
At its present present le#el of operation operations s a small manufactu manufacturing ring firm has has total #ariable #ariable costs e7ual e7ual to !E of sales and total fixed costs e7ual to 1E of sales. Based on #ariable costing if sales change by P1.44 income will change by A. P 4.$ C. P 4.! B. P 4.1$ D. P 4.14
Seg$ente% Inco$e Stte$ent =ffect of dropping a department . Jambales Jambales ining Co. mines three three products. products. 8old re sells ls for P1444444 P1444444 per per ton #ariable #ariable costs are P544444 per ton and fixed mining costs are P444444. P444444. &he segment segment margin for $44 was P-1444444. P-1444444. &he management management of Jambales ining was considering considering dropping the mining of 8old re. nly one*half of the fixed expenses are direct and would be eliminated eliminated if the segment was dropped. dropped. "f 8old re were dropped net income income for Jambales ining would A. "ncr "ncreas easee by P1 P1444 44444 4444 C. Decreas Decreasee by P14 P1444 44444 444 B. "ncrease by P14444 D. Decrease by P144444
14
"ncome under #ariable costing . Huna Huna Company Company had income income of P5444 P5444 using using absorpti absorption o n costing costing for a gi#en gi#en period. period. Beginning and ending in#entories for that period were 1(444 units and 16444 respecti#ely. "gnoring income taxes if the fixed o#erhead application rate were P$.4 per unit what would the income ha#e been using # ariable costing? A . P ! ! ! 4 4 4 C . P $ $ 4 4 4 B. P 54444 D . P $4 4 44
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11
. Aging Company Company plans ans to discontinu discontinuee a segment segment with a P($444 P($444 segment segment margin. margin. Common expenses allocated to the segment amounted to P,444 of which P$4444 cannot be eliminated eliminated if the segment were closed. &he effect of closing down the segment segment on Aging Company+s before tax profit would be A. P1$ P1$44 4444 decrea decrease se C. P !444 !444 de decre creas asee B. P1$444 increase D. P !444 increase
)nit contribution margin 6 . &he following following information information was extracted extracted from the first first year of absorption*ba absorption*based sed accounting accounting records of 'oulmate Co.
&se t'is %t to respon% to ()estions *+ t'ro)g' *,. 1 6 1
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
mid Publishing Company has three di#isions A B and C. &he re#enues of these di#isions are P$@444 ,6444 and 5(444 respecti#ely. 2ariable costs of these di#isions amount to !E @E and 5,E of the gi#en re#enues. &he di#isionsK short*term controllable fixed costs are P,$44 $44 and 5$44 respecti#ely. &he di#isionsK long*term controllable fixed costs amount to P(644 ,@44 and !44 in the order gi#en. &he companyKs uncontrollable costs amount to P!14 and income tax is at $4E of operating income.
coincide with the budget. #er* and underapplied fixed manufacturing costs are deferred until year*end. Annual sales ha#e the following seasonal pattern Portion of Annual 'ales 3irst 7uarter 14E 'econd 7uarter $4E &hird 7uarter (4E 3ourth 7uarter ,4E 144E
1$
. Hong*term Hong*term controlla controllable ble margin margin for di#ision di#ision A amounts amounts to A. P,,!4 C . P 1$ 1$ ,! ,!4 B. P6 P6$!4 D. P1 P15,!4
1(
1,
. 'hort*term 'hort*term controlla controllable ble margin margin for di#ision sion B amounts amounts to A. P@ P@64 C. P1 P1@564 B . P 1, 1, ,6 ,64 D . P $( $( 6 64
