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Chapter 7 Variable Costing: A Tool for Management

True/False Questions

1. Under variable costing, only variable production costs are treated as product costs.

Ans: True AACSB: Reflective Thining A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy

(. Under variable costing, variable selling and ad)inistrative costs are included in product costs.

Ans: #alse AACSB: Reflective Thining A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy

*. Absorption costing treats all )anufacturing costs as product costs.


+. !n the preparation of financial state)ents using variable costing, fied )anufacturingoverhead is treated as a period cost.


-. Absorption costing treats fied )anufacturing overhead as a period cost.

Ans: #alse AACSB: Reflective Thining A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy

. /hen the nu)ber of units in 0or in process and finished goods inventories increase,absorption costing net operating inco)e 0ill typically be greater than variable costingnet operating inco)e.

Ans: True AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: (,* %evel: 'asy

. $et operating inco)e co)puted using absorption costing 0ill al0ays be greater thannet operating inco)e co)puted using variable costing.

Ans: #alse AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 'asy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-5




2. /hen reconciling variable costing and absorption costing net operating inco)e, fied)anufacturing overhead costs released fro) inventory under absorption costing

should be added to variable costing net operating inco)e to arrive at the absorptioncosting net operating inco)e.

Ans: #alse AACSB: Reflective Thining A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 3ediu)

4. /hen production eceeds sales for the period, absorption costing net operatinginco)e 0ill eceed variable costing net operating inco)e.

Ans: True AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 3ediu)

15. Under variable costing it )ay be possible to report a profit even if the co)pany sellsless than the brea6even volu)e of sales.

Ans: #alse AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: + %evel: 3ediu)

11. Absorption costing net operating inco)e is closer to the net cash flo0 of a period thanis variable costing net operating inco)e.

Ans: #alse AACSB: Analytic A!C"A BB: Critical Thining

A!C"A #$: Reporting %&: + %evel: 3ediu)

1(. 7ariable costing is not per)itted for inco)e ta purposes, but it is 0idely accepted foreternal financial reports.

Ans: #alse AACSB: Reflective Thining A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: + %evel: 3ediu)

1*. A basic concept of the contribution approach and variable costing is that fied costsare not i)portant in an organi8ation.

Ans: #alse AACSB: Reflective Thining A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: + %evel: 3ediu)

1+. 7ariable costing is better suited to cost6volu)e6profit calculations than absorptioncosting.

Ans: True AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: + %evel: 'asy

7-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1-. /hen lean production is introduced, the difference in net operating inco)e co)putedunder the absorption and variable costing )ethods is reduced.

Ans: True AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: - %evel: 'asy

Multiple Choice Questions

1. 9o0 0ould the follo0ing costs be classified product or period; under variable costingat a retail clothing store<

Cost of purchasing clothing Sales co))issions

A; "roduct "roductB; "roduct "eriodC; "eriod "roduct=; "eriod "eriod

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 3ediu)

1. The principal difference bet0een variable costing and absorption costing centers on:A; 0hether variable )anufacturing costs should be included as product costs.B; 0hether fied )anufacturing costs should be included as product costs.

C; 0hether fied )anufacturing costs and fied selling and ad)inistrative costsshould be included as product costs.

=; none of these.

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy

12. /hich of the follo0ing costs at a )anufacturing co)pany 0ould be treated as a product cost under the variable costing )ethod<A; direct )aterial costB; property taes on the factory building

C; sales )anager>s salary=; all of the above

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 3ediu)





14. Assu)ing that direct labor is a variable cost, the pri)ary difference bet0een theabsorption and variable costing is that:

A; variable costing treats only direct )aterials and direct labor as product cost0hile absorption costing treats direct )aterials, direct labor, and the variable portion of )anufacturing overhead as product costs.

B; variable costing treats direct )aterials, direct labor, the variable portion of)anufacturing overhead, and an allocated portion of fied )anufacturingoverhead as product costs 0hile absorption costing treats only direct )aterials,direct labor, and the variable portion of )anufacturing overhead as productcosts.

C; variable costing treats only direct )aterials, direct labor, the variable portion of)anufacturing overhead, and the variable portion of selling and ad)inistrativeepenses as product cost 0hile absorption costing treats direct )aterials, direct

labor, the variable portion of )anufacturing overhead, and an allocated portionof fied )anufacturing overhead as product costs.

=; variable costing treats only direct )aterials, direct labor, and the variable portionof )anufacturing overhead as product costs 0hile absorption costing treatsdirect )aterials, direct labor, the variable portion of )anufacturing overhead,and an allocated portion of fied )anufacturing overhead as product costs.

Ans: = AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 3ediu)

(5. The costing )ethod that treats all fied costs as period costs is:

A; absorption costing.B; ?ob6order costing.C; variable costing.=; process costing.

Ans: C AACSB: Reflective Thining A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy





(1. !n its first year of operations, Bronfren Corporation produced 255,555 sets and sold25,555 sets of artificial tan lines. /hat 0ould have happened to net operating inco)e

in this first year under the follo0ing costing )ethods if Bronfren had produced (5,555fe0er sets< Assu)e that Bronfren has both variable and fied production costs.;

7ariable costing Absorption costingA; !ncrease !ncreaseB; =ecrease !ncreaseC; =ecrease =ecrease=; $o effect =ecrease

Ans: = AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 3ediu)

((. /hen sales are constant, but the production level fluctuates, net operating inco)edeter)ined by the variable costing )ethod 0ill:A; fluctuate in direct proportion to changes in production.B; re)ain constant.C; fluctuate inversely 0ith changes in production.=; be greater than net operating inco)e under absorption costing.

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 3ediu)

(*. Under the variable costing )ethod, 0hich of the follo0ing is al0ays epensed in itsentirety in the period in 0hich it is incurred<A; fied )anufacturing overhead costB; fied selling and ad)inistrative epenseC; variable selling and ad)inistrative epense=; all of the above

Ans: = AACSB: Reflective Thining A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 9ard

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-




(+. /hich of the follo0ing 0ill usually be found on an inco)e state)ent prepared usingthe absorption costing )ethod<

Contribution 3argin @ross 3arginA; es esB; es $oC; $o es=; $o $o

Ans: C AACSB: Reflective Thining A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 'asy

(-. $et operating inco)e under variable and absorption costing 0ill generally:

A; al0ays be eual.B; never be eual.C; be eual only 0hen production and sales are eual.=; be eual only 0hen production eceeds sales.

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 3ediu)

(. /hen production eceeds sales, net operating inco)e reported under variable costinggenerally 0ill be:A; greater than net operating inco)e reported under absorption costing.

B; less than net operating inco)e reported under absorption costingC; eual to net operating inco)e reported under absorption costing.=; higher or lo0er because no generali8ation can be )ade.

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 3ediu)

7-!" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




(. $et operating inco)e under absorption costing )ay differ fro) net operating inco)edeter)ined under variable costing. 9o0 is this difference calculated<

A; change in the uantity of units in inventory ti)es the fied )anufacturingoverhead rate per unit.

B; nu)ber of units produced during the period ti)es the fied )anufacturingoverhead rate per unit.

C; change in the uantity of units in inventory ti)es the variable )anufacturingcost per unit.

=; nu)ber of units produced during the period ti)es the variable )anufacturingcost per unit.

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 9ard Source: C3A, adapted

(2. /hen sales are constant, but the production level fluctuates, net operating inco)edeter)ined by the absorption costing )ethod 0ill:A; tend to fluctuate in the sa)e direction as fluctuations in the level of production.B; tend to re)ain constant.C; tend to fluctuate inversely 0ith fluctuations in the level of production.=; none of these

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: + %evel: 3ediu)

(4. A reason 0hy absorption costing inco)e state)ents are so)eti)es difficult for the)anager to interpret is that:A; they o)it variable epenses entirely in co)puting net operating inco)e.B; they shift portions of fied )anufacturing overhead fro) period to period

according to changing levels of inventories.C; they include all fied )anufacturing overhead on the inco)e state)ent each

year as a period cost.=; they ignore inventory levels in co)puting inco)e charges.

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: + %evel: 3ediu)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!!




*5. Under the theory of constraints T&C;, 0hich of the follo0ing is treated as a periodcost<

=irect labor =irect )aterialA; es esB; es $oC; $o es=; $o $o

Ans: B AACSB: Reflective Thining A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: - %evel: 3ediu)

*1. #leet Corporation produces a single product. The co)pany )anufactured 55 units

last year. The ending inventory consisted of 155 units. There 0as no beginninginventory. 7ariable )anufacturing costs 0ere .55 per unit and fied )anufacturingcosts 0ere (.55 per unit. /hat 0ould be the change in the dollar a)ount of endinginventory if variable costing 0as used instead of absorption costing<A; 255 decreaseB; (55 decreaseC; 5=; (55 increase

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy Source: C3A, adapted

Solution:Change in inventory D #ied )anufacturing costs per unitE 155 D ( E (55 decrease

7-!# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




*(. Shun Corporation )anufactures and sells a hand held calculator. The follo0inginfor)ation relates to Shun>s operations for last year:

Unit product cost under variable costing......................... -.(5 per unit#ied )anufacturing overhead cost for the year............. (5,555#ied selling and ad)inistrative cost for the year........... 125,555Units calculators; produced and sold............................. +55,555

/hat is Shun>s unit product cost under absorption costing for last year<A; +.15B; +.--C; -.2-=; .*5

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy

Solution:

Unit fied )anufacturing overhead E #ied )anufacturing overhead F Units producedE (5,555 F +55,555 units E 5.- per unitUnit product cost E -.(5 G 5.- E -.2-

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!$




**. A )anufacturing co)pany that produces a single product has provided the follo0ingdata concerning its )ost recent )onth of operations:

Units in beginning inventory..................... 5Units produced........................................... ,155Units sold................................................... ,555Units in ending inventory........................... 155

7ariable costs per unit:=irect )aterials....................................... **=irect labor............................................. -*7ariable )anufacturing overhead........... 17ariable selling and ad)inistrative........ .

#ied costs:#ied )anufacturing overhead............... 15,+55#ied selling and ad)inistrative............. ,555

/hat is the unit product cost for the )onth under variable costing<A; 112B; 4+C; 111=; 2

Ans: = AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy

Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadE ** G -* G 1 E 2

7-!% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




*+. A )anufacturing co)pany that produces a single product has provided the follo0ingdata concerning its )ost recent )onth of operations:

Units in beginning inventory............. .. .. .. .. 5Units produced........................................... 1,455Units sold................................................... 1,55Units in ending inventory........................... (55

7ariable costs per unit:=irect )aterials....................................... **=irect labor............................................. *(7ariable )anufacturing overhead..... ... .. . (7ariable selling and ad)inistrative.........

#ied costs:#ied )anufacturing overhead............... (,(55#ied selling and ad)inistrative............. ,255

/hat is the unit product cost for the )onth under absorption costing<A; B; 15-C; 111=; *


Solution:

Unit fied )anufacturing overhead E (,(55 F 1,455 E *2Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadcost G #ied )anufacturing overhead costE ** G *( G ( G *2 E 15-

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!5




*-. A )anufacturing co)pany that produces a single product has provided the follo0ingdata concerning its )ost recent )onth of operations:

Selling price............................................... 4

Units in beginning inventory............ .. .. .. ... 5Units produced........................................... ,55Units sold................................................... ,*55Units in ending inventory........................... *55

7ariable costs per unit:=irect )aterials....................................... 1+=irect labor............................................. *5

7ariable )anufacturing overhead..... .. .. .. +7ariable selling and ad)inistrative......... 2

#ied costs:#ied )anufacturing overhead............... +,(55#ied selling and ad)inistrative............. 22,(55

/hat is the total period cost for the )onth under the variable costing approach<A; 1*2,55B; 1*+,+55C; +,(55

=; 12+,255


Solution:

Total variable selling and ad)inistrative cost E 2 D ,*55 E -5,+55"eriod cost E Total variable selling and ad)inistrative cost G #ied )anufacturingoverhead G #ied selling and ad)inistrative costE -5,+55 G +,(55 G 22,(55 E 12+,255

7-!6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




*. A )anufacturing co)pany that produces a single product has provided the follo0ingdata concerning its )ost recent )onth of operations:

Selling price............................................... 4

Units in beginning inventory............. .. ... .. . 5Units produced........................................... (,(55Units sold................................................... (,155Units in ending inventory........................... 155

7ariable costs per unit:=irect )aterials....................................... *(=irect labor............................................. (-

7ariable )anufacturing overhead...... .. .. . (7ariable selling and ad)inistrative......... 4

#ied costs:#ied )anufacturing overhead............... 2,255#ied selling and ad)inistrative............. *,255

/hat is the total period cost for the )onth under the absorption costing approach<A; -,55B; -,-55C; 2,255

=; *,255

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy

Solution:

Total variable selling and ad)inistrative cost E 4 D (,155 E 12,455"eriod cost E 7ariable selling and ad)inistrative cost G #ied selling andad)inistrative cost E 12,455 G *,255 E -,55

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!7




*. 3ullee Corporation produces a single product and has the follo0ing cost structure:

$u)ber of units produced each year..................... ,5557ariable costs per unit:

=irect )aterials................................................... -1=irect labor......................................................... 1(7ariable )anufacturing overhead....................... (7ariable selling and ad)inistrative epense..... .. -

#ied costs per year:#ied )anufacturing overhead........................... ++1,555#ied selling and ad)inistrative epense........... 11(,555

The unit product cost under absorption costing is:

A; 1+4B; -C; *=; 1(2


Solution:

Unit fied )anufacturing overhead E ++1,555 F ,555 E *

Unit product cost E * G -1 G 1( G ( E 1(2

7-!8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




*2. Stoneberger Corporation produces a single product and has the follo0ing coststructure:

$u)ber of units produced each year..................... +,5557ariable costs per unit:

=irect )aterials................................................... -5=irect labor......................................................... (7ariable )anufacturing overhead....................... 7ariable selling and ad)inistrative epense..... .. *

#ied costs per year:#ied )anufacturing overhead........................... (4,555#ied selling and ad)inistrative epense........... ,555

The unit product cost under variable costing is:A; 1(2B; 1(-C; (5(=; 1*1


Solution:

Unit product cost E -5 G ( G E 1(2

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!




