Caruso Inc., which produces a single product, has provided the following data for its most recent month of operations:

Caruso Inc., which produces a single product, has provided the following data for its most recent month of operations:

	Number of units produced...................................	4,000
	Variable costs per unit:
	Direct materials................................................	$39
	Direct labor.......................................................	$71
	Variable manufacturing overhead....................	$5
	Variable selling and administrative expense....	$8
	Fixed costs:
	Fixed manufacturing overhead.........................	$220,000
	Fixed selling and administrative expense.........	$308,000

There were no beginning or ending inventories.

    123. The unit product cost under absorption costing was:

            A)      $170

            B)      $115

            C)      $255

            D)      $110

           

            Ans:  A    

            Solution:

            Unit fixed manufacturing overhead = $220,000 ÷ 4,000 = $55

            Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $39 + $71 + $5 + $55 = $170

    124. The unit product cost under variable costing was:

            A)      $115

            B)      $123

            C)      $118

            D)      $170

           

            Ans:  A    

            Solution:

            Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $39 + $71 + $5 = $115

Use the following to answer questions 125-126:

Cloer Company, which has only one product, has provided the following data concerning its most recent month of operations:

	Selling price..............................................	$95
	Units in beginning inventory.....................	0
	Units produced..........................................	8,900
	Units sold..................................................	8,500
	Units in ending inventory..........................	400
	Variable costs per unit:
	Direct materials......................................	$10
	Direct labor............................................	$48
	Variable manufacturing overhead..........	$5
	Variable selling and administrative.......	$11
	Fixed costs:
	Fixed manufacturing overhead..............	$106,800
	Fixed selling and administrative............	$68,000

    125. The total contribution margin for the month under the variable costing approach is:

            A)      $178,500

            B)      $71,700

            C)      $272,000

            D)      $170,000

           

            Ans:  A     LO:  2    

            Solution:

            Unit product cost = $10 + $48 + $5 = $63

	Sales revenue ($95 × 8,500)..................................		$807,500
	Variable costs:
	Variable cost of goods sold ($63 × 8,500).........	$535,500
	Variable selling and administrative ($11 × 8,500)..............................................................	93,500	629,000
	Contribution margin..............................................		$178,500

    126. The total gross margin for the month under the absorption costing approach is:

            A)      $200,000

            B)      $170,000

            C)      $8,500

            D)      $178,500

           

            Ans:  B     LO:  2    

            Solution:

           

            Unit fixed manufacturing overhead = $106,800 ÷ 8,900 = $12

Unit product cost = $10 + $48 + $5 + $12 = $75

	Sales revenue ($95 × 8,500)................................	$807,500
	Cost of goods sold ($75 × 8,500)........................	637,500
	Gross margin........................................................	$ 170,000

Use the following to answer questions 127-128:

Hirsch Company produces a single product. Variable manufacturing costs are $6 per unit, and fixed manufacturing costs are $2 per unit based on 50,000 units produced each year. In the current year, 50,000 units were produced, and 40,000 units were sold.

    127. Under absorption costing, the amount of manufacturing cost (variable and fixed) deducted from revenue in the current year would be:

            A)      $320,000

            B)      $400,000

            C)      $240,000

            D)      $300,000

           

            Ans:  A     LO:  2    

            Solution:

           

Total manufacturing cost deducted from revenue = Total per unit product cost × Units sold = ($6 + $2) × 40,000 = $320,000

    128. Under variable costing, the amount of manufacturing cost (variable and fixed) deducted from revenue in the current year would be:

            A)      $320,000

            B)      $240,000

            C)      $340,000

            D)      $400,000

           

            Ans:  C     LO:  2    

            Solution:

           

            Total fixed cost = Per unit fixed cost × Units produced

Total fixed cost = $2 × 50,000 = $100,000

Total manufacturing cost deducted from revenue = (Variable per unit product cost × Units sold) + Total fixed cost

= ($6 × 40,000) + $100,000

= $240,000 + $100,000 = $340,000

Use the following to answer questions 129-130:

Osawa Inc. manufactured 200,000 units of its only product in its first year of operations. Variable manufacturing costs were $30 per unit. Fixed manufacturing costs were $600,000 and selling and administrative costs totaled $400,000. Osawa sold 120,000 units at a selling price of $40 per unit.

    129. Osawa's net operating income using absorption costing would be:

            A)      $200,000

            B)      $440,000

            C)      $600,000

            D)      $840,000

           

            Ans:  B     LO:  2         

            Solution:

           

            Unit fixed manufacturing cost = $600,000 ÷ 200,000 = $3

Unit product cost = $30 + $3 = $33

	Sales revenue ($40 × 120,000)............................	$4,800,000
	Cost of goods sold ($33 × 120,000)....................	3,960,000
	Gross margin........................................................	840,000
	Selling and administrative expenses cost............	400,000
	Net operating income..........................................	$   440,000

    130. Osawa's net operating income using variable costing would be:

            A)      $200,000

            B)      $440,000

            C)      $800,000

            D)      $600,000

           

            Ans:  A     LO:  2         

            Solution:

           