. &he amount amount of fixed fixed factory factory costs costs applied e d to produc productt during during the first six months months under under absorption costing would be A. #e #erap rappli plied e d by P$444 P$4444. 4. C. )nderappl )nderapplied ied by P,4444. P,4444. B. =7ual =7ual to the fixed costs incurred. incurred. D. )nderappl )nderapplied ied by P64444 P64444
Co$pre'ensi"e -)estions -)estions * t'ro)g' */ are based on the following annual flexible budget which has been prepared for use in ma%ing decisions relating to Product F. Budgeted units 144444 14444 $44444 'ales 2olume P644444 P1$44444 P1544444 anufacturing costs 2ariable P(44444 P ,4444 P 544444 3ixed $44444 $44444 $44444 P44444 P 54444 P 644444 'elling expenses 2ariable P$44444 P (44444 P ,44444 3ixed 154444 154444 154444 P(54444 P ,54444 P 54444 "ncome -or loss -P54444 P @4444 P $,4444
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. Assuming Assuming that @4444 @4444 units of Product Product F were sold during the first six months months and that this is to be used as a basis the re#ised budget estimate for the total number of units to be sold during this year would be A. (5 ( 54444. C. $, $,4444 B. $44 $4444 444. 4. D. (4 (44 444 4444
&he $44444*unit budget has been adopted and will be used for allocating fixed manufacturing costs to units of Product F. At the end of the first six months the following information is a#ailable )nits Production completed 1$4444 'ales 54444 All fixed costs are budgeted and incurred uniformly throughout the year and all costs incurred 1 6 2
Re s po ns i b i l i t yAc c o u nt i n ga ndT r a ns f e rP r i c i ng ( C.Var i abl eCost i ng& SegmentedReport i ng)
mid Publishing Company has three di#isions A B and C. &he re#enues of these di#isions are P$@444 ,6444 and 5(444 respecti#ely. 2ariable costs of these di#isions amount to !E @E and 5,E of the gi#en re#enues. &he di#isionsK short*term controllable fixed costs are P,$44 $44 and 5$44 respecti#ely. &he di#isionsK long*term controllable fixed costs amount to P(644 ,@44 and !44 in the order gi#en. &he companyKs uncontrollable costs amount to P!14 and income tax is at $4E of operating income.
coincide with the budget. #er* and underapplied fixed manufacturing costs are deferred until year*end. Annual sales ha#e the following seasonal pattern Portion of Annual 'ales 3irst 7uarter 14E 'econd 7uarter $4E &hird 7uarter (4E 3ourth 7uarter ,4E 144E
1$
. Hong*term Hong*term controlla controllable ble margin margin for di#ision di#ision A amounts amounts to A. P,,!4 C . P 1$ 1$ ,! ,!4 B. P6 P6$!4 D. P1 P15,!4
1(
1,
. 'hort*term 'hort*term controlla controllable ble margin margin for di#ision sion B amounts amounts to A. P@ P@64 C. P1 P1@564 B . P 1, 1, ,6 ,64 D . P $( $( 6 64
. &he amount amount of fixed fixed factory factory costs costs applied e d to produc productt during during the first six months months under under absorption costing would be A. #e #erap rappli plied e d by P$444 P$4444. 4. C. )nderappl )nderapplied ied by P,4444. P,4444. B. =7ual =7ual to the fixed costs incurred. incurred. D. )nderappl )nderapplied ied by P64444 P64444
Co$pre'ensi"e -)estions -)estions * t'ro)g' */ are based on the following annual flexible budget which has been prepared for use in ma%ing decisions relating to Product F. Budgeted units 144444 14444 $44444 'ales 2olume P644444 P1$44444 P1544444 anufacturing costs 2ariable P(44444 P ,4444 P 544444 3ixed $44444 $44444 $44444 P44444 P 54444 P 644444 'elling expenses 2ariable P$44444 P (44444 P ,44444 3ixed 154444 154444 154444 P(54444 P ,54444 P 54444 "ncome -or loss -P54444 P @4444 P $,4444
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1!
