Hopkins Company manufactures a single product. The following data pertain to the company's operations last year:

Hopkins Company manufactures a single product. The following data pertain to the company's operations last year:

	Selling price per unit.................................	$24
	Variable costs per unit:
	Production..............................................	$8
	Selling and administration.....................	$2
	Fixed costs in total:
	Production..............................................	$48,000
	Selling and administration.....................	$36,000

At the beginning of the year there were no units in inventory. A total of 12,000 units were produced during the year, and 10,000 units were sold.

      62. Under variable costing, the unit product cost is:

            A)      $8.00

            B)      $10.00

            C)      $12.00

            D)      $14.00

           

            Ans:  A    

            Solution:

            Production cost = $8

      63. Under absorption costing, the unit product cost is:

            A)      $8.00

            B)      $10.00

            C)      $12.00

            D)      $15.00

           

            Ans:  C    

            Solution:

            Unit fixed manufacturing overhead = $48,000 ÷ 12,000 = $4

            Unit product cost = $8 + $4 = $12

      64. The net operating income under variable costing would be:

            A)      $64,000

            B)      $60,000

            C)      $56,000

            D)      $52,000

           

            Ans:  C     LO:  2    

            Solution:

           

	Sales revenue ($24 × 10,000)................................		$240,000
	Variable costs:
	Variable cost of goods sold ($8 × 10,000).........	$80,000
	Variable selling and administrative ($2 × 10,000)............................................................	20,000	100,000
	Contribution margin..............................................		140,000
	Fixed costs:
	Fixed manufacturing overhead..........................	$48,000
	Fixed selling and administrative........................	36,000	84,000
	Net operating income............................................		$ 56,000

      65. The net operating income under absorption costing would be:

            A)      the same as the income under variable costing.

            B)      $8,000 greater than the income under variable costing.

            C)      $12,000 greater than the income under variable costing.

            D)      $8,000 less than the income under variable costing.

           

            Ans:  B     LO:  2    

            Solution:

           

Unit fixed manufacturing overhead × Change in number of units in ending inventory = $4 × (12,000 − 10,000) = $4 × 2,000

= $8,000 greater than the income under variable costing since inventory increased

Use the following to answer questions 66-68:

Phearsum Corporation manufactures a parachute. Shown below is Phearsum's cost structure:

		Variable cost per parachute	Total fixed cost for the year
	Manufacturing cost..................	$160	$342,000
	Selling and administrative.......	$10	$171,000

In its first year of operations, Phearsum produced and sold 4,000 parachutes. The parachutes sold for $310 each.

      66. If Phearsum would have sold only 3,800 parachutes in its first year, what total amount of cost would have been assigned to the 200 parachutes in finished goods inventory under the variable costing method?

            A)      $28,000

            B)      $32,000

            C)      $34,000

            D)      $49,100

           

            Ans:  B    

            Solution:

           

            Unit product cost = $160

Total cost of ending finished goods inventory = $160 × 200 = $32,000

      67. Refer back to the original data. How would Phearsum's absorption costing net operating income been affected in its first year if only 3,800 parachutes were sold instead of 4,000?

            A)      net operating income would have been $2,350 lower

            B)      net operating income would have been $10,900 lower

            C)      net operating income would have been $12,900 lower

            D)      net operating income would have been $28,000 lower

           

            Ans:  B     LO:  1,2     Level:  Hard

            Solution:

           

            Unit fixed manufacturing overhead = $342,000 ÷ 4,000 = $85.50

Unit product cost under absorption costing = $160 + $85.50 = $245.50

Unit gross margin = $310 − $245.50 = $64.50

	Cost savings ($10 × 200)....................................	$    2,000
	Less: decrease in gross margin ($64.50 × 200)..	12,900
	Net operating income increase (decrease)..........	($10,900)

      68. Refer back to the original data. How would Phearsum's variable costing net operating income been affected in its first year if 4,500 parachutes were produced instead of 4,000 and Phearsum still sold 4,000 parachutes?

