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

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

	Selling price..............................................	$86
	Units in beginning inventory.....................	0
	Units produced..........................................	3,400
	Units sold..................................................	3,300
	Units in ending inventory..........................	100
	Variable costs per unit:
	Direct materials......................................	$17
	Direct labor............................................	$39
	Variable manufacturing overhead..........	$1
	Variable selling and administrative.......	$8
	Fixed costs:
	Fixed manufacturing overhead..............	$40,800
	Fixed selling and administrative............	$23,100

      84. What is the unit product cost for the month under variable costing?

            A)      $77

            B)      $57

            C)      $69

            D)      $65

           

            Ans:  B    

            Solution:

            Unit product cost = Direct materials + Direct Labor + Variable manufacturing overhead = $17 + $39 + $1 = $57

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

            A)      $56,100

            B)      $28,500

            C)      $95,700

            D)      $69,300

           

            Ans:  D     LO:  2    

            Solution:

           

	Sales revenue ($86 × 3,300)..................................		$283,800
	Variable costs:
	Variable cost of goods sold ($57 × 3,300).........	$188,100
	Variable selling and administrative ($8 × 3,300)..............................................................	26,400	214,500
	Contribution margin..............................................		$  69,300

      86. What is the total period cost for the month under the variable costing approach?

            A)      $40,800

            B)      $90,300

            C)      $49,500

            D)      $63,900

           

            Ans:  B     LO:  2     Level:  Hard

            Solution:

           

Period cost = Variable selling and administrative cost + Fixed manufacturing overhead + Fixed selling and administrative cost

= ($8 × 3,300) + $40,800 + $23,100

= $26,400 + $40,800 + $23,100 = $90,300

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

            A)      $6,600

            B)      $(300)

            C)      $5,400

            D)      $1,200

           

            Ans:  C     LO:  2    

            Solution:

           

	Sales revenue ($86 × 3,300)..................................		$283,800
	Variable costs:
	Variable cost of goods sold ($57 × 3,300).........	$188,100
	Variable selling and administrative ($8 × 3,300)..............................................................	26,400	214,500
	Contribution margin..............................................		69,300
	Fixed costs:
	Fixed manufacturing overhead..........................	$ 40,800
	Fixed selling and administrative........................	23,100	63,900
	Net operating income............................................		$   5,400

Use the following to answer questions 88-89:

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

	Selling price..............................................	$81
	Units in beginning inventory.....................	0
	Units produced..........................................	6,900
	Units sold..................................................	6,600
	Units in ending inventory..........................	300
	Variable costs per unit:
	Direct materials......................................	$22
	Direct labor............................................	$28
	Variable manufacturing overhead..........	$6
	Variable selling and administrative.......	$5
	Fixed costs:
	Fixed manufacturing overhead..............	$69,000
	Fixed selling and administrative............	$66,000

      88. What is the unit product cost for the month under variable costing?

            A)      $71

            B)      $66

            C)      $56

            D)      $61

           

           Ans:  C    

            Solution:

            Product cost = Direct materials + Direct labor + Variable manufacturing overhead

            = $22 + $28 + $6 = $56

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

            A)      $0

            B)      $(19,800)

            C)      $(3,000)

            D)      $3,000

           

            Ans:  C     LO:  2    

            Solution:

           

	Sales revenue ($81 × 6,600)..................................		$534,600
	Variable costs:
	Variable cost of goods sold ($56 × 6,600).........	$369,600
	Variable selling and administrative ($5 × 6,600)..............................................................	33,000	402,600
	Contribution margin..............................................		132,000
	Fixed costs:
	Fixed manufacturing overhead..........................	$ 69,000
	Fixed selling and administrative........................	66,000	135,000
	Net operating income............................................		$ (3,000)

Use the following to answer questions 90-92:

Yankee Company manufactures a single product. The company has the following cost structure:

	Variable costs per unit:
	Production..................................	$4
	Selling and administrative..........	$1
	Fixed costs in total:
	Production..................................	$12,000
	Selling and administrative..........	$8,000

Last year, 4,000 units were produced and 3,500 units were sold. There were no beginning inventories.

      90. Under variable costing, the unit product cost would be:

            A)      $4

            B)      $5

            C)      $7

            D)      $8

           

            Ans:  A    

            Solution:

            Production cost = $4

      91. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be:

            A)      the same as under absorption costing

            B)      $1,500 less than under absorption costing

            C)      $2,000 higher than under absorption costing

            D)      $2,000 less than under absorption costing

           

            Ans:  B    

            Solution:

           

            Unit fixed manufacturing overhead = $12,000 ÷ 4,000 = $3

Difference in carrying value of ending finished goods inventory = Unit fixed manufacturing overhead × Change in inventory in units

= $3 × (4,000 − 3,500)

= $1,500 less than under absorption costing

      92. Under absorption costing, the cost of goods sold for the year would be:

            A)      $28,000

            B)      $24,500

            C)      $17,500

            D)      $14,000

           

            Ans:  B     LO:  2    

            Solution:

           

            Unit fixed manufacturing overhead = $12,000 ÷ 4,000 = $3

Product cost = $4 + $3 = $7

Cost of goods sold = $7 × 3,500 = $24,500

Use the following to answer questions 93-94:

Peterson Company produces a single product. Data from the company's records for last year follow:

	Units in beginning inventory.....................	0
	Units produced..........................................	70,000
	Units sold..................................................	60,000
	Sales..........................................................	$1,400,000
	Manufacturing costs:
	Variable..................................................	$630,000
	Fixed......................................................	$315,000
	Selling and administrative expenses:
	Variable..................................................	$98,000
	Fixed......................................................	$140,000