*4. Bea)ish !nc., 0hich produces a single product, has provided the follo0ing data for its)ost recent )onth of operations:

$u)ber of units produced..................................... 2,5557ariable costs per unit:

=irect )aterials................................................... *=irect labor......................................................... -7ariable )anufacturing overhead....................... +7ariable selling and ad)inistrative epense..... .. (

#ied costs:#ied )anufacturing overhead........................... *1(,555#ied selling and ad)inistrative epense........... ++2,555

There 0ere no beginning or ending inventories. The unit product cost under absorptioncosting 0as:A; 4*B; 4C; 1*=; 14+


Solution:

Unit fied )anufacturing overhead E *1(,555 F 2,555 E *4Unit product cost E * G - G + G *4 E 1*

7-#" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




+5. Hray !nc., 0hich produces a single product, has provided the follo0ing data for its)ost recent )onth of operations:

$u)ber of units produced............................................... *,5557ariable costs per unit:

=irect )aterials............................................................ 41=irect labor................................................................... 1*7ariable )anufacturing overhead................................. 7ariable selling and ad)inistrative epense.................

#ied costs:#ied )anufacturing overhead..................................... (*,555#ied selling and ad)inistrative epense..................... 1-,555

There 0ere no beginning or ending inventories. The unit product cost under variablecosting 0as:A; 111B; 145C; 11=; 115


Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadE 41 G 1* G E 111

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-#!




+1. The follo0ing data pertain to last year>s operations at Clarson, !ncorporated, aco)pany that produces a single product:

Units in beginning inventory..................... 5Units produced........................................... 155,555Units sold................................................... 42,555

Selling price per unit.................................. 15.55

7ariable costs per unit:=irect )aterials....................................... 1.-5=irect labor............................................. (.-57ariable )anufacturing overhead........... 1.55

7ariable selling and ad)inistrative......... (.55

#ied costs per year:#ied )anufacturing overhead............... (55,555#ied selling and ad)inistrative............. -5,555

/hat 0as the absorption costing net operating inco)e last year<A; ++,555B; +2,555C; -5,555=; +4,555


Solution:

Unit fied )anufacturing overhead E (55,555 F 155,555 E (Unit product cost E 1.-5 G (.-5 G 1 G ( E

Absorption costing inco)e state)entSales 15 D 42,555;.............................................. 425,555Cost of goods sold D 42,555;........................... 2,555

@ross )argin.......................................................... (4+,555Selling and ad)inistrative epenses epenses:

7ariable selling and ad)inistrative..................... 14,555#ied selling and ad)inistrative......................... -5,555 (+,555

$et operating inco)e............................................. +2,555

7-## Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




+(. A )anufacturing co)pany that produces a single product has provided the follo0ingdata concerning its )ost recent )onth of operations:

Selling price............................................... 1*-

Units in beginning inventory..................... 5Units produced........................................... ,+55Units sold................................................... ,(55Units in ending inventory........................... (55

7ariable costs per unit:=irect )aterials.......................................... +4=irect labor................................................ *2

7ariable )anufacturing overhead...... .. .. .. .. 7ariable selling and ad)inistrative............ 11

#ied costs:#ied )anufacturing overhead.................. 152,255#ied selling and ad)inistrative................ +,+55

The total contribution )argin for the )onth under the variable costing approach is:A; 1--,555B; (5,+55C; 14(,(55

=; 2*,+55

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 'asy

Solution:

Sales revenue 1*- D ,(55;................................. 2*,5557ariable cost:..........................................................

=irect )aterials +4 D ,(55;............................ *5*,255=irect labor *2 D ,(55;.................................. (*-,555

7ariable )anufacturing overhead D ,(55;. . *,(557ariable selling and ad)inistrative 11 D

,(55;............................................................... 2,(55 ++,255Contribution )argin............................................... 14(,(55

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-#$




+*. A )anufacturing co)pany that produces a single product has provided the follo0ingdata concerning its )ost recent )onth of operations:

Selling price............................................... 1(*

Units in beginning inventory............. .. .. .. .. 5Units produced........................................... 1,555Units sold................................................... 455Units in ending inventory........................... 155

7ariable costs per unit:=irect )aterials....................................... +1=irect labor............................................. (

7ariable )anufacturing overhead..... .. .. .. +7ariable selling and ad)inistrative.........

#ied costs:#ied )anufacturing overhead............... 1,555#ied selling and ad)inistrative............. 11,55

/hat is the net operating inco)e for the )onth under variable costing<A; 1(,55B; -,55C; 1,55

=; 1+,+55

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 3ediu)

Solution:

Sales 1(* D 455;................................................. 115,557ariable cost of goods sold 1 D 455;................ *,455%ess variable selling and ad)inistrative D 455; -,+55Contribution )argin............................................... +1,+55

#ied cost:#ied )anufacturing overhead........................... 1,555#ied selling and ad)inistrative......................... 11,55 (2,55

$et operating inco)e............................................. 1(,55

7-#% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




++. S0ifton Co)pany produces a single product. %ast year, the co)pany had net operatinginco)e of +5,555 using variable costing. Beginning and ending inventories 0ere

((,555 and (,555 units, respectively. !f the fied )anufacturing overhead cost 0as*.55 per unit, 0hat 0as the inco)e using absorption costing<A; 1-,555B; (-,555C; +5,555=; --,555

Ans: = AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 3ediu)

Solution:

=ifference bet0een absorption costing net inco)e and variable costing netinco)e E Change in inventory in units D Unit fied )anufacturing overheadE (,555 I ((,555; D * E -,555 D * E 1-,555 $et inco)e under absorption costing E +5,555 G 1-,555 E --,555

+-. Blae Co)pany produces a single product. %ast year, Blae>s net operating inco)eunder absorption costing 0as *,55 lo0er than under variable costing. The co)panysold 15,555 units during the year, and its variable costs 0ere 4 per unit, of 0hich 10as variable selling epense. !f production cost 0as 11 per unit under absorptioncosting, then ho0 )any units did the co)pany produce during the year<

A; 2,(55 unitsB; 2,255 unitsC; 11,(55 units=; 11,255 units

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 9ard

Solution:

=irect )aterial G =irect labor G 7ariable )anufacturing overhead

E 7ariable unit product cost E 4 J 1 E 2Unit fied )anufacturing overhead E 11 J 2 E *=ifference in net inco)e bet0een )ethods F Unit fied )anufacturing overhead E*,55; F * per unit E 1,(55; unitsUnits produced E Units sold G Change in inventory E 15,555 G 1,(55; E 2,255

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-#5




+. "ungent Corporation )anufactures and sells a spice rac. Sho0n belo0 are the actualoperating results for the first t0o years of operations:

ear 1 ear (Units spice racs; produced.................................. +5,555 +5,555Units spice racs; sold.......................................... *,555 +1,555Absorption costing net operating inco)e.............. ++,555 -(,5557ariable costing net operating inco)e................... *2,555 <<<

"ungent>s cost structure and selling price 0ere the sa)e for both years. /hat is"ungent>s variable costing net operating inco)e for ear (<A; +2,555B; -5,555

C; -+,555=; -,555

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 9ard

Solution:

Unit fied )anufacturing overhead E =ifference in net inco)e F Change in inventoryE ++,555 J *2,555; F +5,555 J *,555; E ,555 F *,555 E (7ariable costing net operating inco)e E Absorption costing net inco)e I =ifference

in net operating inco)eE -(,555 I K+5,555 I +1,555; D (;LE -(,555 I (,555; E -+,555

7-#6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




+. Sipho Corporation )anufactures a variety of products. %ast year, the co)pany>svariable costing net operating inco)e 0as 45,455. #ied )anufacturing overhead

costs released fro) inventory under absorption costing a)ounted to (1,455. /hat0as the absorption costing net operating inco)e last year<A; 4,555B; 45,455C; (1,455=; 11(,255

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 'asy

Solution:

Absorption costing net inco)e E 7ariable costing net inco)e J fied )anufacturingoverhead costs released fro) inventoryE 45,455 J (1,455 E 4,555

+2. %ast year, Hirsten Corporation>s variable costing net operating inco)e 0as *,+55.#ied )anufacturing overhead costs released fro) inventory under absorption costinga)ounted to 15,55. /hat 0as the absorption costing net operating inco)e last year<A; 15,55B; +,155C; *,+55

=; -(,55

Ans: = AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 'asy

Solution:

Absorption costing net inco)e E 7ariable costing net inco)e J fied )anufacturingoverhead costs released fro) inventoryE *,+55 J 15,55 E -(,55

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-#7




+4. Bellue !nc. )anufactures a variety of products. 7ariable costing net operating inco)e0as 4,*55 last year and ending inventory decreased by (,55 units. #ied

)anufacturing overhead cost 0as 1 per unit. /hat 0as the absorption costing netoperating inco)e last year<A; (,55B; 4*,55C; 4,*55=; 42,455


Solution:

Absorption costing net inco)e E 7ariable costing net inco)e I fied )anufacturingoverhead costs released fro) inventoryE 4,*55 I K(,55 D 1L E 4,*55 I (,55 E 4*,55

-5. %ast year, Tinlenberg Corporation>s variable costing net operating inco)e 0as-(,+55 and its ending inventory decreased by 1,+55 units. #ied )anufacturingoverhead cost 0as 2 per unit. /hat 0as the absorption costing net operating inco)elast year<A; +1,(55B; 11,(55

C; *,55=; -(,+55

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 3ediu)

Solution:

Absorption costing net inco)e E 7ariable costing net inco)e I fied )anufacturingoverhead costs released fro) inventoryE -(,+55 I K1,+55 D 2L E -(,+55 I 11,(55 E +1,(55

7-#8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




Use the follo0ing to ans0er uestions -16-*:

9urle Co)pany produces a single product. %ast year, 9urle )anufactured 1-,555 units andsold 1(,555 units. "roduction costs for the year 0ere as follo0s:

=irect )aterials...................................................... 1-5,555=irect labor............................................................ 125,5557ariable )anufacturing overhead.......................... 1*-,555#ied )anufacturing overhead.............................. (15,555

Sales totaled 2+5,555 for the year, variable selling epenses totaled 5,555, and fiedselling and ad)inistrative epenses totaled 125,555. There 0ere no units in the beginninginventory. Assu)e that direct labor is a variable cost.

-1. The contribution )argin per unit 0ould be:A; (-B; *4C; *+=; *-

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 9ard

Solution:

Unit selling price 2+5,555 F 1(,555;.................. 5%ess direct )aterials 1-5,555 F 1-,555;............. 15%ess direct labor 125,555 F 1-,555;................... 1(%ess variable )anufacturing overhead 1*-,555

F 1-,555;............................................................ 4%ess variable selling and ad)inistrative 5,555

F 1(,555;............................................................ - *Contribution )argin............................................... *+

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-#




-(. Under absorption costing, the carrying value on the balance sheet of the endinginventory for the year 0ould be:

A; 1*-,555B; 4*,555C; 15-,555=; 5


Solution:

Unit fied )anufacturing overhead E (15,555 F 1-,555 E 1+

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadG #ied )anufacturing overheadE 15 G 1( G 4 G 1+ E +-Carrying value E Unit product cost D 'nding inventory in unitsE +- D 1-,555 I 1(,555; E +- D *,555 E 1*-,555

-*. Under variable costing, the co)pany>s net operating inco)e for the year 0ould be:A; +(,555 higher than under absorption costingB; *5,555 higher than under absorption costingC; *5,555 lo0er than under absorption costing=; +(,555 lo0er than under absorption costing


Solution:

Unit fied )anufacturing overhead D Change in inventory in unitsE 1+ D 1-,555 I 1(,555; E 1+ D *,555 E +(,555Since the units produced are greater than the units sold inventory increased;, netinco)e under absorption costing 0ill be higher than net inco)e under variablecosting.

7-$" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




Use the follo0ing to ans0er uestions -+61:

Abdi Co)pany, 0hich has only one product, has provided the follo0ing data concerning its)ost recent )onth of operations:

Selling price............................................... 21

Units in beginning inventory............. .. .. .. .. 5Units produced........................................... ,*55Units sold................................................... ,555Units in ending inventory........................... *55

7ariable costs per unit:

=irect )aterials....................................... (5=irect labor............................................. *57ariable )anufacturing overhead...... .. .. . 7ariable selling and ad)inistrative......... 11

#ied costs:#ied )anufacturing overhead............... -,55#ied selling and ad)inistrative............. (1,555

-+. /hat is the unit product cost for the )onth under variable costing<A;

B; C; 2=; -


Solution:

=irect )aterials G =irect labor G 7ariable )anufacturing overheadE (5 G *5 G E -

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-$!