            A)      net operating income would not have been affected

            B)      net operating income would have been $38,000 higher

            C)      net operating income would have been $57,000 higher

            D)      net operating income would have been $75,000 lower

           

            Ans:  A     LO:  1,2    

Use the following to answer questions 69-72:

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

	Selling price..............................................	$110
	Units in beginning inventory.....................	0
	Units produced..........................................	3,800
	Units sold..................................................	3,700
	Units in ending inventory..........................	100
	Variable costs per unit:
	Direct materials......................................	$32
	Direct labor............................................	$34
	Variable manufacturing overhead..........	$6
	Variable selling and administrative.......	$11
	Fixed costs:
	Fixed manufacturing overhead..............	$68,400
	Fixed selling and administrative............	$14,800

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

            A)      $72

            B)      $90

            C)      $83

            D)      $101

           

            Ans:  A    

            Solution:

            Direct materials + Direct labor + Variable manufacturing overhead

            = $32 + $34 + $6 = $72

      70. What is the unit product cost for the month under absorption costing?

            A)      $83

            B)      $90

            C)      $72

            D)      $101

           

            Ans:  B    

            Solution:

            Unit fixed manufacturing overhead = $68,400 ÷ 3,800 = $18

            Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $32 + $34 + $6 + $18 = $90

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

            A)      $1,800

            B)      $16,700

            C)      $9,500

            D)      $18,500

           

            Ans:  B     LO:  2    

            Solution:

           

	Sales revenue ($110 × 3,700)................................		$407,000
	Variable costs:
	Variable cost of goods sold ($72 × 3,700).........	$266,400
	Variable selling and administrative ($11 × 3,700)..............................................................	40,700	307,100
	Contribution margin..............................................		99,900
	Fixed costs:
	Fixed manufacturing overhead..........................	$ 68,400
	Fixed selling and administrative........................	14,800	83,200
	Net operating income............................................		$ 16,700

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

            A)      $18,500

            B)      $1,800

            C)      $9,500

            D)      $16,700

           

            Ans:  A     LO:  2    

            Solution:

           

	Sales revenue ($110 × 3,700)................................		$407,000
	Cost of goods sold ($90 × 3,700)..........................		333,000
	Gross margin.........................................................		74,000
	Selling and administrative expenses costs:
	Variable selling and administrative ($11 × 3,700)..............................................................	$40,700
	Fixed selling and administrative........................	14,800	55,500
	Net operating income............................................		$ 18,500

Use the following to answer questions 73-76:

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

	Selling price..............................................	$129
	Units in beginning inventory.....................	500
	Units produced..........................................	3,600
	Units sold..................................................	3,800
	Units in ending inventory..........................	300
	Variable costs per unit:
	Direct materials......................................	$13
	Direct labor............................................	$59
	Variable manufacturing overhead..........	$4
	Variable selling and administrative.......	$8
	Fixed costs:
	Fixed manufacturing overhead..............	$97,200
	Fixed selling and administrative............	$64,600

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.

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

            A)      $76

            B)      $103

            C)      $84

            D)      $111

           

            Ans:  A    

            Solution:

            Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $13 + $59 + $4 = $76

      74. What is the unit product cost for the month under absorption costing?

            A)      $84

            B)      $76

            C)      $103

            D)      $111

           

            Ans:  C    

            Solution:

            Unit fixed manufacturing overhead = $97,200 ÷ 3,600 = $27

            Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead = $13 + $59 + $4 + $27 = $103

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

            A)      $3,800

            B)      $24,400

            C)      $9,200

            D)      $8,100

           

            Ans:  C     LO:  2    

            Solution:

           

	Sales revenue ($129 × 3,800)................................		$490,200
	Variable costs:
	Variable cost of goods sold ($76 × 3,800).........	$288,800
	Variable selling and administrative ($8 × 3,800)..............................................................	30,400	319,200
	Contribution margin..............................................		171,000
	Fixed costs:
	Fixed manufacturing overhead..........................	$ 97,200
	Fixed selling and administrative........................	64,600	161,800
	Net operating income............................................		$   9,200

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

            A)      $8,100

            B)      $9,200

            C)      $3,800

            D)      $24,400

           

            Ans:  C     LO:  2    

            Solution:

           

	Sales revenue ($129 × 3,800)................................		$490,200
	Cost of goods sold ($103 × 3,800)........................		391,400
	Gross margin.........................................................		98,800
	Selling and administrative expenses costs:
	Variable selling and administrative ($8 × 3,800)..............................................................	$30,400
	Fixed selling and administrative........................	64,600	95,000
	Net operating income............................................		$   3,800

Use the following to answer questions 77-79:

Beach Corporation, which produces a single product, budgeted the following costs for its first year of operations. These costs are based on a budgeted volume of 30,000 towels produced and sold:

	Direct materials.........................................	$96,000
	Direct labor................................................	$48,000
	Variable manufacturing overhead.............	$72,000
	Fixed manufacturing overhead..................	$60,000
	Variable selling and administrative...........	$12,000
	Fixed selling and administrative...............	$36,000

During the first year of operations, Beach Towel actually produced 30,000 towels but only sold 24,000 towels. Actual costs did not fluctuate from the cost behavior patterns described above. The 24,000 towels were sold for $16 per towel. Assume that direct labor is a variable cost.