. Assuming Assuming that @4444 @4444 units of Product Product F were sold during the first six months months and that this is to be used as a basis the re#ised budget estimate for the total number of units to be sold during this year would be A. (5 ( 54444. C. $, $,4444 B. $44 $4444 444. 4. D. (4 (44 444 4444
&he $44444*unit budget has been adopted and will be used for allocating fixed manufacturing costs to units of Product F. At the end of the first six months the following information is a#ailable )nits Production completed 1$4444 'ales 54444 All fixed costs are budgeted and incurred uniformly throughout the year and all costs incurred 1 6 2
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A n s we r C Direct materials Direct labor 2ariable o#erhead &otal unit cost* #ariable costing 2alue of ending in#entory -444 x P$4 A n s we r C ' a le s Cost of goods sold Direct materials Direct labor
P 6 14 $ P$4 P144444
P,4444 P@44 544 $!44 $444 1444 64 4
-$1544 P16,44 ,5 E
P14444 $4444 444 P ( 44 P(.4 4.@4 P,.,4
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A n s we r C Direct materials Direct labor 2ariable o#erhead &otal unit cost* #ariable costing 2alue of ending in#entory -444 x P$4 A n s we r C ' a le s Cost of goods sold Direct materials Direct labor
P 6 14 $ P$4 P144444
P,4444 P@44 544 $!44 $444 1444 64 4
A n s we r C Direct materials Direct labor 2ariable o#erhead &otal #ariable product cost 2ariable unit cost -P(444 L 14444 Add 3ixed o#erhead per unit -P@444 L 14444 Absorption unit cost
-$1544 P16,44 ,5 E
P14444 $4444 444 P ( 44 P(.4 4.@4 P,.,4
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Answer B 3ixed o#erhead rate per unit P1$ M P6 P, Difference in income $444 x P, P6444 During During the current current year year the company+ company+ss production production e7ualed e7ualed the budget budgeted. ed. &he in#entory in#entory increase increased. d. absorption costing income is higher than the #ariable costing income.
&herefore &herefore
5
. Answer C &he production and unit sales during year ( matched with year 1.
6
. A n s we r C &he income under absorption costing is higher by P14444 because the amount of fixed o#erhead that related to unsold units was deferred deferred and was included as cost of finished finished goods in#entory in#entory. &he #ariable costing costing income statement statement immediately wrote the entire fixed o#erhead that was incurred during the year as period cost. 3ixed o#erhead deferred as product cost 444 x P$ P14444 Absorption income -P4444 N P14444 P54444
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A n s we r C Absorption income Hess 3ixed 3ixed #erhead #erhead in decrease decrease in in#entor in#entoryy "ncome 2ariable costing A n s we r B C< per unit O 'elling Price M )nit #ariable cost P6.4 O P1$.44 M P(.4 2ariable Cost Per unit
-16444 -16444 M 1444 1444 x $.4
5444 1$44 1$44 $44
Product -4444 M (4444 $4444 O 'elling Adm. -#ariable period costs (44441$444 (44441$444 &otal #ariable costunit Q &otal #ariable costs M #ariable period cost -selling adm. O #ariable product cost.
P1.44 $.4 P(.4
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. A n s we r A &he only rele#ant information to compute the effect of dropping the mining of gold ore is the negati#e segment margin. "f the product line is dropped dropped the company can a#oid the negati#e margin margin of P1 million.
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A n s we r A 1.44 * -1.44 x .! O P4.$
A n s we r C A#oidable common expenses ' e gm e n t m a r g i n l o s t Decrease in profit
P $444 ( $ 44 4 P- !444
Answer A
P$@444 15(4 1$,!4 ,$44 6$!4 (644 P ,,!4
Answer B < e# e n u e s 2ariable cost -P,6444 x 4.@ Contribution margin 'hort*term controllable fixed cost 'hort*term controllable margin M Di# B
P,6444 $6($4 1@564 $44 P1,,64
Answer A Budgeted actual fixed o#erhead -4. x P$44444 Applied fixed o#erhead -1$4444 x P1.44 #erapplied fixed o#erhead -fa#orable #olume #ariance
P144444 1$4444 P $4444
Answer B 'ales -54444 x P6 Cost of goods sold -54444 x P, 8ross profit 'elling and other expenses -5 -54444 x $ N P64444 Absorption profit
P,64444 $,4444 $,4444 $44.444 P ,4444
Answer B &otal contribution margin -54444 x P( Hess 3ixed manufacturing 3ixed selling and other expenses 2ariable costing profit C per unit -P -P1.5 M P4.5 M P4., L $44444
P164444 P144444 64444
164444 >"H P(.44
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. Answer D &he sales pattern pattern indicated indicated that sales for the first semester semester was (4E. &he assumption assumption was that the pattern was still #alid. &herefore the assumed @4444 units units would be (4 percent of expected annual sales. -@4444 L 4.( O (44444 units