--. /hat is the unit product cost for the )onth under absorption costing<A;

B; C; -=; 2


Solution:

Unit fied )anufacturing overhead E -,55 F ,*55 E 4Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overhead

G #ied )anufacturing overhead E (5 G *5 G G 4 E

-. The total contribution )argin for the )onth under the variable costing approach is:A; 41,555B; 12,555C; 15-,555=; (-,*55


Solution:

Unit selling price.................................................... 21%ess unit variable costs:

=irect )aterials................................................... (5=irect labor......................................................... *57ariable )anufacturing overhead....................... 7ariable selling and ad)inistrative..................... 11 2

Contribution )argin............................................... 1*Total contribution )argin E 1* D ,555 E 41,555

7-$# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




-. The total gross )argin for the )onth under the absorption costing approach is:A; 15-,555

B; 1(+,255C; ,555=; 41,555


Solution:

Unit fied )anufacturing overhead E 4Unit product cost under absorption costing E (5 G *5 G G 4 E

Sales revenue 21 D ,555;................................... -,555Cost of goods sold D ,555;........................... +(,555@ross )argin.......................................................... 15-,555

-2. /hat is the total period cost for the )onth under the variable costing approach<A; -,55B; 1*,55C; 42,555=; 2,55

Ans: B AACSB: Analytic A!C"A BB: Critical Thining

A!C"A #$: Reporting %&: ( %evel: 9ard

Solution:

7ariable selling and ad)inistrative cost G #ied costsE 11 D ,555; G -,55 G (1,555;E ,555 G 2,55 E 1*,55

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-$$




-4. /hat is the total period cost for the )onth under the absorption costing approach<A; 42,555

B; -,55C; (1,555=; 1*,55

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 9ard

Solution:

7ariable selling and ad)inistrative cost G #ied selling and ad)inistrative costE 11 D ,555 G (1,555

E ,555 G (1,555 E 42,555

5. /hat is the net operating inco)e for the )onth under variable costing<A; (,55B; +,*55C; ,555=; 1(,255;


Solution:

Sales revenue 21 D ,555;................................... -,5557ariable costs:

"roduct cost - D ,555;.................................. *44,5557ariable selling and ad)inistrative 11 D

,555;............................................................... ,555 +,555Contribution )argin............................................... 41,555#ied costs:

#ied )anufacturing overhead........................... -,55#ied selling and ad)inistrative......................... (1,555 2,55

Contribution )argin............................................... +,*55

7-$% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1. /hat is the net operating inco)e for the )onth under absorption costing<A; ,555

B; +,*55C; 1(,255;=; (,55


Solution:

Sales revenue 21 D ,555;................................... -,555Cost of goods sold D ,555;........................... +(,555

@ross )argin.......................................................... 15-,555Selling and ad)inistrative epenses:

7ariable selling and ad)inistrative 11 D,555;............................................................... ,555

#ied selling and ad)inistrative......................... (1,555 42,555 $et operating inco)e............................................. ,555

Use the follo0ing to ans0er uestions (6-:

9opins Co)pany )anufactures a single product. The follo0ing data pertain to theco)pany>s operations last year:

Selling price per unit.................................. (+7ariable costs per unit:

"roduction............................................... 2Selling and ad)inistration...................... (

#ied costs in total:"roduction............................................... +2,555Selling and ad)inistration...................... *,555

At the beginning of the year there 0ere no units in inventory. A total of 1(,555 units 0ere produced during the year, and 15,555 units 0ere sold.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-$5




(. Under variable costing, the unit product cost is:A; 2.55

B; 15.55C; 1(.55=; 1+.55


Solution:

"roduction cost E 2

*. Under absorption costing, the unit product cost is:A; 2.55B; 15.55C; 1(.55=; 1-.55


Solution:

Unit fied )anufacturing overhead E +2,555 F 1(,555 E +Unit product cost E 2 G + E 1(

7-$6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




+. The net operating inco)e under variable costing 0ould be:A; +,555

B; 5,555C; -,555=; -(,555

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 3ediu)

Solution:

Sales revenue (+ D 15,555;................................. (+5,5557ariable costs:

7ariable cost of goods sold 2 D 15,555;.......... 25,5557ariable selling and ad)inistrative ( D

15,555;............................................................. (5,555 155,555Contribution )argin............................................... 1+5,555#ied costs:

#ied )anufacturing overhead........................... +2,555#ied selling and ad)inistrative......................... *,555 2+,555

$et operating inco)e............................................. -,555

-. The net operating inco)e under absorption costing 0ould be:A; the sa)e as the inco)e under variable costing.

B; 2,555 greater than the inco)e under variable costing.C; 1(,555 greater than the inco)e under variable costing.=; 2,555 less than the inco)e under variable costing.


Solution:

Unit fied )anufacturing overhead D Change in nu)ber of units in ending inventory E+ D 1(,555 I 15,555; E + D (,555

E 2,555 greater than the inco)e under variable costing since inventory increased

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-$7




Use the follo0ing to ans0er uestions 62:

"hearsu) Corporation )anufactures a parachute. Sho0n belo0 is "hearsu)>s cost structure:

7ariable cost per parachute

Total fied costfor the year

3anufacturing cost.................. 15 *+(,555Selling and ad)inistrative........ 15 11,555

!n its first year of operations, "hearsu) produced and sold +,555 parachutes. The parachutessold for *15 each.

. !f "hearsu) 0ould have sold only *,255 parachutes in its first year, 0hat total a)ount

of cost 0ould have been assigned to the (55 parachutes in finished goods inventoryunder the variable costing )ethod<A; (2,555B; *(,555C; *+,555=; +4,155


Solution:

Unit product cost E 15Total cost of ending finished goods inventory E 15 D (55 E *(,555

7-$8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




. Refer bac to the original data. 9o0 0ould "hearsu)>s absorption costing netoperating inco)e been affected in its first year if only *,255 parachutes 0ere sold

instead of +,555<A; net operating inco)e 0ould have been (,*-5 lo0er B; net operating inco)e 0ould have been 15,455 lo0er C; net operating inco)e 0ould have been 1(,455 lo0er =; net operating inco)e 0ould have been (2,555 lo0er

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1,( %evel: 9ard

Solution:

Unit fied )anufacturing overhead E *+(,555 F +,555 E 2-.-5Unit product cost under absorption costing E 15 G 2-.-5 E (+-.-5Unit gross )argin E *15 I (+-.-5 E +.-5

Cost savings 15 D (55;.................................... (,555%ess: decrease in gross )argin +.-5 D (55;... 1(,455 $et operating inco)e increase decrease;.... ... ... 15,455;

2. Refer bac to the original data. 9o0 0ould "hearsu)>s variable costing net operatinginco)e been affected in its first year if +,-55 parachutes 0ere produced instead of+,555 and "hearsu) still sold +,555 parachutes<A; net operating inco)e 0ould not have been affected

B; net operating inco)e 0ould have been *2,555 higher C; net operating inco)e 0ould have been -,555 higher =; net operating inco)e 0ould have been -,555 lo0er

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1,( %evel: 3ediu)

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-$




Use the follo0ing to ans0er uestions 46(:

#eery Co)pany, 0hich has only one product, has provided the follo0ing data concerning its)ost recent )onth of operations:

Selling price............................................... 115

Units in beginning inventory............. .. .. .. .. 5Units produced........................................... *,255Units sold................................................... *,55Units in ending inventory........................... 155


=irect )aterials....................................... *(=irect labor............................................. *+7ariable )anufacturing overhead...... .. .. . 7ariable selling and ad)inistrative......... 11

#ied costs:#ied )anufacturing overhead............... 2,+55#ied selling and ad)inistrative............. 1+,255

4. /hat is the unit product cost for the )onth under variable costing<A; (

B; 45C; 2*=; 151


Solution:

=irect )aterials G =irect labor G 7ariable )anufacturing overheadE *( G *+ G E (

7-%" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




5. /hat is the unit product cost for the )onth under absorption costing<A; 2*

B; 45C; (=; 151


Solution:

Unit fied )anufacturing overhead E 2,+55 F *,255 E 12Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overhead

G #ied )anufacturing overhead E *( G *+ G G 12 E 45

1. /hat is the net operating inco)e for the )onth under variable costing<A; 1,255B; 1,55C; 4,-55=; 12,-55


Solution:

Sales revenue 115 D *,55;................................. +5,5557ariable costs:

7ariable cost of goods sold ( D *,55;.......... (,+557ariable selling and ad)inistrative 11 D

*,55;............................................................... +5,55 *5,155Contribution )argin............................................... 44,455#ied costs:

#ied )anufacturing overhead........................... 2,+55#ied selling and ad)inistrative......................... 1+,255 2*,(55

$et operating inco)e............................................. 1,55

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-%!




(. /hat is the net operating inco)e for the )onth under absorption costing<A; 12,-55

B; 1,255C; 4,-55=; 1,55


Solution:

Sales revenue 115 D *,55;................................. +5,555Cost of goods sold 45 D *,55;........................... ***,555

@ross )argin.......................................................... +,555Selling and ad)inistrative epenses costs:

7ariable selling and ad)inistrative 11 D*,55;............................................................... +5,55

#ied selling and ad)inistrative......................... 1+,255 --,-55 $et operating inco)e............................................. 12,-55

7-%# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




Use the follo0ing to ans0er uestions *6:

Marbo Co)pany, 0hich has only one product, has provided the follo0ing data concerning its)ost recent )onth of operations:

Selling price............................................... 1(4

Units in beginning inventory..................... -55Units produced........................................... *,55Units sold................................................... *,255Units in ending inventory........................... *55


=irect )aterials....................................... 1*=irect labor............................................. -47ariable )anufacturing overhead...... .. .. . +7ariable selling and ad)inistrative......... 2

#ied costs:#ied )anufacturing overhead............... 4,(55#ied selling and ad)inistrative............. +,55

The co)pany produces the sa)e nu)ber of units every )onth, although the sales in unitsvary fro) )onth to )onth. The co)pany>s variable costs per unit and total fied costs have

been constant fro) )onth to )onth.

*. /hat is the unit product cost for the )onth under variable costing<A; B; 15*C; 2+=; 111


Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadE 1* G -4 G + E

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-%$




+. /hat is the unit product cost for the )onth under absorption costing<A; 2+

B; C; 15*=; 111

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 3ediu)

Solution:

Unit fied )anufacturing overhead E 4,(55 F *,55 E (Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overhead

G #ied )anufacturing overhead E 1* G -4 G + G ( E 15*

-. /hat is the net operating inco)e for the )onth under variable costing<A; *,255B; (+,+55C; 4,(55=; 2,155


Solution:

Sales revenue 1(4 D *,255;................................. +45,(557ariable costs:

7ariable cost of goods sold D *,255;.......... (22,255

7ariable selling and ad)inistrative 2 D *,255; *5,+55 *14,(55Contribution )argin............................................... 11,555#ied costs:

#ied )anufacturing overhead........................... 4,(55#ied selling and ad)inistrative......................... +,55 11,255

$et operating inco)e............................................. 4,(55

7-%% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




. /hat is the net operating inco)e for the )onth under absorption costing<A; 2,155

B; 4,(55C; *,255=; (+,+55


Solution:

Sales revenue 1(4 D *,255;................................. +45,(55Cost of goods sold 15* D *,255;......................... *41,+55

@ross )argin.......................................................... 42,255Selling and ad)inistrative epenses costs:

7ariable selling and ad)inistrative 2 D *,255; *5,+55#ied selling and ad)inistrative......................... +,55 4-,555

$et operating inco)e............................................. *,255


Beach Corporation, 0hich produces a single product, budgeted the follo0ing costs for its firstyear of operations. These costs are based on a budgeted volu)e of *5,555 to0els producedand sold:

=irect )aterials.......................................... 4,555=irect labor................................................ +2,5557ariable )anufacturing overhead.............. (,555#ied )anufacturing overhead.................. 5,5557ariable selling and ad)inistrative............ 1(,555#ied selling and ad)inistrative................ *,555

=uring the first year of operations, Beach To0el actually produced *5,555 to0els but onlysold (+,555 to0els. Actual costs did not fluctuate fro) the cost behavior patterns describedabove. The (+,555 to0els 0ere sold for 1 per to0el. Assu)e that direct labor is a variable

cost.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-%5




. /hat is the total cost that 0ould be assigned to Beach To0el>s finished goodsinventory at the end of the first year of operations under the variable costing )ethod<

A; +*,(55B; +-,55C; --,(55=; +,255


Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing

overhead; F *5,555 units E 4,555 G +2,555 G (,555; F *5,555 E .(5Total cost of ending finished goods inventory E Unit product cost D 'nding inventoryE .(5 D *5,555 I (+,555; E .(5 D ,555 E +*,(55

2. Under the absorption costing )ethod, 0hat is Beach To0el>s actual net operatinginco)e for its first year<A; 5,555B; 11-,(55C; 11,55=; 1(+,255


Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturingoverhead G #ied )anufacturing overhead; F *5,555 unitsE 4,555 G +2,555 G (,555 G 5,555; F *5,555 E 4.(5Unit variable selling and ad)inistrative cost E 1(,555 F *5,555 E 5.+5

Sales revenue 1 D (+,555;................................. *2+,555Cost of goods sold 4.(5 D (+,555;...................... ((5,255

@ross )argin.......................................................... 1*,(55Selling and ad)inistrative epenses:

7ariable selling and ad)inistrative 5.+5 D(+,555;............................................................. 4,55

#ied selling and ad)inistrative......................... *,555 +-,55 $et operating inco)e............................................. 11,55

7-%6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




4. Assu)ing no change in cost structure, 0hich of the follo0ing 0ould have increasedBeach To0el>s net operating inco)e under the variable costing )ethod in its first year

of operations<A; an increase in sales volu)e 0ith no increase in production volu)eB; an increase in production volu)e 0ith no increase in sales volu)eC; both A and B above=; none of the above


Use the follo0ing to ans0er uestions 2562*:

Blae Corporation, 0hich produces a single product, has provided the follo0ing absorptioncosting inco)e state)ent for the )onth of Mune:

Blae Corporation!nco)e State)ent

#or the )onth ended Mune *5

Sales 4,-55 units;...................................... (2-,555Cost of goods sold:

Beginning inventory............................... 1,555Add cost of goods )anufactured............ 15,555

@oods available for sale.......................... 1,555%ess ending !nventory............................. (+,555

Cost of goods sold...................................... 1-(,555@ross )argin.............................................. 1**,555Selling and ad)inistrative epenses:

#ied....................................................... -,5557ariable................................................... 14,555 4+,555

$et operating inco)e................................. *4,555

=uring Mune, the co)pany>s variable production costs 0ere 15 per unit and its fied)anufacturing overhead totaled 5,555. A total of 15,555 units 0ere produced during Mune

and the co)pany had 1,555 units in the beginning inventory. The co)pany uses the %!#&)ethod to value inventories.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-%7




25. The contribution )argin per unit during Mune 0as:A; (5

B; 12C; 1=; 1+


Solution:

Selling price (2-,555 F 4,-55;........................... *5%ess variable product cost...................................... 15

%ess unit variable selling and ad)inistrative14,555 F 4,-55;............................................... (