      77. What is the total cost that would be assigned to Beach Towel's finished goods inventory at the end of the first year of operations under the variable costing method?

            A)      $43,200

            B)      $45,600

            C)      $55,200

            D)      $64,800

           

            Ans:  A    

            Solution:

           

Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead) ÷ 30,000 units = ($96,000 + $48,000 + $72,000) ÷ 30,000 = $7.20

Total cost of ending finished goods inventory = Unit product cost × Ending inventory = $7.20 × (30,000 − 24,000) = $7.20 × 6,000 = $43,200

      78. Under the absorption costing method, what is Beach Towel's actual net operating income for its first year?

            A)      $60,000

            B)      $115,200

            C)      $117,600

            D)      $124,800

           

            Ans:  C     LO:  2    

            Solution:

           

Unit product cost = (Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead) ÷ 30,000 units

= ($96,000 + $48,000 + $72,000 + $60,000) ÷ 30,000 = $9.20

Unit variable selling and administrative cost = $12,000 ÷ 30,000 = $0.40

	Sales revenue ($16 × 24,000)................................		$384,000
	Cost of goods sold ($9.20 × 24,000).....................		220,800
	Gross margin.........................................................		163,200
	Selling and administrative expenses:
	Variable selling and administrative ($0.40 × 24,000)............................................................	$ 9,600
	Fixed selling and administrative........................	36,000	45,600
	Net operating income............................................		$117,600

      79. Assuming no change in cost structure, which of the following would have increased Beach Towel's net operating income under the variable 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:  A     LO:  2    

Use the following to answer questions 80-83:

Blake Corporation, which produces a single product, has provided the following absorption costing income statement for the month of June:

	Blake Corporation Income Statement For the month ended June 30
	Sales (9,500 units)...................................		$285,000
	Cost of goods sold:
	Beginning inventory.............................	$ 16,000
	Add cost of goods manufactured..........	160,000
	Goods available for sale.......................	176,000
	Less ending Inventory..........................	24,000
	Cost of goods sold...................................		152,000
	Gross margin............................................		133,000
	Selling and administrative expenses:
	Fixed.....................................................	$ 75,000
	Variable................................................	19,000	94,000
	Net operating income..............................		$ 39,000

During June, the company's variable production costs were $10 per unit and its fixed manufacturing overhead totaled $60,000. A total of 10,000 units were produced during June and the company had 1,000 units in the beginning inventory. The company uses the LIFO method to value inventories.

      80. The contribution margin per unit during June was:

            A)      $20

            B)      $18

            C)      $16

            D)      $14

           

            Ans:  B     LO:  2    

            Solution:

           

	Selling price ($285,000 ÷ 9,500)...........................	$30
	Less variable product cost.....................................	10
	Less unit variable selling and administrative ($19,000 ÷ 9,500)..............................................	2
	Unit contribution margin	$18

      81. The carrying value on the balance sheet of the company's inventory on June 30 under the variable costing method would be:

            A)      $10,000

            B)      $12,000

            C)      $15,000

            D)      $24,000

           

            Ans:  C    

            Solution:

            Ending inventory = Beginning inventory + Units produced − Units sold

= 1,000 + 10,000 − 9,500 = 1,500

Carrying value = Ending inventory in units × Variable production cost

= 1,500 × $10 = $15,000

      82. Net operating income under the variable costing method for June would be:

            A)      $36,000

            B)      $40,000

            C)      $53,000

            D)      $60,000

           

            Ans:  A     LO:  2    

            Solution:

           

	Sales revenue (9,500 units)...................................		$285,000
	Variable costs:
	Variable cost of goods sold ($10 × 9,500).........	$95,000
	Variable selling and administrative...................	19,000	114,000
	Contribution margin..............................................		171,000
	Fixed costs:
	Fixed manufacturing overhead..........................	$60,000
	Fixed selling and administrative........................	75,000	135,000
	Net operating income............................................		$ 36,000

      83. The break-even point in units for the month under variable costing would be:

            A)      6,000 units

            B)      6,750 units

            C)      7,500 units

            D)      9,000 units

           

            Ans:  C    

            Solution:

           

	Sales revenue (9,500 units)...................................		$285,000
	Variable costs:
	Variable cost of goods sold ($10 × 9,500).........	$95,000
	Variable selling and administrative...................	19,000	114,000
	Contribution margin..............................................		$171,000

Fixed costs ÷ Unit contribution margin = (Fixed manufacturing overhead + Fixed selling and administrative) ÷ Unit contribution margin = ($60,000 + $75,000) ÷ ($171,000 ÷ 9,500) = $135,000 ÷ $18 per unit = 7,500 units