Chapter 6 exam questions

Question 1

Knowledge Check 01

Units produced 1,000
Direct materials $ 6
Direct labor $ 10
Fixed overhead $ 6,000
Variable overhead $ 6
Fixed selling and administrative $ 2,000
Variable selling and administrative $ 2

The total product cost per unit under absorption costing is:

Answer 1

28$;

Question 2

Knowledge Check 01

Units produced 1,000
Direct materials $ 6
Direct labor $ 10
Fixed overhead $ 6,000
Variable overhead $ 6
Fixed selling and administrative $ 2,000
Variable selling and administrative $ 2

The cost per unit under variable costing is:

multiple choice
$24.
$30.
$28.
$22.

Answer 2

$22

Question 3

An income statement under absorption costing includes all of the following:

Answer 3

I think its direct labor, direct materials, variable overhead, and fixed overhead.

Double check

Question 4

Freshmart, Incorporated, began operations this year. The company produced 1,000 units and sold 1,000 units at a selling price of $100 per unit. Fixed overhead costs totaled $30,000 and fixed selling and administrative expenses were $15,000. Variable production costs were $25.00 per unit while variable selling and administrative expenses were $10.00 per unit.

Using absorption costing, income was:

multiple choice
$45,000.
$55,000.
$20,000.
$65,000.

Answer 4

$20,000

Question 5

Freshmart, Incorporated, began operations last year when it produced and sold the same number of units. This year, the company produced 1,000 units and sold 750 units at a selling price of $100 per unit. Fixed overhead costs totaled $30,000 and fixed selling and administrative expenses were $15,000. Variable production costs were $25.00 per unit while variable selling and administrative expenses were $10.00 per unit.

Practice this one; tricky

Using absorption costing, income was:

multiple choice
$3,750
$11,250
$20,000
$48,750

Answer 5

$11,250

Question 6

When production is less than sales, the use of absorption costing:

Answer 6

produces a lower income than the use of variable costing

Question 7

When units sold are greater than units produced, income under absorption costing is

Answer 7

less than income under variable costing

Question 8

Under absorption costing when _______ units are produced than are sold, some of the fixed overhead is assigned to ending inventory on the balance sheet.

Answer 8

more

Question 9

When manager bonuses are tied to income computed under _______ costing, these managers may be tempted (even enticed) to increase production, since doing so will increase income and their bonuses.

Answer 9

Absorption

Question 10

Managers cannot increase income under ________ costing by merely increasing production without increasing sales.

Answer 10

variable

Question 11

An income statement prepared using the _______ highlights the impact of each cost element for income and is also useful in aiding managers in pricing.

Answer 11

absorption costing

Question 12

Over the long run, the starting point for setting selling prices should be established by adding the target markup to the _____________blank cost per unit.

Answer 12

absorption

Question 13

A special-order price that is less than fixed and variable costs, can be accepted if the special order price:

Answer 13

is greater than variable costs

Question 14

Fireplace Service company provides fireplace cleaning services and has variable costs of $100 per fireplace cleaning and revenue of $250. Their contribution margin is $_____________blank.

Answer 14

$150

Question 15

The contribution margin ratio is computed as: Contribution margin ____________ sales.

Answer 15

divided by

Question 16

The fixed overhead cost in ending finished goods inventory is __________ the variable costing income when converting income under variable costing to income under absorption costing.

Answer 16

added to

Question 17

a contribution margin income statement shows:

Answer 17

sales-cost of goods sold; a contribution margin income statement shows sales minus variable costs.

Question 18

Under absorption costing, fixed overhead is allocated to products sold, so when production is greater than units sold, net income will be __________ than income calculated under variable costing.

Answer 18

greater

Question 19

The contribution margin ratio is interpreted as the percent of:

Answer 19

each sales dollar that remains after deducting unit variable costs

Question 20

the variable costing method includes all of the following:

Answer 20

direct labor, variable overhead, direct materials

Question 21

When units produced are less than units sold, net income computed under variable costing will be _________ than net income computed under absorption.

Answer 21

greater

Question 22

What units fall under the absorption costing method?

Answer 22

direct labor, variable overhead, fixed overhead, direct materials

Question 23

an income statement which shows the excess of sales over variable costs is referred to as a __________ _________ income statement.

Answer 23

contribution margin

Question 24

When using absorption costing when production is greater than sales, a portion of fixed overhead is allocated to __________.

Answer 24

ending inventory

Question 25

differences in income between variable costing and absorption costing is due to _________.

Answer 25

timing

Question 26

Managers should accept special orders if the special-order price is

Answer 26

greater than variable cost

Question 27

When using absorption costing when production is greater than sales, a portion of fixed overhead is allocated to _____________:

Answer 27

ending inventory

Question 28

Since service firms do not produce inventory, they should focus primarily on

Answer 28

variable costs.

Question 29

Which costing method can be helpful to management in setting prices because it reflects full costs that sales must exceed for the company to be profitable?

Answer 29

Absorption costing because it shows the full cost.

Question 30

Under absorption costing, fixed overhead is allocated to products sold, so when production is greater than units sold, net income will be ___________ (less or greater) than income calculated under variable costing.

Answer 30

greater

Question 31

When using absorption costing when production is greater than sales, a portion of fixed overhead is allocated to:

Answer 31

ending inventory