Chapter 5

Question 1

The two general costing approaches used by manufacturing companies to prepare income statements are _____ costing and _____ costing.

Answer 1

full; direct

Question 2

Variable costing income statements are based upon a _____ format.

Answer 2

contribution margin

Question 3

Direct costing or marginal costing are other terms for _____ costing.

Answer 3

variable

Question 4

Under absorption costing product costs consist of _____ costs.

Answer 4

both variable and fixed manufacturing

Question 5

Fixed manufacturing overhead costs are included as part of Work in Process inventory under _____

Answer 5

absorption costing only

Question 6

For external reporting, income statements are generally prepared using _____ costing, while _____ costing is used for internal decision making purposes.

Answer 6

full; direct

Question 7

The difference between reported net income on variable costing and absorption costing income statements is based on how _____

Answer 7

fixed overhead is accounted for

Question 8

Under variable costing the cost of a unit of inventory does not contain:

Answer 8

fixed manufacturing overhead

Question 9

Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

Answer 9

true

Question 10

Absorption and variable costing net income are usually different due to the accounting for _____

Answer 10

fixed manufacturing overhead

Question 11

Which of the following statements are correct regarding income statements prepared under variable and absorption costing?

Answer 11

• Reported net income on the statements often differ.
• Both income statements include product and period costs.

Question 12

When using variable costing, fixed manufacturing overhead is:

Answer 12

expensed in the period incurred

Question 13

Absorption costing treats fixed manufacturing overhead as a _____ cost.

Answer 13

product

Question 14

Put’er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per unit. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. The unit product cost using variable costing is _____ per unit.

Answer 14

$47

Question 15

Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. This month 1,490 bottles were produced and 1,203 bottles were sold. Total cost of goods sold is:

Answer 15

$6,472.14

Question 16

The variable costing income statement separates:

Answer 16

variable and fixed expenses

Question 17

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced. The unit product cost of each frame using variable costing is $_____

Answer 17

68

Question 18

The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead totals $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. The total variable cost reported on Quaint Quilt’s variable costing income statement is:

Answer 18

$124,020

Question 19

Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190. If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be $_____

Answer 19

94,304

Question 20

Variable costing income statements separate _____ expenses from _____ expenses.

Answer 20

variable; fixed

Question 21

Given the following information, calculate the unit product cost under absorption costing.
Direct materials: $50/unit
Direct labor: $75/unit
Variable manufacturing overhead: $27/unit
Fixed manufacturing overhead: $30,000 total
Units: 10,000 produced and 6,000 sold

Answer 21

$155

Question 22

Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is $_____

Answer 22

79,398

Question 23

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead cost divided by units:

Answer 23

produced.

Question 24

Place the following line items in order to construct a contribution format income statement.

Answer 24

1. Sales
2. Variable expenses
3. Contribution margin
4. Fixed expenses
5. Net operating income

Question 25

Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is:

Answer 25

$119

Question 26

The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is $_____

Answer 26

20,376

Question 27

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units _____

Answer 27

produced

Question 28

Why is CVP analysis more difficult when using absorption costing than when using variable costing?

Answer 28

CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing.

Question 29

Blink sells and manufactures frames for eyeglasses. The unit product cost for frame #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold equals _____

Answer 29

$11,834.25

Question 30

A traceable fixed cost _____

Answer 30

is incurred because of the existence of the segment

Question 31

If a segment is entirely eliminated, common fixed costs will _____

Answer 31

not change

Question 32

Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which _____ is handled in absorption costing.

Answer 32

fixed manufacturing overhead

Question 33

The segment margin is a valuable tool for assessing the long-run _____ of a segment.

Answer 33

profitability

Question 34

When a segment is eliminated, a _____

Answer 34

- traceable fixed cost will disappear - common fixed cost will remain unchanged

Question 35

Only costs that would disappear over time if a segment disappeared should be treated as _____ fixed costs.

Answer 35

traceable

Question 36

A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a(n) _____ fixed cost.

Answer 36

common

Question 37

Net income computed under _____ costing may not agree with the results of CVP analysis.

Answer 37

absorption