Unit contribution )argin 12

21. The carrying value on the balance sheet of the co)pany>s inventory on Mune *5 underthe variable costing )ethod 0ould be:A; 15,555B; 1(,555C; 1-,555=; (+,555


Solution:

'nding inventory E Beginning inventory G Units produced I Units soldE 1,555 G 15,555 I 4,-55 E 1,-55Carrying value E 'nding inventory in units D 7ariable production costE 1,-55 D 15 E 1-,555

7-%8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




2(. $et operating inco)e under the variable costing )ethod for Mune 0ould be:A; *,555

B; +5,555C; -*,555=; 5,555


Solution:

Sales revenue 4,-55 units;.................................... (2-,5557ariable costs:

7ariable cost of goods sold 15 D 4,-55;.......... 4-,5557ariable selling and ad)inistrative..................... 14,555 11+,555

Contribution )argin............................................... 11,555#ied costs:

#ied )anufacturing overhead........................... 5,555#ied selling and ad)inistrative......................... -,555 1*-,555

$et operating inco)e............................................. *,555

2*. The brea6even point in units for the )onth under variable costing 0ould be:A; ,555 unitsB; ,-5 units

C; ,-55 units=; 4,555 units


Solution:

Sales revenue 4,-55 units;.................................... (2-,5557ariable costs:

7ariable cost of goods sold 15 D 4,-55;.......... 4-,555

7ariable selling and ad)inistrative..................... 14,555 11+,555Contribution )argin............................................... 11,555

#ied costs F Unit contribution )argin E #ied )anufacturing overhead G #iedselling and ad)inistrative; F Unit contribution )argin E 5,555 G -,555; F11,555 F 4,-55; E 1*-,555 F 12 per unit E ,-55 units

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-%




Use the follo0ing to ans0er uestions 2+62:

9aaion Co)pany, 0hich has only one product, has provided the follo0ing data concerningits )ost recent )onth of operations:

Selling price............................................... 2

Units in beginning inventory............. .. .. .. .. 5Units produced........................................... *,+55Units sold................................................... *,*55Units in ending inventory........................... 155


=irect )aterials....................................... 1=irect labor............................................. *47ariable )anufacturing overhead...... .. .. . 17ariable selling and ad)inistrative......... 2

#ied costs:#ied )anufacturing overhead............... +5,255#ied selling and ad)inistrative............. (*,155

2+. /hat is the unit product cost for the )onth under variable costing<A;

B; -C; 4=; -


Solution:

Unit product cost E =irect )aterials G =irect %abor G 7ariable )anufacturingoverhead E 1 G *4 G 1 E -

7-5" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




2-. The total contribution )argin for the )onth under the variable costing approach is:A; -,155

B; (2,-55C; 4-,55=; 4,*55


Solution:

Sales revenue 2 D *,*55;................................... (2*,2557ariable costs:

7ariable cost of goods sold - D *,*55;.......... 122,155

7ariable selling and ad)inistrative 2 D *,*55; (,+55 (1+,-55Contribution )argin............................................... 4,*55

2. /hat is the total period cost for the )onth under the variable costing approach<A; +5,255B; 45,*55C; +4,-55=; *,455

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 9ard

Solution:

"eriod cost E 7ariable selling and ad)inistrative cost G #ied )anufacturing overheadG #ied selling and ad)inistrative costE 2 D *,*55; G +5,255 G (*,155E (,+55 G +5,255 G (*,155 E 45,*55

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-5!




2. /hat is the net operating inco)e for the )onth under variable costing<A; ,55

B; *55;C; -,+55=; 1,(55


Solution:

Sales revenue 2 D *,*55;................................... (2*,2557ariable costs:

7ariable cost of goods sold - D *,*55;.......... 122,155

7ariable selling and ad)inistrative 2 D *,*55; (,+55 (1+,-55Contribution )argin............................................... 4,*55#ied costs:

#ied )anufacturing overhead........................... +5,255#ied selling and ad)inistrative......................... (*,155 *,455

$et operating inco)e............................................. -,+55

7-5# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition





!barra Co)pany, 0hich has only one product, has provided the follo0ing data concerning its)ost recent )onth of operations:

Selling price............................................... 21

Units in beginning inventory............. .. .. .. .. 5Units produced........................................... ,455Units sold................................................... ,55Units in ending inventory........................... *55


=irect )aterials....................................... ((=irect labor............................................. (27ariable )anufacturing overhead...... .. .. . 7ariable selling and ad)inistrative......... -

#ied costs:#ied )anufacturing overhead............... 4,555#ied selling and ad)inistrative............. ,555

22. /hat is the unit product cost for the )onth under variable costing<A; 1

B; C; -=; 1


Solution:

"roduct cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadE (( G (2 G E -

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-5$




24. /hat is the net operating inco)e for the )onth under variable costing<A; 5

B; 14,255;C; *,555;=; *,555


Solution:

Sales revenue 21 D ,55;................................... -*+,557ariable costs:

7ariable cost of goods sold - D ,55;.......... *4,55

7ariable selling and ad)inistrative - D ,55; **,555 +5(,55Contribution )argin............................................... 1*(,555#ied costs:

#ied )anufacturing overhead........................... 4,555#ied selling and ad)inistrative......................... ,555 1*-,555

$et operating inco)e............................................. *,555;


anee Co)pany )anufactures a single product. The co)pany has the follo0ing coststructure:

7ariable costs per unit:"roduction................................... +Selling and ad)inistrative.... .... .. 1

#ied costs in total:"roduction................................... 1(,555Selling and ad)inistrative.......... 2,555

%ast year, +,555 units 0ere produced and *,-55 units 0ere sold. There 0ere no beginning

inventories.

7-5% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




45. Under variable costing, the unit product cost 0ould be:A; +

B; -C; =; 2


Solution:

"roduction cost E +

41. The carrying value on the balance sheet of the ending finished goods inventory undervariable costing 0ould be:A; the sa)e as under absorption costingB; 1,-55 less than under absorption costingC; (,555 higher than under absorption costing=; (,555 less than under absorption costing


Solution:

Unit fied )anufacturing overhead E 1(,555 F +,555 E *=ifference in carrying value of ending finished goods inventory E Unit fied)anufacturing overhead D Change in inventory in unitsE * D +,555 I *,-55;E 1,-55 less than under absorption costing





4(. Under absorption costing, the cost of goods sold for the year 0ould be:A; (2,555

B; (+,-55C; 1,-55=; 1+,555


Solution:

Unit fied )anufacturing overhead E 1(,555 F +,555 E *"roduct cost E + G * E

Cost of goods sold E D *,-55 E (+,-55

Use the follo0ing to ans0er uestions 4*64+:

"eterson Co)pany produces a single product. =ata fro) the co)pany>s records for last yearfollo0:

Units in beginning inventory..................... 5Units produced........................................... 5,555Units sold................................................... 5,555

Sales........................................................... 1,+55,5553anufacturing costs:

7ariable................................................... *5,555#ied....................................................... *1-,555

Selling and ad)inistrative epenses:7ariable................................................... 42,555#ied....................................................... 1+5,555





4*. The carrying value on the balance sheet of the ending finished goods inventory undervariable costing 0ould be:

A; 45,555B; 15+,555C; 15-,555=; 1*-,555

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy Source: C"A, adapted

Solution:

Unit variable product cost E *5,555 F 5,555 E 4

Change in inventory in units E 5,555 I 5,555 E 15,555Carrying value of ending inventory E 4 D 15,555 E 45,555

4+. Under the absorption costing )ethod, "eterson>s net operating inco)e 0ould be:A; (1,555B; *5,555C; *-(,555=; *+,-55

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 3ediu) Source: C"A, adapted

Solution:

"roduct cost E 4 G +.-5 E 1*.-5Sales revenue...................................................... 1,+55,555Cost of goods sold 1*.-5 D 5,555;................. 215,555@ross )argin....................................................... -45,555Selling and ad)inistrative epenses:

7ariable selling and ad)inistrative.................. 42,555#ied selling and ad)inistrative...................... 1+5,555 (*2,555

$et operating inco)e.......................................... *-(,555





Use the follo0ing to ans0er uestions 4-64:

3cCoy Corporation )anufactures a co)puter )onitor. Sho0n belo0 is 3cCoy>s coststructure:

7ariable cost per )onitor

Total fied costfor the year

3anufacturing cost........................ -.(5 41(,555Selling and ad)inistrative.............. 1+.5 +-,555

!n its first year of operations, 3cCoy produced 155,555 )onitors but only sold 4-,555.3cCoy>s gross )argin in this first year 0as (,(4,55. 3cCoy>s contribution )argin in thisfirst year 0as (,154,555.

4-. Under the variable costing )ethod, 0hat is 3cCoy>s net operating inco)e for its firstyear<A; (,555B; +1,555C; 1,(1,55=; (,1*,55


Solution:

Contribution )argin............................................... (,154,555#ied costs:

#ied )anufacturing overhead........................... 41(,555#ied selling and ad)inistrative......................... +-,555 1,*2,555

$et operating inco)e............................................. +1,555





4. Under the absorption costing )ethod, 0hat is 3cCoy>s net operating inco)e for itsfirst year<

A; (,555B; 2,55C; 1,(1,55=; (,1*,55


Solution:

@ross )argin.......................................................... (,(4,55

Selling and ad)inistrative epenses:7ariable selling and ad)inistrative 1+.5 D

4-,555;............................................................. 1,*2,555#ied selling and ad)inistrative......................... +-,555 1,2+*,555


4. !f 3cCoy produces 155,555 )onitors and sells 155,555 )onitors in the second year of operations, 0hich of the follo0ing state)ents 0ill be true< Assu)e no change in coststructure or selling price.;A; 3cCoy>s variable costing net operating inco)e in its second year 0ill be greater

than its absorption costing net operating inco)e

B; 3cCoy>s absorption costing unit product cost 0ill decrease in the second year C; 3cCoy>s gross )argin 0ill be eual to its contribution )argin in its second year =; Both A and B above'; none of the above

Ans: ' AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 9ard






3ediocre 3anufacturing Co)pany produces a single product. 3anage)ent budgeted thefollo0ing costs for its first year of operations. These costs are based on a budgeted volu)e of+,555 units produced and sold:

=irect )aterials.............................. (2,555=irect labor.................................... 1+,5553anufacturing overhead:

7ariable....................................... -,555#ied........................................... *,555

Selling and ad)inistrative:7ariable....................................... ,555

#ied........................................... +(,555

=uring the first year of operations, 3ediocre actually produced +,555 units but only sold*,-55 units. Actual costs did not fluctuate fro) the cost behavior patterns described above.The *,-55 units 0ere sold for ( per unit. Assu)e that direct labor is a variable cost.

42. /hat is the total cost that 0ould be assigned to 3ediocre>s finished goods inventory atthe end of the first year of operations under the absorption costing )ethod<A; 1(,(-5B; (5,1(-C; (*,555

=; (,(-5


Solution:

"roduct cost E =irect )aterials G =irect labor G 7ariable )anufacturing overhead G#ied )anufacturing overheadE (2,555 G 1+,555 G -,555 G *,555 E 11,555Unit product cost E 11,555 F +,555 E +5.(-

Total cost of ending finished goods inventory E Unit product cost D 'nding inventoryin units E +5.(- D +,555 I *,-55; E (5,1(-





44. Under the variable costing )ethod, 0hat is 3ediocre>s actual net operating inco)e for its first year<

A; +(,555B; -+,(-5C; --,1(-=; *,555


Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing

overhead; F +,555 units E (2,555 G 1+,555 G -,555; F +,555 E (+.-5

Sales revenue ( D *,-55;................................... (-(,5557ariable costs:

7ariable cost of goods sold (+.-5 D *,-55;..... 2-,-57ariable selling and ad)inistrative 1.- D

*,-55;............................................................... ,1(- 41,2-Contribution )argin............................................... 15,1(-#ied costs:

#ied )anufacturing overhead........................... *,555#ied selling and ad)inistrative......................... +(,555 15-,555

$et operating inco)e............................................. --,1(-

155. Assu)ing no change in cost structure, 0hich of the follo0ing 0ould have increased3ediocre>s net operating inco)e under the absorption costing )ethod in its first yearof operations<A; an increase in sales volu)e 0ith no increase in production volu)eB; an increase in production volu)e 0ith no increase in sales volu)eC; both A and B above=; none of the above

Ans: C AACSB: Analytic A!C"A BB: Critical Thining

A!C"A #$: Reporting %&: ( %evel: 3ediu)






M7 Co)pany produces a single product that sells for .55 per unit. %ast year, 155,555 units0ere produced and 25,555 units 0ere sold. There 0ere no beginning inventories. Theco)pany has the follo0ing cost structure:

#ied Costs 7ariable CostsRa0 )aterials................................. 66 1.-5 per unit produced=irect labor.................................... 66 1.55 per unit produced#actory overhead............................ 1-5,555 5.-5 per unit producedSelling and ad)inistrative.............. 25,555 5.-5 per unit sold

151. The unit product cost under absorption costing is:

A; (.-5B; *.55C; *.-5=; +.-5

Ans: = AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy Source: C"A, adapted

Solution:

Unit fied overhead E 1-5,555 F 155,555 E 1.-5

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadG #ied )anufacturing overheadE 1.-5 G 1.55 G 5.-5 G 1.-5 E +.-5





15(. The net operating inco)e under variable costing is:A; -5,555

B; 25,555C; 45,555=; 1(5,555

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 3ediu) Source: C"A, adapted

Solution:

"roduct cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadE 1.-5 G 1 G 5.-5 E *

Sales revenue D 25,555;................................... -5,5557ariable costs:

7ariable cost of goods sold * D 25,555;.......... (+5,5557ariable selling and ad)inistrative 5.-5 D

25,555;............................................................. +5,555 (25,555Contribution )argin............................................... (25,555#ied costs:

#ied )anufacturing overhead........................... 1-5,555#ied selling and ad)inistrative......................... 25,555 (*5,555

$et operating inco)e............................................. -5,555





Use the follo0ing to ans0er uestions 15*615:

@adepelli Co)pany, 0hich has only one product, has provided the follo0ing data concerningits )ost recent )onth of operations:

