CHAPTER 5Variable Costing Summary of Questions by Objectives and Bloom’s Taxonomy Item SO BT Item True-False Statements 1. 3 C 6. 2. 3 K 7. 3. 3 C 8. 4. 1 K 9. 5. 2, 3 C 10. Multiple Choice Questions 26. 1 K 43. 27. 1 K 44. 28. 1 K 45. 29. 1 K 46. 30. 3 K 47. 31. 1 K 48. 32. 1 K 49. 33. 1 K 50. 34. 1 K 51. 35. 1 AP 52. 36. 1 AP 53. 37. 1 AP 54. 38. 1 AP 55. 39. 2, 3 AP 56. 40. 2 K 57. 41. 2 C 58. 42. 2 C 59. Exercises 110. 2,3 AP 113. 111. 1,2 AP 114. 112. 2 AP 115. Challenge Exercises 125. 1-3 SY 126. Short-Answer Essays 127. 1 C 128. SO BT Item SO BT Item 5 3 1 2 1 K K K C K 2 2 3 3 2 2 2 2 2 2 2, 3 3 3 3 3 3 3 SO BT 11. 12. 13. 14. 15. 5 3 3 2 3 K C C C C 16. 17. 18. 19. 20. 3 3 3 3 3 K K C K K C AP AP AP AP AP AP AP AP AP AP AP C C AP AP AP 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 3 3 3 3 3 3 3 4 3 5 1 3 3 3 3 2 3 AP AP C C C AP AP K AP K K AP AP AP AP AP AP 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 2,3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 2 2,3 2 AP AP AP 116. 117. 118. 1-3 1-3 1-3 AP AP AP 119. 120. 121. 1-4 AN 5 C 129. 3 AN 130. Item SO BT 21. 22. 23. 24. 25. 3 3 4 5 5 C C K K K AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP 1-3 3 3 AP AP AP 122. 123. 124. 3 1-3 1-3 AP AN AP 3,5 AN 131. 4 C 5-2 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition TRUE-FALSE 1. The cost of ending inventory using variable costing is always greater than or equal to full costing ending inventory. 2. The cost of goods sold is always greater using variable costing than when full costing is used. 3. During pPeriods in which inventory levels increase, sales revenue will be larger when using full costing than if variable costing is used. 4. Absorption costing is another name for variable costing. 5. If a company has no fixed costs, variable costing income will equal full costing income, regardless of any increase or decrease in inventory levels during the period. 6. Variable costing income is more useful for decision making because costs are separated by function. 7. Absorption costing is required for external reporting under generally accepted accounting principles. 8. Under full costing, all fixed costs of production are included in Finished Goods Inventory and remain there until all inventory units are sold. 9. The total amount reported on an income statement for selling and administrative expense, reported on the income statement, adds to is the same amount using regardless if variable of full costing is used. as determined if by using full costing is used. 10. In variable costing, fixed manufacturing overhead is considered a period cost. 11. Income statements of manufacturing firms prepared for external purposes use variable costing because it provides higher profits for making decisions. 12. Under full costing, ending inventory includes both fixed and variable manufacturing and nonmanufacturing costs. 13. Under variable costing, ending inventory reported on a company’s balance sheet includes variable production costs and variable selling and administrative costs. 14. Contribution margin is reported on an absorption costing income statement. 15. If the number of units sold is equal to the number of units produced, then contribution margin will equal gross margin. 16. Full costing income can be increased by decreasing production even though the additional inventory items will not be sold during the current period. 17. When the number of units produced exceeds the number of units sold, variable costing yields a lower net income than if full costing had been used. 18. Under variable costing, net income can be increased by increasing production without increasing sales. Chapter 5 Variable Costing 5-3 19. The inventoriable cost per unit can be reduced, under variable costing, by decreasing the number of units produced. 20. When the number of units produced is greater than the number of units sold, variable costing yields higher income than full costing. 21. A full costing income statement will display a higher net income than variable costing as long as inventory levels continue to increase. 22. If a company increases production levels without increasing its units sold, both its full costing income and cash flows will be larger than if production were at a lower level. 23. Just-in-time (JIT) inventory management systems cause the difference between variable costing income and full costing income to be much greater than if standard inventory levels had been maintained by the company. 24. The use of variable costing encourages management of earnings by adjusting production volume. 