Wind Fall, a manufacturer of leaf blowers, began operations this year. During this year, the company produced 10,000 leaf blowers and sold 8,500. At year-end the company reported the following income statement using absorption costing:

Wind Fall, a manufacturer of leaf blowers, began operations this year. During this year, the company produced 10,000 leaf blowers and sold 8,500. At year-end the company reported the following income statement using absorption costing:

  

Production costs per leaf blower total $20, which consists of $16 in variable production costs and $4 in fixed production costs (based on the 10,000 units produced). Fifteen percent of total selling and administrative expenses are variable.
Compute net income under variable costing.
 
$146,500

$158,500

$206,500

$246,500

$237,500

Answer
 146,500
Explanation

$152,500 - ($4 x 1,500 units) = $146,500
 2.
award:
0.90 out of
0.90 points

Using a traditional costing approach, which of the following manufacturing costs are assigned to products?

Direct labor and variable manufacturing overhead.

Variable manufacturing overhead, direct materials, and direct labor.

Fixed manufacturing overhead, direct materials, and direct labor.

Direct materials and direct labor.
 
Variable manufacturing overhead, direct materials, direct labor, and fixed manufacturing overhead.
Answer
Variable manufacturing overhead, direct materials, direct labor, and fixed manufacturing overhead.

3.
award:
0.90 out of
0.90 points

Which of the following is not a product cost?

 
Advertising costs.

Direct labor.

Direct materials.

Indirect manufacturing costs.

Manufacturing overhead.
Answer
Advertising costs
4.
award:
0.90 out of
0.90 points

Which of the following best describes costs assigned to the product under the absorption costing method?

Direct labor (DL)
Direct materials (DM)
Variable selling and administrative
Variable manufacturing overhead
Fixed selling and administrative
Fixed manufacturing overhead

DL, DM, variable selling and administrative costs, and variable manufacturing overhead.

DL, DM, and variable manufacturing overhead.

DL, DM, fixed selling and administrative, and fixed manufacturing overhead.

DL and DM.
 
DL, DM, variable manufacturing overhead, and fixed manufacturing overhead.
Answer
 DL, DM, variable manufacturing overhead, and fixed manufacturing overhead.
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Vision Tester, Inc., a manufacturer of optical glass, began operations on February 1 of the current year. During this time, the company produced 900,000 units and sold 800,000 units at a sales price of $12 per unit. Cost information for this year is shown in the following table:

  

Given this information, which of the following is true?

Net income under variable costing will exceed net income under absorption costing by $60,000.

Net income under variable costing will exceed net income under absorption costing by $50,000.
 
Net income under absorption costing will exceed net income under variable costing by $50,000.

Net income under absorption costing will exceed net income under variable costing by $60,000.

Net income will be the same under both absorption and variable costing.
Answer
Net income under absorption costing will exceed net income under variable costing by $50,000.
Explanation
100,000 units x ($450,000/900,000 FOH) = $50,000 inventoried under absorption and expensed under variable costing.
6.
award:
0.90 out of
0.90 points

When evaluating a special order, management should:

 
Only accept the order if the incremental revenue exceeds total variable product costs.

Only accept the order if the incremental revenue exceeds fixed product costs.

Only accept the order if the incremental revenue exceeds full absorption product costs.

Only accept the order if the incremental revenue exceeds all product costs.

Only accept the order if the incremental revenue exceeds regular sales revenue.
 Answer
Only accept the order if the incremental revenue exceeds total variable product costs.
7.
award:
0.90 out of
0.90 points

A company is currently operating at 80% capacity producing 5,000 units. Current cost information relating to this production is shown in the table below:

  

The company has been approached by a customer with a request for a 100-unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

Any amount over $34 per unit.

Any amount over $14 per unit.
 
Any amount over $9 per unit.

Any amount over $5 per unit.

Any amount over $20 per unit.
 Answer
Any amount over $9 per unit.
Explanation
5,000/.80 - 5,000 = 1,250 unit capacity available
$2 + $3 + $4 = $9 incremental costs
8.
award:
1 out of
1.00 point

Which of the following best describes costs assigned to the product under the variable costing method?

Direct labor (DL)
Direct materials (DM)
Variable selling and administrative
Variable manufacturing overhead
Fixed selling and administrative
Fixed manufacturing overhead
 
DL, DM, and variable manufacturing overhead.

DL, DM, fixed selling and administrative, and fixed manufacturing overhead.

DL and DM.

DL, DM, variable manufacturing overhead, and fixed manufacturing overhead.

DL, DM, variable selling and administrative costs, and variable manufacturing overhead.
Answer
DL, DM, and variable manufacturing overhead.
 9.
award:
0.90 out of
0.90 points

Scavenger Company, a manufacturer of recycling bins, began operations on January 1 of the current year. During this time, the company produced 60,000 units and sold 55,000 units at a sales price of $15 per unit. Cost information for this year is shown in the following table:

  

Given the Scavenger Company data, what is net income using absorption costing?

$177,600

$276,250

$150,000

$181,250
 
$201,250

Answer
 $201,250
Explanation
Sales = $15(55,000) = $825,000
COGS = DM + DL + VOH + FOH
Variable overhead production costs per unit = $45,000/60,000 units = $0.75 per unit
Fixed overhead production costs per unit = $240,000/60,000 units = $4.00 per unit
[($2.50 + $3.00 + $0.75 + $4.00) x 55,000 units] = $563,750
Sales - COGS - non-production costs = Net Income
$825,000 - $563,750 - $10,000 - $50,000 = $201,250
10.
award:
0.90 out of
0.90 points

Fomtech, Inc. had net income of $750,000 based on variable costing. Beginning and ending inventories were 50,000 units and 48,000 units, respectively. Assume the fixed overhead per unit was $.75 for both the beginning and ending inventory. What is net income under absorption costing?

 

$750,000

$751,500

$676,500

$823,500
 
$748,500
Answer
$748,500

$750,000 + (48,000 units x $.75) - (50,000 x $.75) = $748,500
11.
award:
0.90 out of
0.90 points

Which of the following statements is true regarding absorption costing?

 

It is not permitted to be used for tax reporting.
 
It assigns all manufacturing costs to products.

It is a not the traditional costing approach.

It is not permitted to be used for financial reporting.

It requires only variable costs to be treated as product costs.

Answer
It assigns all manufacturing costs to products.

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