Selling price............................................... 15

Units in beginning inventory..................... 5Units produced........................................... 1,55Units sold................................................... 1,+55Units in ending inventory........................... (55


=irect )aterials....................................... 1-=irect labor............................................. 1+7ariable )anufacturing overhead........... 7ariable selling and ad)inistrative......... +

#ied costs:#ied )anufacturing overhead............... -1,(55#ied selling and ad)inistrative............. (*,255

15*. The total contribution )argin for the )onth under the variable costing approach is:A; -+,55

B; 44,+55C; 4*,255=; +(,55

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1,( %evel: 3ediu)

Solution:

Unit product cost E 1- G 1+ G E *-

Sales revenue 15 D 1,+55;................................. 1+2,+557ariable costs:

7ariable cost of goods sold *- D 1,+55;.......... +4,555

7ariable selling and ad)inistrative + D 1,+55; -,55 -+,55Contribution )argin............................................... 4*,255





15+. The total gross )argin for the )onth under the absorption costing approach is:A; (-,(55

B; -+,55C; 2,555=; 4*,255


Solution:

Unit fied )anufacturing overhead E -1,(55 F 1,55 E *(Unit product cost E 1- G 1+ G G *( E

Sales revenue 15 D 1,+55;................................. 1+2,+55Cost of goods sold D 1,+55;........................... 4*,255@ross )argin.......................................................... -+,55

15-. /hat is the total period cost for the )onth under the variable costing approach<A; -,555B; 25,55C; (4,+55=; -1,(55

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 9ard

Solution:

"eriod cost E 7ariable selling and ad)inistrative cost G #ied )anufacturing overheadG #ied selling and ad)inistrative costE + D 1,+55 G -1,(55 G (*,255E -,55 G -1,(55 G (*,255 E 25,55





15. /hat is the total period cost for the )onth under the absorption costing approach<A; (4,+55

B; 25,55C; (*,255=; -1,(55

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 9ard

Solution:

"eriod cost E 7ariable selling and ad)inistrative cost G #ied selling andad)inistrative cost E + D 1,+55 G (*,255 E (4,+55


=uring its first year of operations, Carlos 3anufacturing Co)pany incurred the follo0ingcosts to produce 2,555 units of its product:

=irect )aterials.......................................... per unit=irect labor................................................ * per unit7ariable )anufacturing overhead.............. 12 per unit#ied )anufacturing overhead.................. +-5,555 in total

The co)pany also incurred the follo0ing costs in the sale of ,-55 units of product during itsfirst year:

7ariable selling and ad)inistrative............ ( per unit#ied selling and ad)inistrative................ 5,555 in total

Assu)e that direct labor is a variable cost.





15. /hat is the total cost that 0ould be assigned to Carlos> finished goods inventory at theend of the first year of operations under the absorption costing )ethod<

A; 1-,555B; +(,1(-C; ++,555=; +,1(-


Solution:

Unit fied )anufacturing overhead E +-5,555 F 2,555 E -.(-

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadG #ied )anufacturing overhead E G * G 12 G -.(- E 2+.(-Total cost of ending finished goods inventory E Unit product cost D 'nding inventoryin units E 2+.(- D 2,555 I ,-55; E 2+.(- D -55 E +(,1(-

152. /hat is the total cost that 0ould be assigned to Carlos> finished goods inventory at theend of the first year of operations under the variable costing )ethod<A; 1-,555B; +(,1(-C; ++,555=; 1+,555


Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadE G * G 12 E (2Total cost of ending finished goods inventory E Unit product cost D 'nding inventoryin units E (2 D 2,555 I ,-55; E (2 D -55 E 1+,555





154. !f Carlos> absorption costing net operating inco)e for this first year is 112,1(-, 0hat0ould its variable costing net operating inco)e be for this first year<

A; 2,555B; 45,555C; 15+,1(-=; 1+,(-5


Solution:

7ariable costing net inco)e E Absorption costing net inco)e J Unit fied

)anufacturing overhead D Change in inventory in units;E 112,1(- I -.(- D -55; E 112,1(- I (2,1(- E 45,555


Hern Co)pany produces a single product. Selected infor)ation concerning the operations ofthe co)pany follo0:

Units in beginning inventory................................. 5Units produced....................................................... 15,555Units sold............................................................... 4,555

=irect )aterials...................................................... +5,555=irect labor (5,5557ariable factory overhead...................................... 1(,555#ied factory overhead.......................................... (-,5557ariable selling and ad)inistrative epenses........ +,-55#ied selling and ad)inistrative epenses............. *5,555






115. The carrying value on the balance sheet of the ending finished goods inventory undervariable costing 0ould be:

A; ,(55B; ,-5C; 2,555=; 4,55

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy Source: C"A, adapted

Solution:

Unit product cost E +5,555 G (5,555 G 1(,555; F 15,555

E (,555 F 15,555 E .(5'nding inventory E Units produced I Units sold E 15,555 I 4,555 E 1,555Carrying value of ending finished goods inventory E Unit product cost D Units inending inventory E .(5 D 1,555 E ,(55

111. /hich costing )ethod, absorption or variable costing, 0ould sho0 a higher operatinginco)e for the year and by 0hat a)ount<A; Absorption costing net operating inco)e 0ould be higher than variable costing

net operating inco)e by (,-55.B; 7ariable costing net operating inco)e 0ould be higher than absorption costing

net operating inco)e by (,-55.

C; Absorption costing net operating inco)e 0ould be higher than variable costingnet operating inco)e by -,-55.

=; 7ariable costing net operating inco)e 0ould be higher than absorption costingnet operating inco)e by -,-55.

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 3ediu) Source: C"A, adapted

Solution:

Unit fied )anufacturing overhead E (-,555 F 15,555 E (.-5

=ifference bet0een absorption costing net inco)e and variable costing net inco)e EUnit fied )anufacturing overhead D Change in ending inventory in units E (.-5 D15,555 I 4,555; E (,-55Since inventory has increased production eceeds sales;, absorption costing netinco)e 0ould be higher than variable costing net inco)e.





Use the follo0ing to ans0er uestions 11(611*:

%ina Co. produced 155,555 units of its single product during the )onth of Mune. Costsincurred during Mune 0ere as follo0s:

=irect )aterials...................................................... 155,555=irect labor............................................................ 25,5557ariable )anufacturing overhead.......................... +5,555#ied )anufacturing overhead.............................. -5,5557ariable selling and ad)inistrative epenses........ 1(,555#ied selling and ad)inistrative epenses............. +-,555


11(. The unit product cost under absorption costing 0ould be:A; *.(B; (.5C; (.(5=; 1.25

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy Source: C"A, adapted

Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadG #ied )anufacturing overheadE 155,555 G 25,555 G +5,555 G -5,555; F 155,555E (5,555 F 155,555 E (.5





11*. The unit product cost under variable costing 0ould be:A; (.2(

B; (.5C; (.*(=; (.(5

Ans: = AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 'asy Source: C"A, adapted

Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturingoverhead; F 155,555 units E 155,555 G 25,555 G +5,555; F 155,555 E ((5,555 F

155,555 E (.(5

Use the follo0ing to ans0er uestions 11+611-:

Bauar Co)pany, 0hich has only one product, has provided the follo0ing data concerning its)ost recent )onth of operations:

Selling price............................................... 42

Units in beginning inventory............. .. .. .. .. 5Units produced........................................... (,(55

Units sold................................................... (,155Units in ending inventory........................... 155

7ariable costs per unit:=irect )aterials....................................... (4=irect labor............................................. 17ariable )anufacturing overhead...... .. .. . -7ariable selling and ad)inistrative......... 4

#ied costs:#ied )anufacturing overhead............... **,555

#ied selling and ad)inistrative............. (4,+55





11+. /hat is the unit product cost for the )onth under variable costing<A; -

B; C; -1=; 5


Solution:

=irect )aterials G =irect labor G 7ariable )anufacturing overheadE (4 G 1 G - E -1

11-. /hat is the unit product cost for the )onth under absorption costing<A; B; -1C; 5=; -


Solution:

Unit fied )anufacturing overhead E **,555 F (,(55 E 1-Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadG #ied )anufacturing overhead E (4 G 1 G - G 1- E






Crossbo0 Corp. produces a single product. =ata concerning Mune>s operations follo0:

Units in beginning inventory......... 5Units produced............................... ,555Units sold....................................... -,555

7ariable costs per unit:3anufacturing............................. Selling and ad)inistrative.... .... .. *

#ied costs in total:

3anufacturing............................. 1(,555Selling and ad)inistrative.......... *,555

11. Under variable costing, ending inventory on the balance sheet 0ould be valued at:A; 15,555B; ,555C; 4,555=; 1(,555


Solution:

Unit product cost E 'nding inventory E Beginning inventory G Units produced I Units soldE 5 G ,555 I -,555 E 1,5557alue of ending inventory E Unit product cost D Units in ending inventoryE D 1,555 E ,555





11. Under absorption costing, ending inventory on the balance sheet 0ould be valued at:A; 15,555

B; ,555C; 4,555=; 1(,555

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 'asy

Solution:

Unit fied )anufacturing overhead E 1(,555 F ,555 E (Unit product cost E G ( E 4

7alue of ending inventory E Unit product cost D Units in ending inventoryE 4 D 1,555 E 4,555

112. #or the year in uestion, net operating inco)e under variable costing 0ill be:A; higher than net operating inco)e under absorption costing.B; lo0er than net operating inco)e under absorption costing.C; the sa)e as net operating inco)e under absorption costing.=; none of these






Use the follo0ing to ans0er uestions 11461(5:

=earne Co)pany, 0hich has only one product, has provided the follo0ing data concerning its)ost recent )onth of operations:

Selling price...............................................

Units in beginning inventory............. .. .. .. .. 5Units produced........................................... -,(55Units sold................................................... +,455Units in ending inventory........................... *55


=irect )aterials....................................... (5=irect labor............................................. 17ariable )anufacturing overhead...... .. .. . *7ariable selling and ad)inistrative......... +

#ied costs:#ied )anufacturing overhead............... +1,55#ied selling and ad)inistrative............. *,-55

114. /hat is the total period cost for the )onth under the variable costing approach<A; +1,55

B; 4*,155C; 11-,155=; 1*+,55

Ans: = AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 9ard

Solution:

"eriod cost E 7ariable selling and ad)inistrative cost G #ied )anufacturing overheadG #ied selling and ad)inistrative cost

E + D +,455 G +1,55 G *,-55E 14,55 G +1,55 G *,-55 E 1*+,55





1(5. /hat is the total period cost for the )onth under the absorption costing approach<A; 4*,155

B; *,-55C; 1*+,55=; +1,55

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: 1 %evel: 9ard

Solution:

"eriod cost E 7ariable selling and ad)inistrative cost G #ied selling andad)inistrative cost E + D +,455 G *,-55 E 4*,155

Use the follo0ing to ans0er uestions 1(161((:

Tat Corporation produces a single product and has the follo0ing cost structure:

$u)ber of units produced each year..................... ,5557ariable costs per unit:

=irect )aterials................................................... =irect labor......................................................... 247ariable )anufacturing overhead....................... -7ariable selling and ad)inistrative epenses..... *

#ied costs per year:#ied )anufacturing overhead........................... -*(,555#ied selling and ad)inistrative epenses.......... -+,555





1(1. The unit product cost under absorption costing is:A; (+

B; 1C; **(=; 11


Solution:

Unit fied )anufacturing overhead E -*(,555 F ,555 E Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overhead

G #ied )anufacturing overhead E G 24 G - G E (+

1((. The unit product cost under variable costing is:A; 14B; 11C; (+=; 1+


Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadE G 24 G - E 11





Use the follo0ing to ans0er uestions 1(*61(+:

Caruso !nc., 0hich produces a single product, has provided the follo0ing data for its )ostrecent )onth of operations:

$u)ber of units produced..................................... +,5557ariable costs per unit:

=irect )aterials................................................... *4=irect labor......................................................... 17ariable )anufacturing overhead....................... -7ariable selling and ad)inistrative epense....... 2

#ied costs:#ied )anufacturing overhead........................... ((5,555

#ied selling and ad)inistrative epense........... *52,555

There 0ere no beginning or ending inventories.

1(*. The unit product cost under absorption costing 0as:A; 15B; 11-C; (--=; 115

Ans: A AACSB: Analytic A!C"A BB: Critical Thining

A!C"A #$: Reporting %&: 1 %evel: 'asy

Solution:

Unit fied )anufacturing overhead E ((5,555 F +,555 E --Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadG #ied )anufacturing overhead E *4 G 1 G - G -- E 15





1(+. The unit product cost under variable costing 0as:A; 11-

B; 1(*C; 112=; 15


Solution:

Unit product cost E =irect )aterials G =irect labor G 7ariable )anufacturing overheadE *4 G 1 G - E 11-

Use the follo0ing to ans0er uestions 1(-61(:

Cloer Co)pany, 0hich has only one product, has provided the follo0ing data concerning its)ost recent )onth of operations:

Selling price............................................... 4-

Units in beginning inventory..................... 5Units produced........................................... 2,455Units sold................................................... 2,-55

Units in ending inventory........................... +55

7ariable costs per unit:=irect )aterials....................................... 15=irect labor............................................. +27ariable )anufacturing overhead........... -7ariable selling and ad)inistrative......... 11

#ied costs:#ied )anufacturing overhead............... 15,255#ied selling and ad)inistrative............. 2,555





1(-. The total contribution )argin for the )onth under the variable costing approach is:A; 12,-55

B; 1,55C; ((,555=; 15,555


Solution:

Unit product cost E 15 G +2 G - E *Sales revenue 4- D 2,-55;................................... 25,-55

7ariable costs:7ariable cost of goods sold * D 2,-55;.......... -*-,-557ariable selling and ad)inistrative 11 D

2,-55;............................................................... 4*,-55 (4,555Contribution )argin............................................... 12,-55

1(. The total gross )argin for the )onth under the absorption costing approach is:A; (55,555B; 15,555C; 2,-55=; 12,-55


Solution:

Unit fied )anufacturing overhead E 15,255 F 2,455 E 1(Unit product cost E 15 G +2 G - G 1( E -

Sales revenue 4- D 2,-55;................................... 25,-55Cost of goods sold - D 2,-55;........................... *,-55

@ross )argin.......................................................... 15,555





Use the follo0ing to ans0er uestions 1(61(2:

9irsch Co)pany produces a single product. 7ariable )anufacturing costs are per unit, andfied )anufacturing costs are ( per unit based on -5,555 units produced each year. !n thecurrent year, -5,555 units 0ere produced, and +5,555 units 0ere sold.

