JV Company produces a single product that sells for $7.00 per unit. Last year, 100,000 units were produced and 80,000 units were sold. There were no beginning inventories. The company has the following cost structure:

JV Company produces a single product that sells for $7.00 per unit. Last year, 100,000 units were produced and 80,000 units were sold. There were no beginning inventories. The company has the following cost structure:

		Fixed Costs	Variable Costs
	Raw materials................................	--	$1.50 per unit produced
	Direct labor....................................	--	$1.00 per unit produced
	Factory overhead...........................	$150,000	$0.50 per unit produced
	Selling and administrative.............	$80,000	$0.50 per unit sold

    101. The unit product cost under absorption costing is:

            A)      $2.50

            B)      $3.00

            C)      $3.50

            D)      $4.50

           

            Ans:  D          Source:  CPA, adapted

            Solution:

            Unit fixed overhead = $150,000 ÷ 100,000 = $1.50

            Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead

            = $1.50 + $1.00 + $0.50 + $1.50 = $4.50

    102. The net operating income under variable costing is:

            A)      $50,000

            B)      $80,000

            C)      $90,000

            D)      $120,000

           

            Ans:  A     LO:  2          Source:  CPA, adapted

            Solution:

           

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

= $1.50 + $1 + $0.50 = $3

	Sales revenue ($7 × 80,000)..................................		$560,000
	Variable costs:
	Variable cost of goods sold ($3 × 80,000).........	$240,000
	Variable selling and administrative ($0.50 × 80,000)............................................................	40,000	280,000
	Contribution margin..............................................		280,000
	Fixed costs:
	Fixed manufacturing overhead..........................	150,000
	Fixed selling and administrative........................	80,000	230,000
	Net operating income............................................		$  50,000

Use the following to answer questions 103-106:

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

	Selling price...............................................	$106
	Units in beginning inventory.....................	0
	Units produced..........................................	1,600
	Units sold...................................................	1,400
	Units in ending inventory..........................	200
	Variable costs per unit:
	Direct materials......................................	$15
	Direct labor.............................................	$14
	Variable manufacturing overhead..........	$6
	Variable selling and administrative........	$4
	Fixed costs:
	Fixed manufacturing overhead...............	$51,200
	Fixed selling and administrative............	$23,800

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

            A)      $54,600

            B)      $99,400

            C)      $93,800

            D)      $42,600

           

            Ans:  C     LO:  1,2    

            Solution:

           

            Unit product cost = $15 + $14 + $6 = $35

	Sales revenue ($106 × 1,400)................................		$148,400
	Variable costs:
	Variable cost of goods sold ($35 × 1,400).........	$49,000
	Variable selling and administrative ($4 × 1,400)..............................................................	5,600	54,600
	Contribution margin..............................................		$  93,800

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

            A)      $25,200

            B)      $54,600

            C)      $68,000

            D)      $93,800

           

            Ans:  B     LO:  2    

            Solution:

           

            Unit fixed manufacturing overhead = $51,200 ÷ 1,600 = $32

Unit product cost = $15 + $14 + $6 + $32 = $67

	Sales revenue ($106 × 1,400)..............................	$148,400
	Cost of goods sold ($67 × 1,400)........................	93,800
	Gross margin........................................................	$  54,600

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

            A)      $75,000

            B)      $80,600

            C)      $29,400

            D)      $51,200

           

            Ans:  B     LO:  2     Level:  Hard

            Solution:

           

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

= $4 × 1,400 + $51,200 + $23,800

= $5,600 + $51,200 + $23,800 = $80,600

    106. What is the total period cost for the month under the absorption costing approach?

            A)      $29,400

            B)      $80,600

            C)      $23,800

            D)      $51,200

           

            Ans:  A     LO:  2     Level:  Hard

            Solution:

Period cost = Variable selling and administrative cost + Fixed selling and administrative cost = $4 × 1,400 + $23,800 = $29,400