      93. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be:

            A)      $90,000

            B)      $104,000

            C)      $105,000

            D)      $135,000

           

            Ans:  A          Source:  CPA, adapted

            Solution:

           

            Unit variable product cost = $630,000 ÷ 70,000 = $9

Change in inventory in units = 70,000 − 60,000 = 10,000

Carrying value of ending inventory = $9 × 10,000 = $90,000

      94. Under the absorption costing method, Peterson's net operating income would be:

            A)      $217,000

            B)      $307,000

            C)      $352,000

            D)      $374,500

           

            Ans:  C     LO:  2          Source:  CPA, adapted

            Solution:

           

            Product cost = $9 + $4.50 = $13.50

	Sales revenue.....................................................		$1,400,000
	Cost of goods sold ($13.50 × 60,000)...............		810,000
	Gross margin.....................................................		590,000
	Selling and administrative expenses:
	Variable selling and administrative...............	$  98,000
	Fixed selling and administrative....................	140,000	238,000
	Net operating income........................................		$   352,000

Use the following to answer questions 95-97:

McCoy Corporation manufactures a computer monitor. Shown below is McCoy's cost structure:

		Variable cost per monitor	Total fixed cost for the year
	Manufacturing cost........................	$75.20	$912,000
	Selling and administrative.............	$14.60	$456,000

In its first year of operations, McCoy produced 100,000 monitors but only sold 95,000. McCoy's gross margin in this first year was $2,629,600. McCoy's contribution margin in this first year was $2,109,000.

      95. Under the variable costing method, what is McCoy's net operating income for its first year?

            A)      $266,000

            B)      $741,000

            C)      $1,261,600

            D)      $2,173,600

           

            Ans:  B     LO:  2    

            Solution:

           

	Contribution margin...........................................		$2,109,000
	Fixed costs:
	Fixed manufacturing overhead.......................	$912,000
	Fixed selling and administrative.....................	456,000	1,368,000
	Net operating income.........................................		$   741,000

      96. Under the absorption costing method, what is McCoy's net operating income for its first year?

            A)      $266,000

            B)      $786,600

            C)      $1,261,600

            D)      $2,173,600

           

            Ans:  B     LO:  2    

            Solution:

           

	Gross margin..................................................		$2,629,600
	Selling and administrative expenses:
	Variable selling and administrative ($14.60 × 95,000)..................................................	$1,387,000
	Fixed selling and administrative.................	456,000	1,843,000
	Net operating income.....................................		$   786,600

      97. If McCoy produces 100,000 monitors and sells 100,000 monitors in the second year of operations, which of the following statements will be true? (Assume no change in cost structure or selling price.)

            A)      McCoy's variable costing net operating income in its second year will be greater than its absorption costing net operating income

            B)      McCoy's absorption costing unit product cost will decrease in the second year

            C)      McCoy's gross margin will be equal to its contribution margin in its second year

            D)      Both A and B above

            E)      none of the above

           

            Ans:  E     Level:  Hard

Use the following to answer questions 98-100:

Mediocre Manufacturing Company produces a single product. Management budgeted the following costs for its first year of operations. These costs are based on a budgeted volume of 4,000 units produced and sold:

	Direct materials.............................	$28,000
	Direct labor....................................	$14,000
	Manufacturing overhead:
	Variable......................................	$56,000
	Fixed..........................................	$63,000
	Selling and administrative:
	Variable......................................	$7,000
	Fixed..........................................	$42,000

During the first year of operations, Mediocre actually produced 4,000 units but only sold 3,500 units. Actual costs did not fluctuate from the cost behavior patterns described above. The 3,500 units were sold for $72 per unit. Assume that direct labor is a variable cost.

      98. What is the total cost that would be assigned to Mediocre's finished goods inventory at the end of the first year of operations under the absorption costing method?

            A)      $12,250

            B)      $20,125

            C)      $23,000

            D)      $26,250

           

            Ans:  B    

            Solution:

           

Product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead

= $28,000 + $14,000 + $56,000 + $63,000 = $161,000

Unit product cost = $161,000 ÷ 4,000 = $40.25

Total cost of ending finished goods inventory = Unit product cost × Ending inventory in units = $40.25 × (4,000 − 3,500) = $20,125

      99. Under the variable costing method, what is Mediocre's actual net operating income for its first year?

            A)      $42,000

            B)      $54,250

            C)      $55,125

            D)      $63,000

           

            Ans:  C     LO:  2    

            Solution:

           

Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead) ÷ 4,000 units = ($28,000 + $14,000 + $56,000) ÷ 4,000 = $24.50

	Sales revenue ($72 × 3,500)..................................		$252,000
	Variable costs:
	Variable cost of goods sold ($24.50 × 3,500)....	$85,750
	Variable selling and administrative ($1.75 × 3,500)..............................................................	6,125	91,875
	Contribution margin..............................................		160,125
	Fixed costs:
	Fixed manufacturing overhead..........................	$63,000
	Fixed selling and administrative........................	42,000	105,000
	Net operating income............................................		$  55,125

    100. Assuming no change in cost structure, which of the following would have increased Mediocre's net operating income under the absorption costing method in its first year of operations?

            A)      an increase in sales volume with no increase in production volume

            B)      an increase in production volume with no increase in sales volume

            C)      both A and B above

            D)      none of the above

           

            Ans:  C     LO:  2