1(. Under absorption costing, the a)ount of )anufacturing cost variable and fied;deducted fro) revenue in the current year 0ould be:A; *(5,555B; +55,555C; (+5,555=; *55,555


Solution:

Total )anufacturing cost deducted fro) revenue E Total per unit product cost D Unitssold E G (; D +5,555 E *(5,555

1(2. Under variable costing, the a)ount of )anufacturing cost variable and fied;deducted fro) revenue in the current year 0ould be:A; *(5,555

B; (+5,555C; *+5,555=; +55,555


Solution:

Total fied cost E "er unit fied cost D Units producedTotal fied cost E ( D -5,555 E 155,555

Total )anufacturing cost deducted fro) revenue E 7ariable per unit product cost DUnits sold; G Total fied costE D +5,555; G 155,555E (+5,555 G 155,555 E *+5,555





Use the follo0ing to ans0er uestions 1(461*5:

&sa0a !nc. )anufactured (55,555 units of its only product in its first year of operations.7ariable )anufacturing costs 0ere *5 per unit. #ied )anufacturing costs 0ere 55,555and selling and ad)inistrative costs totaled +55,555. &sa0a sold 1(5,555 units at a selling price of +5 per unit.

1(4. &sa0a>s net operating inco)e using absorption costing 0ould be:A; (55,555B; ++5,555C; 55,555=; 2+5,555

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 3ediu) Source: C3A, adapted

Solution:

Unit fied )anufacturing cost E 55,555 F (55,555 E *Unit product cost E *5 G * E **

Sales revenue +5 D 1(5,555;............................... +,255,555Cost of goods sold ** D 1(5,555;....................... *,45,555@ross )argin.......................................................... 2+5,555

Selling and ad)inistrative epenses cost............... +55,555 $et operating inco)e............................................. ++5,555





1*5. &sa0a>s net operating inco)e using variable costing 0ould be:A; (55,555

B; ++5,555C; 255,555=; 55,555

Ans: A AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: ( %evel: 3ediu) Source: C3A, adapted

Solution:

Sales revenue +5 D 1(5,555;............................... +,255,5557ariable cost of goods sold *5 D 1(5,555;......... *,55,555

Contribution )argin............................................... 1,(55,555#ied costs:

#ied )anufacturing costs.................................. 55,555Selling and ad)inistrative.................................. +55,555 1,555,555

$et operating inco)e............................................. (55,555

Use the follo0ing to ans0er uestions 1*161*(:

'ldric Co)pany, 0hich has only one product, has provided the follo0ing data concerning its)ost recent )onth of operations:

Selling price............................................... 2-

Units in beginning inventory..................... 5Units produced........................................... +,-55Units sold................................................... +,+55Units in ending inventory........................... 155

7ariable costs per unit:=irect )aterials....................................... (4=irect labor............................................. 1*7ariable )anufacturing overhead...........

7ariable selling and ad)inistrative......... -

#ied costs:#ied )anufacturing overhead............... 11,555#ied selling and ad)inistrative............. +,+55





1*1. /hat is the net operating inco)e for the )onth under variable costing<A; 15,155

B; (,55C; 1-,555=; 1,55


Solution:

Unit product cost E (4 G 1* G E +4Sales revenue 2- D +,+55;................................... *+,555

7ariable costs:7ariable cost of goods sold +4 D +,+55;.......... (1-,55

7ariable selling and ad)inistrative - D +,+55; ((,555 (*,55Contribution )argin............................................... 1*,+55#ied costs:

#ied )anufacturing overhead........................... 11,555#ied selling and ad)inistrative......................... +,+55 1(1,+55

$et operating inco)e............................................. 1-,555





1*(. /hat is the net operating inco)e for the )onth under absorption costing<A; 1,55

B; 15,155C; 1-,555=; (,55


Solution:

Unit fied )anufacturing overhead E 11,555 F +,-55 E (Unit product cost E (4 G 1* G G ( E -

Sales revenue 2- D+,+55;.................................... *+,555Cost of goods sold - D +,+55;........................... **5,555@ross )argin.......................................................... ++,555Selling and ad)inistrative epenses:

7ariable selling and ad)inistrative - D+,+55;............................................................... ((,555

#ied selling and ad)inistrative......................... +,+55 (,+55 $et operating inco)e............................................. 1,55





Use the follo0ing to ans0er uestions 1**61*+:

Hiefer Co)pany, 0hich has only one product, has provided the follo0ing data concerning its)ost recent )onth of operations:

Selling price............................................... 1**

Units in beginning inventory..................... 55Units produced........................................... ,55Units sold................................................... ,255Units in ending inventory........................... +55


=irect )aterials....................................... *+=irect labor............................................. -(7ariable )anufacturing overhead........... (7ariable selling and ad)inistrative......... 11

#ied costs:#ied )anufacturing overhead............... 1-2,+55#ied selling and ad)inistrative............. 1,(55

The co)pany produces the sa)e nu)ber of units every )onth, although the sales in unitsvary fro) )onth to )onth. The co)pany>s variable costs per unit and total fied costs have

been constant fro) )onth to )onth.





1**. /hat is the net operating inco)e for the )onth under variable costing<A; ,255

B; 4,55C; (4,(55=; 11,55


Solution:

Sales revenue 1** D ,255;................................. 45+,+557ariable costs:

7ariable cost of goods sold 22 D ,255;.......... -42,+557ariable selling and ad)inistrative 11 D

,255;............................................................... +,255 *,(55Contribution )argin............................................... (*1,(55#ied costs:

#ied )anufacturing overhead........................... 1-2,+55#ied selling and ad)inistrative......................... 1,(55 (14,55






1*+. /hat is the net operating inco)e for the )onth under absorption costing<A; 11,55

B; ,255C; (4,(55=; 4,55


Solution:

Unit fied )anufacturing overheadE (+Unit product cost E *+ G -( G ( G (+ E 11(

Sales revenue 1** D ,255;................................. 45+,+55Cost of goods sold 11( D ,255;......................... 1,55@ross )argin.......................................................... 1+(,255Selling and ad)inistrative epenses:

7ariable selling and ad)inistrative 11 D,255;............................................................... +,255

#ied selling and ad)inistrative......................... 1,(55 1*,555 $et operating inco)e............................................. ,255

Use the follo0ing to ans0er uestions 1*-61*:

=anahy Corporation )anufactures a variety of products. The follo0ing data pertain to theco)pany>s operations over the last t0o years:

7ariable costing net operating inco)e, last year............. -(,5557ariable costing net operating inco)e, this year............. 2,555#ied )anufacturing overhead costs released fro)

inventory under absorption costing, last year.............. +,555#ied )anufacturing overhead costs deferred in

inventory under absorption costing, this year.............. ,555





1*-. /hat 0as the absorption costing net operating inco)e last year<A; -5,555

B; +2,555C; -(,555=; -,555

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 'asy

Solution:

Absorption costing net inco)e E 7ariable costing net operating inco)e J #ied)anufacturing overhead released E -(,555 J +,555 E +2,555

1*. /hat 0as the absorption costing net operating inco)e this year<A; (,555B; +,555C; 5,555=; ,555

Ans: B AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 'asy

Solution:

Absorption costing net inco)e E 7ariable costing net operating inco)e G #ied)anufacturing overhead deferred E 2,555 G ,555 E +,555

Use the follo0ing to ans0er uestions 1*61*2:

9el)ers Corporation )anufactures a variety of products. 7ariable costing net operatinginco)e last year 0as 2,555 and this year 0as 15*,555. %ast year, *(,555 in fied)anufacturing overhead costs 0ere released fro) inventory under absorption costing. Thisyear, 1(,555 in fied )anufacturing overhead costs 0ere deferred in inventory underabsorption costing.





1*. /hat 0as the absorption costing net operating inco)e last year<A; 15,555

B; 2,555C; -+,555=; 112,555

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 'asy

Solution:

Absorption costing net inco)e E 7ariable costing net operating inco)e J #ied)anufacturing overhead released E 2,555 J *(,555 E -+,555

1*2. /hat 0as the absorption costing net operating inco)e this year<A; 21,555B; 2*,555C; 11-,555=; 1(*,555

Ans: C AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 'asy

Solution:

Absorption costing net inco)e E 7ariable costing net operating inco)e G #ied)anufacturing overhead deferred E 15*,555 G 1(,555 E 11-,555

Use the follo0ing to ans0er uestions 1*461+5:

$orenberg Corporation )anufactures a variety of products. The follo0ing data pertain to theco)pany>s operations over the last t0o years:

7ariable costing net operating inco)e, last year............. 22,557ariable costing net operating inco)e, this year............. 4,155

!ncrease in ending inventory, last year............................ 55 units=ecrease in ending inventory, this year........................... (,*55 units#ied )anufacturing overhead cost per unit............ .. .. .. .

7-" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1*4. /hat 0as the absorption costing net operating inco)e last year<A; 4(,255

B; 22,55C; 2+,+55=; ,55


Solution:

#ied )anufacturing overhead deferred E 55 D E +,(55Absorption costing net inco)e E 7ariable costing net operating inco)e G #ied

)anufacturing overhead deferred E 22,55 G +,(55 E 4(,255

1+5. /hat 0as the absorption costing net operating inco)e this year<A; 25,555B; 155,-55C; 152,555=; 11(,(55


Solution:

#ied )anufacturing overhead released E (,*55 D E 1,155Absorption costing net inco)e E 7ariable costing net operating inco)e I #ied)anufacturing overhead released E 4,155 I 1,155 E 25,555

Use the follo0ing to ans0er uestions 1+161+(:

Rosal Corporation )anufactures a variety of products. 7ariable costing net operating inco)e0as +,55 last year and 0as 2(,*55 this year. %ast year, ending inventory increased by(,55 units. This year, ending inventory decreased by 1,+55 units. #ied )anufacturing

overhead cost is - per unit.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!




1+1. /hat 0as the absorption costing net operating inco)e last year<A; 1,55

B; +,55C; 25,55=; 2,55

Ans: = AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting %&: * %evel: 3ediu)

Solution:

#ied )anufacturing overhead deferred E - D (,55 E 1*,555Absorption costing net inco)e E 7ariable costing net operating inco)e G #ied

)anufacturing overhead deferred E +,55 G 1*,555 E 2,55

1+(. /hat 0as the absorption costing net operating inco)e this year<A; -,*55B; 24,*55C; ,*55=; 2,55


Solution:

#ied )anufacturing overhead released E - D 1,+55 E ,555Absorption costing net inco)e E 7ariable costing net operating inco)e I #ied)anufacturing overhead released E 2(,*55 I ,555 E -,*55

7-# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




Essay Questions

1+*. %ehne Co)pany, 0hich has only one product, has provided the follo0ing dataconcerning its )ost recent )onth of operations:

Selling price............................................... 11(

Units in beginning inventory..................... -55Units produced........................................... (,55Units sold................................................... *,555Units in ending inventory........................... 155


=irect )aterials....................................... 1*=irect labor............................................. +47ariable )anufacturing overhead...... .. .. . 7ariable selling and ad)inistrative......... 15

#ied costs:#ied )anufacturing overhead............... 25,55#ied selling and ad)inistrative............. 1-,555

The co)pany produces the sa)e nu)ber of units every )onth, although the sales inunits vary fro) )onth to )onth. The co)pany>s variable costs per unit and total fied

costs have been constant fro) )onth to )onth.

Reuired:

a. /hat is the unit product cost for the )onth under variable costing< b. /hat is the unit product cost for the )onth under absorption costing<c. "repare an inco)e state)ent for the )onth using the contribution for)at and the

variable costing )ethod.d. "repare an inco)e state)ent for the )onth using the absorption costing )ethod.e. Reconcile the variable costing and absorption costing net operating inco)es for

the )onth.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-$




Ans:

a. N b. Unit product costs

7ariable costing:=irect )aterials.......................................... 1*=irect labor................................................ +47ariable )anufacturing overhead.............. Unit product cost........................................ 2

Absorption costing:=irect )aterials.......................................... 1*=irect labor................................................ +4

7ariable )anufacturing overhead.............. #ied )anufacturing overhead.................. *1Unit product cost........................................ 44

c. N d. !nco)e state)ents

7ariable costing inco)e state)entSales....................................................................... **,555%ess variable epenses:

7ariable cost of goods sold:Beginning inventory........................................ *+,555

Add variable )anufacturing costs................... 1,255@oods available for sale................................... (15,255%ess ending inventory...................................... ,255

7ariable cost of goods sold................................. (5+,5557ariable selling and ad)inistrative..................... *5,555 (*+,555

Contribution )argin............................................... 15(,555%ess fied epenses:

#ied )anufacturing overhead........................... 25,55#ied selling and ad)inistrative......................... 1-,555 4-,55

$et operating inco)e............................................. ,+55

Absorption costing inco)e state)entSales....................................................................... **,555Cost of goods sold:

Beginning inventory........................................... +4,-55Add cost of goods )anufactured........................ (-,+55@oods available for sale...................................... *5,455%ess ending inventory......................................... 4,455 (4,555

@ross )argin.......................................................... *4,555

7-% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




Selling and ad)inistrative epenses epenses:7ariable selling and ad)inistrative..................... *5,555

#ied selling and ad)inistrative......................... 1-,555 +-,555 $et operating inco)e............................................. ,555;

e. Reconciliation7ariable costing net operating inco)e............................. ,+55=educt fied )anufacturing overhead costs released

fro) inventory under absorption costing..................... 1(,+55;Absorption costing net operating inco)e........................ ,555;

AACSB: Analytic A!C"A BB: Critical Thining

A!C"A #$: Reporting, 3easure)ent %&: 1,(,* %evel: 9ard

1++. 3affei Co)pany, 0hich has only one product, has provided the follo0ing dataconcerning its )ost recent )onth of operations:

Selling price............................................... 1*2

Units in beginning inventory..................... 5Units produced........................................... ,(55Units sold................................................... ,555Units in ending inventory........................... (55

7ariable costs per unit:=irect )aterials....................................... +(=irect labor............................................. *(7ariable )anufacturing overhead........... 17ariable selling and ad)inistrative........ . 2

#ied costs:#ied )anufacturing overhead............... (25,255#ied selling and ad)inistrative............. 42,555

Reuired:

a. /hat is the unit product cost for the )onth under variable costing< b. /hat is the unit product cost for the )onth under absorption costing<c. "repare an inco)e state)ent for the )onth using the contribution for)at and the

variable costing )ethod.d. "repare an inco)e state)ent for the )onth using the absorption costing )ethod.e. Reconcile the variable costing and absorption costing net operating inco)es for





the )onth.