	Sales revenue ($40 × 120,000)..........................		$4,800,000
	Variable cost of goods sold ($30 × 120,000)....		3,600,000
	Contribution margin..........................................		1,200,000
	Fixed costs:
	Fixed manufacturing costs.............................	$600,000
	Selling and administrative.............................	400,000	1,000,000
	Net operating income........................................		$   200,000

Use the following to answer questions 131-132:

Eldrick Company, which has only one product, has provided the following data concerning its most recent month of operations:

	Selling price..............................................	$85
	Units in beginning inventory.....................	0
	Units produced..........................................	4,500
	Units sold..................................................	4,400
	Units in ending inventory..........................	100
	Variable costs per unit:
	Direct materials......................................	$29
	Direct labor............................................	$13
	Variable manufacturing overhead..........	$7
	Variable selling and administrative.......	$5
	Fixed costs:
	Fixed manufacturing overhead..............	$117,000
	Fixed selling and administrative............	$4,400

    131. What is the net operating income for the month under variable costing?

            A)      $10,100

            B)      $2,600

            C)      $15,000

            D)      $17,600

           

            Ans:  C     LO:  2    

            Solution:

           

            Unit product cost = $29 + $13 + $7 = $49

	Sales revenue ($85 × 4,400)..................................		$374,000
	Variable costs:
	Variable cost of goods sold ($49 × 4,400).........	$215,600
	Variable selling and administrative ($5 × 4,400)..............................................................	22,000	237,600
	Contribution margin..............................................		136,400
	Fixed costs:
	Fixed manufacturing overhead..........................	$117,000
	Fixed selling and administrative........................	4,400	121,400
	Net operating income............................................		$  15,000

    132. What is the net operating income for the month under absorption costing?

            A)      $17,600

            B)      $10,100

            C)      $15,000

            D)      $2,600

           

            Ans:  A     LO:  2    

            Solution:

           

            Unit fixed manufacturing overhead = $117,000 ÷ 4,500 = $26

Unit product cost = $29 + $13 + $7 + $26 = $75

	Sales revenue ($85 ×4,400)...............................		$374,000
	Cost of goods sold ($75 × 4,400)......................		330,000
	Gross margin......................................................		44,000
	Selling and administrative expenses:
	Variable selling and administrative ($5 × 4,400)..........................................................	$22,000
	Fixed selling and administrative....................	4,400	26,400
	Net operating income........................................		$  17,600

Use the following to answer questions 133-134:

Kiefer Company, which has only one product, has provided the following data concerning its most recent month of operations:

	Selling price..............................................	$133
	Units in beginning inventory.....................	600
	Units produced..........................................	6,600
	Units sold..................................................	6,800
	Units in ending inventory..........................	400
	Variable costs per unit:
	Direct materials......................................	$34
	Direct labor............................................	$52
	Variable manufacturing overhead..........	$2
	Variable selling and administrative.......	$11
	Fixed costs:
	Fixed manufacturing overhead..............	$158,400
	Fixed selling and administrative............	$61,200

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

    133. What is the net operating income for the month under variable costing?

            A)      $6,800

            B)      $9,600

            C)      $29,200

            D)      $11,600

           

            Ans:  D     LO:  2    

            Solution:

           

	Sales revenue ($133 × 6,800)................................		$904,400
	Variable costs:
	Variable cost of goods sold ($88 × 6,800).........	$598,400
	Variable selling and administrative ($11 × 6,800)..............................................................	74,800	673,200
	Contribution margin..............................................		231,200
	Fixed costs:
	Fixed manufacturing overhead..........................	$158,400
	Fixed selling and administrative........................	61,200	219,600
	Net operating income............................................		$  11,600

    134. What is the net operating income for the month under absorption costing?

            A)      $11,600

            B)      $6,800

            C)      $29,200

            D)      $9,600

           

            Ans:  B     LO:  2    

            Solution:

           

            Unit fixed manufacturing overhead= $24

Unit product cost = $34 + $52 + $2 + $24 = $112

	Sales revenue ($133 × 6,800)............................		$904,400
	Cost of goods sold ($112 × 6,800)....................		761,600
	Gross margin.....................................................		142,800
	Selling and administrative expenses:
	Variable selling and administrative ($11 × 6,800)..........................................................	$74,800
	Fixed selling and administrative....................	61,200	136,000
	Net operating income........................................		$    6,800

Use the following to answer questions 135-136:

Danahy Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

	Variable costing net operating income, last year............	$52,000
	Variable costing net operating income, this year............	$68,000
	Fixed manufacturing overhead costs released from inventory under absorption costing, last year..............	$4,000
	Fixed manufacturing overhead costs deferred in inventory under absorption costing, this year..............	$6,000

    135. What was the absorption costing net operating income last year?

            A)      $50,000

            B)      $48,000

            C)      $52,000

            D)      $56,000

           

            Ans:  B    

            Solution:

            Absorption costing net income = Variable costing net operating income – Fixed manufacturing overhead released = $52,000 – $4,000 = $48,000

    136. What was the absorption costing net operating income this year?

            A)      $62,000

            B)      $74,000

            C)      $70,000

            D)      $66,000

           

            Ans:  B    

            Solution:

            Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $68,000 + $6,000 = $74,000