Ans:

a. N b. Unit product costs

7ariable costing:=irect )aterials.......................................... +(=irect labor................................................ *(7ariable )anufacturing overhead.............. 1Unit product cost........................................ -

Absorption costing:=irect )aterials.......................................... +(=irect labor................................................ *(

7ariable )anufacturing overhead.............. 1#ied )anufacturing overhead.................. *4Unit product cost........................................ 11+

c. N d. !nco)e state)ents

7ariable costing inco)e state)entSales....................................................................... 4,555%ess variable epenses:

7ariable cost of goods sold:Beginning inventory........................................ 5

Add variable )anufacturing costs................... -+5,555@oods available for sale................................... -+5,555%ess ending inventory...................................... 1-,555

7ariable cost of goods sold................................. -(-,5557ariable selling and ad)inistrative..................... -,555 -21,555

Contribution )argin............................................... *2-,555%ess fied epenses:

#ied )anufacturing overhead........................... (25,255#ied selling and ad)inistrative......................... 42,555 *2,255

$et operating inco)e............................................. ,(55





Absorption costing inco)e state)ent....................Sales....................................................................... 4,555

Cost of goods sold:Beginning inventory........................................... 5Add cost of goods )anufactured........................ 2(5,255@oods available for sale...................................... 2(5,255%ess ending inventory......................................... ((,255 42,555

@ross )argin.......................................................... 12,555Selling and ad)inistrative epenses epenses:

7ariable selling and ad)inistrative..................... -,555#ied selling and ad)inistrative......................... 42,555 1-+,555

$et operating inco)e............................................. 1+,555

e. Reconciliation7ariable costing net operating inco)e............................. ,(55Add fied )anufacturing overhead costs deferred in

inventory under absorption costing.............................. ,255Absorption costing net operating inco)e........................ 1+,555

AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting, 3easure)ent %&: 1,(,* %evel: 3ediu)





1+-. The =ean Co)pany produces and sells a single product. The follo0ing data refer tothe year ?ust co)pleted:

Beginning inventory........................................................ 5Units produced................................................................. (5,555Units sold......................................................................... 14,555

Selling price per unit........................................................ *-5Selling and ad)inistrative epenses:

7ariable per unit........................................................... 15#ied total;.................................................................. ((-,555

3anufacturing costs:=irect )aterials cost per unit........................................ 145

=irect labor cost per unit.............................................. +57ariable )anufacturing overhead cost per unit............ (-#ied )anufacturing overhead total;.......................... (-5,555


Reuired:

a. Co)pute the cost of a single unit of product under both the absorption costing andvariable costing approaches.

b. "repare an inco)e state)ent for the year using absorption costing.

c. "repare an inco)e state)ent for the year using variable costing.d. Reconcile the absorption costing and variable costing net operating inco)e figures

in b; and c; above.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-




Ans:

a. Cost per unit under absorption costing:=irect )aterials................................................... 145.55=irect labor.......................................................... +5.557ariable overhead................................................ (-.55#ied overhead (-5,555 O (5,555;.................... 1(.-5Total cost per unit................................................ (.-5

Cost per unit under variable costing:=irect )aterials................................................... 145.55=irect labor.......................................................... +5.557ariable overhead................................................ (-.55

Total cost per unit................................................ (--.55

b. Absorption costing inco)e state)ent:Sales................................................................................. ,-5,555Cost of goods sold:

Beginning inventory..................................................... 5Add cost of goods )anufactured (5,555 P (.-5;. -,*-5,555Cost of goods available................................................ -,*-5,555%ess ending inventory 1,555 P (.-5;................... (,-55 -,52(,-55

@ross profit...................................................................... 1,-,-55Selling and ad)inistrative epenses epenses:

K15 D 14,555; G ((-,555L........................................ +1-,555 $et operating inco)e....................................................... 1,1-(,-55

c. 7ariable costing inco)e state)ent:Sales................................................................................. ,-5,555Cost of goods sold:

Beginning inventory..................................................... 5Cost of goods )anufactured (5,555 P (--;............ -,155,555Cost of goods available................................................ -,155,555%ess ending inventory 1,555 P (--;........................ (--,555

7ariable cost of goods sold.............................................. +,2+-,555

7ariable selling and ad)inistrative epenses:14,555 P 15;............................................................. 145,555 -,5*-,555

Contribution )argin........................................................ 1,1-,555%ess fied epenses:

3anufacturing overhead............................................... (-5,555Selling and ad)inistrative............................................ ((-,555 +-,555

$et operating inco)e...................................................... 1,1+5,555

7-!"" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




d. $et operating inco)e under variable costing.................. 1,1+5,555Add fied )anufacturing overhead costs deferred in

inventory under absorption costing 1,555 P 1(.-5; 1(,-55 $et operating inco)e under absorption costing.............. 1,1-(,-55


1+. "acht Co)pany, 0hich has only one product, has provided the follo0ing dataconcerning its )ost recent )onth of operations:

Selling price............................................... 1(1

Units in beginning inventory..................... +55Units produced........................................... ,255Units sold................................................... ,455Units in ending inventory........................... *55

7ariable costs per unit:=irect )aterials....................................... *-=irect labor............................................. *7ariable )anufacturing overhead........... *7ariable selling and ad)inistrative........ . +

#ied costs:#ied )anufacturing overhead............... 14,(55#ied selling and ad)inistrative............. 4,55

The co)pany produces the sa)e nu)ber of units every )onth, although the sales inunits vary fro) )onth to )onth. The co)pany>s variable costs per unit and total fiedcosts have been constant fro) )onth to )onth.

Reuired:

a. /hat is the unit product cost for the )onth under variable costing<

b. "repare an inco)e state)ent for the )onth using the contribution for)at and thevariable costing )ethod.

c. /ithout preparing an inco)e state)ent, deter)ine the absorption costing netoperating inco)e for the )onth. 9int: Use the reconciliation )ethod.;

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!"!




Ans:

a. 7ariable costing unit product cost=irect )aterials....................................... *-=irect labor.............................................. *7ariable )anufacturing overhead............ *Unit product cost..................................... +

b. 7ariable costing inco)e state)entSales........................................................ 2*+,455%ess variable epenses:

7ariable cost of goods sold:Beginning inventory.......................... (4,55

Add variable )anufacturing costs..... -5*,(55@oods available for sale.................... -*(,255%ess ending inventory....................... ((,(55

7ariable cost of goods sold.................. -15,557ariable selling and ad)inistrative...... (,55 -*2,(55

Contribution )argin................................ (4,55%ess fied epenses:

#ied )anufacturing overhead............. 14,(55#ied selling and ad)inistrative.......... 4,55 (4*,255

$et operating inco)e.............................. (,455

c. Co)putation of absorption costing net operating inco)e#ied )anufacturing overhead per unit................................ (4.55Change in inventories units;................................................ 155;

7ariable costing net operating inco)e.................................. (,455=educt fied )anufacturing overhead costs released fro)

inventory under absorption costing................................... (,455;Absorption costing net operating inco)e.............................. 5

AACSB: Analytic A!C"A BB: Critical ThiningA!C"A #$: Reporting, 3easure)ent %&: 1,(,* %evel: 9ard

7-!"# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1+. Qin Co)pany, 0hich has only one product, has provided the follo0ing dataconcerning its )ost recent )onth of operations:

Selling price...............................................

Units in beginning inventory..................... 5Units produced........................................... ,55Units sold................................................... ,-55Units in ending inventory........................... (55

7ariable costs per unit:=irect )aterials....................................... (=irect labor............................................. 1*

7ariable )anufacturing overhead........... -7ariable selling and ad)inistrative........ .

#ied costs:#ied )anufacturing overhead............... 155,-55#ied selling and ad)inistrative............. -2,-55

Reuired:

a. /hat is the unit product cost for the )onth under variable costing< b. "repare an inco)e state)ent for the )onth using the contribution for)at and the

variable costing )ethod.c. /ithout preparing an inco)e state)ent, deter)ine the absorption costing net

operating inco)e for the )onth. 9int: Use the reconciliation )ethod.;

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!"$




Ans:

a. 7ariable costing unit product cost=irect )aterials....................................... (=irect labor.............................................. 1*7ariable )anufacturing overhead............ -Unit product cost..................................... +-

b. 7ariable costing inco)e state)entSales........................................................ -55,-55%ess variable epenses:

7ariable cost of goods sold:Beginning inventory.......................... 5

Add variable )anufacturing costs..... *51,-55@oods available for sale.................... *51,-55%ess ending inventory....................... 4,555

7ariable cost of goods sold.................. (4(,-557ariable selling and ad)inistrative...... +-,-55 **2,555

Contribution )argin................................ 1(,-55%ess fied epenses:

#ied )anufacturing overhead............. 155,-55#ied selling and ad)inistrative.......... -2,-55 1-4,555

$et operating inco)e.............................. *,-55

c. Co)putation of absorption costing net operating inco)e#ied )anufacturing overhead per unit............................... 1-.55Change in inventories units;............................................... (55

7ariable costing net operating inco)e................................. *,-55Add fied )anufacturing overhead costs deferred in

inventory under absorption costing.................................. *,555Absorption costing net operating inco)e............................ ,-55


7-!"% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1+2. &lguin Corporation produces a single product and has the follo0ing cost structure:

$u)ber of units produced each year..................... +,5557ariable costs per unit:

=irect )aterials................................................... 1-=irect labor......................................................... 1*7ariable )anufacturing overhead....................... 7ariable selling and ad)inistrative epenses..... -

#ied costs per year:#ied )anufacturing overhead........................... *(2,555#ied selling and ad)inistrative epenses.......... *(+,555

Reuired:

a. Co)pute the unit product cost under absorption costing. Sho0 your 0or b. Co)pute the unit product cost under variable costing. Sho0 your 0or

Ans:

a. Absorption Costing:=irect )aterials.................................................................................... 1-=irect labor.......................................................................................... 1*7ariable )anufacturing overhead........................................................ Total variable production cost.............................................................. *-

#ied )anufacturing overhead *(2,555O+,555 units of product;.... . 2(Unit product cost.................................................................................. 11

b. 7ariable Costing:=irect )aterials.................................................................................... 1-=irect labor.......................................................................................... 1*7ariable )anufacturing overhead........................................................ Unit product cost.................................................................................. *-

AACSB: Analytic A!C"A BB: Critical Thining A!C"A #$: Reporting%&: 1 %evel: 'asy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!"5




1+4. Quates Corporation produces a single product and has the follo0ing cost structure:

$u)ber of units produced each year............................... *,5557ariable costs per unit:

=irect )aterials............................................................ (=irect labor................................................................... 47ariable )anufacturing overhead................................. 17ariable selling and ad)inistrative epenses............... +

#ied costs per year:#ied )anufacturing overhead..................................... (14,555#ied selling and ad)inistrative epenses................... 1-*,555

Reuired:

Co)pute the unit product cost under absorption costing. Sho0 your 0or

Ans:

=irect )aterials................................................................................. (=irect labor....................................................................................... 47ariable )anufacturing overhead..................................................... 1Total variable production cost.......................................................... 1(+#ied )anufacturing overhead (14,555O*,555 units of product;. . *Unit product cost............................................................................... 14


7-!"6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1-5. =avitt Corporation produces a single product and has the follo0ing cost structure:

$u)ber of units produced each year............................... 1,5557ariable costs per unit:

=irect )aterials............................................................ -=irect labor................................................................... (57ariable )anufacturing overhead................................. (7ariable selling and ad)inistrative epenses............... *

#ied costs per year:#ied )anufacturing overhead..................................... 22,555#ied selling and ad)inistrative epenses................... (+,555

Reuired:

Co)pute the unit product cost under variable costing. Sho0 your 0or

Ans:

=irect )aterials................................................................ -=irect labor...................................................................... (57ariable )anufacturing overhead.................................... (Unit product cost............................................................. 4

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!"7




1-1. 3urphy !nc., 0hich produces a single product, has provided the follo0ing data for its)ost recent )onth of operation:

$u)ber of units produced............................................... ,5557ariable costs per unit:

=irect )aterials............................................................ *=irect labor................................................................... +*7ariable )anufacturing overhead................................. -7ariable selling and ad)inistrative epenses............... 1

#ied costs:#ied )anufacturing overhead..................................... 2+,555#ied selling and ad)inistrative epenses................... 114,555

The co)pany had no beginning or ending inventories.

Reuired:

a. Co)pute the unit product cost under absorption costing. Sho0 your 0or b. Co)pute the unit product cost under variable costing. Sho0 your 0or

Ans:

a. Absorption costing:=irect )aterials.............................................................................. *

=irect labor..................................................................................... +*7ariable )anufacturing overhead................................................... -Total variable production cost........................................................ 2-#ied )anufacturing overhead 2+,555O,555 units of product;.. 1(Unit product cost............................................................................ 4

b. 7ariable costing:=irect )aterials.............................................................................. *=irect labor..................................................................................... +*7ariable )anufacturing overhead................................................... -Unit product cost............................................................................ 2-


7-!"8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1-(. 7ancott !nc., 0hich produces a single product, has provided the follo0ing data for its)ost recent )onth of operation:


=irect )aterials............................................................ 4*=irect labor................................................................... -27ariable )anufacturing overhead................................. 17ariable selling and ad)inistrative epenses............... 1

#ied costs:#ied )anufacturing overhead..................................... 14(,555#ied selling and ad)inistrative epenses................... *+2,555


Reuired:

Co)pute the unit product cost under absorption costing. Sho0 your 0or

Ans:

=irect )aterials.................................................................................. 4*=irect labor......................................................................................... -27ariable )anufacturing overhead....................................................... 1

Total variable production cost............................................................ 1-(#ied )anufacturing overhead 14(,555O,555 units of product;.... *(Unit product cost................................................................................ 12+


Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!"




1-*. Schlen8 !nc., 0hich produces a single product, has provided the follo0ing data for its)ost recent )onth of operation:


=irect )aterials............................................................ 1(=irect labor................................................................... *+7ariable )anufacturing overhead................................. +7ariable selling and ad)inistrative epenses............... (

#ied costs:#ied )anufacturing overhead..................................... +2,555#ied selling and ad)inistrative epenses................... -((,555


Reuired:

Co)pute the unit product cost under variable costing. Sho0 your 0or

Ans:

=irect )aterials.......................................... 1(=irect labor................................................ *+7ariable )anufacturing overhead.............. +

Unit product cost........................................ -5


7-!!" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1-+. 3iller Co)pany produces a single product. The co)pany had the follo0ing results for its first t0o years of operation:

ear 1 ear (Sales........................................................... 1,(55,555 1,(55,555Cost of goods sold...................................... 255,555 25,555@ross )argin.............................................. +55,555 -(5,555Selling and ad)inistrative epenses.......... *55,555 *55,555 $et operating inco)e................................. 155,555 ((5,555

!n ear 1, the co)pany produced and sold +5,555 units of its only product in ear (,the co)pany again sold +5,555 units, but increased production to -5,555 units. Theco)pany>s variable production cost is - per unit and its fied )anufacturing

overhead cost is 55,555 a year. #ied )anufacturing overhead costs are applied tothe product on the basis of each year>s unit production i.e., a ne0 fied overhead rateis co)puted each year;. 7ariable selling and ad)inistrative epenses are ( per unitsold.

Reuired:

a. Co)pute the unit product cost for each year under absorption costing and undervariable costing.

b. "repare an inco)e state)ent for each year, using the contribution approach 0ithvariable costing.

c. Reconcile the variable costing and absorption costing inco)e figures for each year.d. 'plain 0hy the net operating inco)e for ear ( under absorption costing 0as

higher than the net operating inco)e for ear 1, although the sa)e nu)ber of units0ere sold in each year.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!!!




Ans:

a. Cost per unit under absorption costing:ear 1 ear (

7ariable production cost per unit......................... - -#ied )anufacturing overhead cost:55,555O+5,555;............................................... 1-55,555O-5,555;............................................... 1(Unit product cost................................................. (5 1

Cost per unit under variable costing:ear 1 ear (

7ariable production cost per unit......................... - -

b. !nco)e state)ents for each year under variable costing:

ear 1 ear (Sales....................................................................... 1,(55,555 1,(55,555Cost of goods sold - D +5,555;........................... (55,555 (55,5557ariable selling and ad)inistrative epense

( D +5,555;...................................................... 25,555 25,555Contribution )argin............................................... 4(5,555 4(5,555#ied epenses:

#ied )anufacturing overhead........................... 55,555 55,555#ied selling and ad)inistrative epense........... ((5,555 ((5,555

$et operating inco)e............................................. 155,555 155,555

c. Reconciliation of absorption costing and variable costing net operating inco)es:

ear 1 ear ( $et operating inco)e under variable costing................... 155,555 155,555#ied )anufacturing overhead deferred in released

fro); inventory: ear ( 15,555 units D 1( per unit;.. 1(5,555 $et operating inco)e under absorption costing............... 155,555 ((5,555

d. The increase in production in ear (, in the face of level sales, caused a buildup ofinventory and a deferral of a portion of the overhead costs of ear ( to the netyear. This deferral of cost relieved ear ( of 1(5,555 of fied )anufacturing

overhead. !nco)e for ear ( 0as 1(5,555 higher than inco)e of ear 1, eventhough the sa)e nu)ber of units 0as sold each year. By increasing production and building up inventory, the co)pany 0as able to increase profits 0ithout increasingsales. This is )a?or criticis) of the absorption costing approach.

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7-!!# Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1--. $euirchen Co)pany, 0hich has only one product, has provided the follo0ing dataconcerning its )ost recent )onth of operations:

Selling price............................................... 1+5

Units in beginning inventory..................... *55Units produced........................................... +,*55Units sold................................................... +,-55Units in ending inventory........................... 155

7ariable costs per unit:=irect )aterials....................................... (-=irect labor............................................. -1

7ariable )anufacturing overhead........... 7ariable selling and ad)inistrative........ .

#ied costs:#ied )anufacturing overhead............... 1-5,-55#ied selling and ad)inistrative............. (,555

The co)pany produces the sa)e nu)ber of units every )onth, although the sales inunits vary fro) )onth to )onth. The co)pany>s variable costs per unit and total fiedcosts have been constant fro) )onth to )onth.

Reuired:

a. "repare an inco)e state)ent for the )onth using the contribution for)at and thevariable costing )ethod.

b. "repare an inco)e state)ent for the )onth using the absorption costing )ethod.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!!$




Ans:

a. 7ariable costing inco)e state)entSales........................................................... *5,555%ess variable epenses:

7ariable cost of goods sold:Beginning inventory............................ (+,455Add variable )anufacturing costs....... *-,455@oods available for sale....................... *21,255%ess ending inventory.......................... 2,*557ariable cost of goods sold.................. **,-55

7ariable selling and ad)inistrative......... (,555 +55,-55Contribution )argin................................... ((4,-55

%ess fied epenses:#ied )anufacturing overhead............... 1-5,-55#ied selling and ad)inistrative............. (,555 (((,-55

$et operating inco)e................................. ,555

b. Absorption costing inco)e state)entSales........................................................... *5,555Cost of goods sold:

Beginning inventory............................... *-,+55Add cost of goods )anufactured............ -5,+55@oods available for sale.......................... -+(,255

%ess ending inventory............................. 11,255 -*1,555@ross )argin.............................................. 44,555Selling and ad)inistrative epenses

epenses:7ariable selling and ad)inistrative......... (,555#ied selling and ad)inistrative............. (,555 44,555

$et operating inco)e................................. 5

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7-!!% Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1-. &ates Co)pany, 0hich has only one product, has provided the follo0ing dataconcerning its )ost recent )onth of operations:

Selling price............................................... 1(5

Units in beginning inventory..................... 5Units produced........................................... ,55Units sold................................................... ,+55Units in ending inventory........................... (55

7ariable costs per unit:=irect )aterials....................................... 1-=irect labor............................................. +2

7ariable )anufacturing overhead........... 7ariable selling and ad)inistrative......... 15

#ied costs:#ied )anufacturing overhead............... ((2,555#ied selling and ad)inistrative............. ,55

Reuired:

a. "repare an inco)e state)ent for the )onth using the contribution for)at and thevariable costing )ethod.

b. "repare an inco)e state)ent for the )onth using the absorption costing )ethod.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!!5




Ans:a. 7ariable costing inco)e state)ent

Sales........................................................... 222,555%ess variable epenses:

7ariable cost of goods sold:Beginning inventory............................ 5Add variable )anufacturing costs....... -*(,555@oods available for sale....................... -*(,555%ess ending inventory.......................... 1+,555

7ariable cost of goods sold..................... -12,5557ariable selling and ad)inistrative......... +,555 -4(,555

Contribution )argin................................... (4,555%ess fied epenses:

#ied )anufacturing overhead............... ((2,555#ied selling and ad)inistrative............. ,55 (4+,55

$et operating inco)e................................. 1,+55

b. Absorption costing inco)e state)entSales....................................................................... 222,555Cost of goods sold:

Beginning inventory........................................... 5Add cost of goods )anufactured........................ 5,555@oods available for sale...................................... 5,555%ess ending inventory......................................... (5,555 +5,555

@ross )argin.......................................................... 1+2,555Selling and ad)inistrative epenses epenses:

7ariable selling and ad)inistrative..................... +,555#ied selling and ad)inistrative......................... ,55 1+5,55

$et operating inco)e............................................. ,+55

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7-!!6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1-. Succulent Muice Co)pany )anufactures and sells pre)iu) to)ato ?uice by the gallon.Succulent ?ust finished its first year of operations. The follo0ing data relates to this

first year:

$u)ber of gallons produced........................................... -,555 $u)ber of gallons sold.................................................... 5,555Sales price........................................................................ *.55 per gallonUnit product cost under variable costing......................... 1.+- per gallonTotal contribution )argin................................................ 2+,555Total fied )anufacturing overhead cost........................ *,555Total fied selling and ad)inistrative epense................ 15,-55

Reuired:

Using the absorption costing )ethod, prepare Succulent Muice Co)pany>s inco)estate)ent for the year.

Ans:

Sales 5,555 D *.55;.................................................... (15,555Cost of goods sold:

Beginning inventory.................................................... 5Add cost of goods )anufactured -,555 D (.(4;. . . 11,-5@oods available for sale............................................... 11,-5

%ess ending inventory -,555 D (.(4;........................ 11,+-5 15,*55@ross )argin................................................................... +4,55Selling and ad)inistrative epenses........................... *-,555 $et operating inco)e...................................................... 1+,55

1.+- G *,555O-,555; Total variable cost E (15,555 6 2+,555 E 1(,5557ariable selling and ad)inistrative E 1(,555 6 1.+- D 5,555; E (+,-55Total selling and ad)inistrative E (+,-55 G 15,-55

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!!7




1-2. /orrel Corporation )anufactures a variety of products. The follo0ing data pertain tothe co)pany>s operations over the last t0o years:

7ariable costing net operating inco)e, last year............. 1,5557ariable costing net operating inco)e, this year............. 4(,555#ied )anufacturing overhead costs deferred in

inventory under absorption costing, last year.............. (,555#ied )anufacturing overhead costs released fro)

inventory under absorption costing, this year.............. 11,555

Reuired:

a. =eter)ine the absorption costing net operating inco)e last year. Sho0 your 0or

b. =eter)ine the absorption costing net operating inco)e this year. Sho0 your 0or

Ans:

a. and b.%ast ear This ear

7ariable costing net operating inco)e............................. 1,555 4(,555Add fied )anufacturing overhead costs deferred

in inventory under absorption costing.......................... (,555 5=educt fied )anufacturing overhead costs

released fro) inventory under absorption costing....... 5 11,555;

Absorption costing net operating inco)e........................ *,555 21,555

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7-!!8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1-4. Corbett Corporation )anufactures a variety of products. %ast year, variable costing netoperating inco)e 0as (,555. The fied )anufacturing overhead costs deferred in

inventory under absorption costing a)ounted to (4,555.Reuired:

=eter)ine the absorption costing net operating inco)e last year. Sho0 your 0or

Ans:

7ariable costing net operating inco)e............................. (,555Add fied )anufacturing overhead costs deferred in

inventory under absorption costing............................... (4,555=educt fied )anufacturing overhead costs released

fro) inventory under absorption costing...................... 5Absorption costing net operating inco)e......................... 151,555


15. %ast year, Rasband Corporation>s variable costing net operating inco)e 0as -,555.The fied )anufacturing overhead costs deferred in inventory under absorptioncosting a)ounted to *5,555.

Reuired:

=eter)ine the absorption costing net operating inco)e last year. Sho0 your 0orAns:

7ariable costing net operating inco)e............................. -,555Add fied )anufacturing overhead costs deferred in

inventory under absorption costing.............................. *5,555=educt fied )anufacturing overhead costs released

fro) inventory under absorption costing..................... 5Absorption costing net operating inco)e........................ 2,555


Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-!!




11. "hinisee Corporation )anufactures a variety of products. The follo0ing data pertain tothe co)pany>s operations over the last t0o years:

7ariable costing net operating inco)e, last year............. 2(,557ariable costing net operating inco)e, this year............. 2,255!ncrease in ending inventory, last year............................ 455=ecrease in ending inventory, this year........................... *,155#ied )anufacturing overhead cost per unit................... (

Reuired:

a. =eter)ine the absorption costing net operating inco)e for last year. Sho0 your0or

b. =eter)ine the absorption costing net operating inco)e for this year. Sho0 your0or

Ans:a. and b.

%ast ear This ear Change in units in ending inventory........................... 455 *,155;#ied )anufacturing overhead cost per unit.............. ( (Change in fied )anufacturing overhead in ending

inventory................................................................. 1,255 ,(55;

7ariable costing net operating inco)e....................... 2(,55 2,255Add fied )anufacturing overhead costs deferred in

inventory under absorption costing......................... 1,255 5=educt fied )anufacturing overhead costs released

fro) inventory under absorption costing................ 5 ,(55;Absorption costing net operating inco)e................... 2+,-55 21,55

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7-!#" Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition




1(. %ast year, =enogean Corporation>s variable costing net operating inco)e 0as +,(55and ending inventory increased by 1,455 units. #ied )anufacturing overhead cost per

unit 0as +.

Reuired:

=eter)ine the absorption costing net operating inco)e for last year. Sho0 your 0or

Ans:

Change in units in ending inventory..................................... 1,455#ied )anufacturing overhead cost per unit........................ +Change in fied )anufacturing overhead in ending

inventory........................................................................... ,55

7ariable costing net operating inco)e.................................. +,(55Add fied )anufacturing overhead costs deferred in

inventory under absorption costing................................... ,55=educt fied )anufacturing overhead costs released fro)

inventory under absorption costing................................... 5Absorption costing net operating inco)e............................. 1,255

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