25. Variable costing facilitates CVP analysis. Answers 1 2 3 4 5 F F F F T 6 7 8 9 10 F T F T T 11 12 13 14 15 F F F F F 16 17 18 19 20 F T F F F 21 22 23 24 25 T F F F T 5-4 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition MULTIPLE CHOICE 26. Full costing A. is another name for variable costing. B. considers fixed manufacturing overhead as an inventory cost. C. often provides the information needed for CVP analysis. D. considers fixed production cost as period cost.. 27. Which of the following is accounted for differently in full costing compared to variable costing? A. Direct material B. Fixed manufacturing overhead C. Direct labor D. Variable manufacturing overhead 28. Which of the following is accounted for as a product cost in variable costing? A. Product delivery costs to customers B. Variable manufacturing overhead C. Fixed manufacturing overhead D. Product advertising costs 29. Which of the following is treated as a product cost in full costing? A. Sales commissions B. Product advertising C. Depreciation on factory machines D. Security at corporate headquarters 30. Full costing is A. more useful for decision making than variable costing because it treats all costs of production as an inventory cost. B. required for financial reporting under generally accepted accounting principles. C. less likely to enable managers to manipulate income by increasing production. D. based on cost behavior. 31. In variable costing, when does fixed manufacturing overhead become an expense? A. Never B. In the period when the product is sold C. In the period when the expense is incurred D. At the time when units are produced 32. In full costing, when does fixed manufacturing overhead become an expense? A. In the period when all other fixed costs are expensed B. In the period when the product is sold C. In the period when the expense is incurred D. At the time units when are produced 33. In variable costing, which of the following will be included as part of inventory on a company’s balance sheet? A. Fixed production cost B. Variable selling cost C. Fixed selling costs D. None of the answer choices will be part of inventory in variable costing. Chapter 5 Variable Costing 5-5 34. In full costing, which of the following will be included as part of inventory on a company’s balance sheet? A. Fixed production cost B. Variable selling cost C. Fixed selling costs D. None of the answer choices will be in inventory in full costing. 35. Rango Enterprises’ manufacturing costs for 2014 are as follows: Direct materials Direct labor Manufacturing supplies Depreciation of factory equipment Other fixed manufacturing overhead $ 65,000 118,000 9,000 22,000 43,000 What amount should be considered as product costs for external reporting purposes? A. $183,000 B. $192,000 C. $257,000 D. $248,000 36. Sticker Creations’ fixed manufacturing overhead costs totaled $68,000 and its variable selling costs totaled $45,000. Under full costing, how should these costs be classified? A. B. C. D. 37. Period Costs $68,000 $113,000 $0 $45,000 Product Costs $45,000 $0 $113,000 $68,000 Diecast Tools’ manufacturing costs for 2014 are as follows: Direct materials Direct labor Depreciation of factory equipment Production supervisor’s salary Other fixed manufacturing overhead $100,000 120,000 30,000 72,000 50,000 What amount should be considered product costs for external reporting purposes? A. $220,000 B. $293,000 C. $402,000 D. $372,000 38. Robley Company’s fixed manufacturing overhead costs totaled $235,000 and fixed corporate operating costs totaled $116,000. Under full costing, how should these costs be classified? A. B. C. D. Period Costs $235,000 $0 $351,000 $116,000 Product Costs $116,000 $351,000 $0 $235,000 only units produced. Cold City Blowers produces snow blowers. $206. variable costs. Cold City Blowers produced 8.400 D. $14. Variable costs B. contribution margin. $192. neither units sold nor units produced. Variable costing income is a function of A. B. Contribution margin D.5-6 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 39. $15. how much will full costing net income differ from variable costing net income? A. variable costs. 42.000 40. and net income B. The selling price per snow blower is $80. only units sold. Which of the following items on a variable costing income statement will change in direct proportion to a change in sales? A. Sales. Net income . variable costs. Contribution margin 41. Sales B. Sales.600 snow blowers and sold 8. Ignoring taxes.400 In addition. and fixed costs 43.400 C.000 per year. fixed costs.480 B.000 snow blowers. Gross margin C. Sales. Sales. which of the following items will increase or decrease at a greater rate than the change in the amount of sales on a variable costing income statement? A. both units sold and units produced. Fixed costs C. contribution margin. During the year. C. the company has fixed selling and administrative costs of $88. and contribution margin C. Costs involved in production are: Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year $ 22 15 6 206. Net income D. and net income D. Which of the following items appears on a variable costing income statement but not on a full costing income statement? A. There is no beginning inventory. D. If a company’s income is positive and fixed costs exist. $323.400 C. $630.50 per unit $21. $601.20 per unit $4. what is the amount of the company’s contribution margin per unit? A.400 B.20 per unit $3. How much will the company report as total variable product costs on its 2014 contribution income statement? A.60 per unit $1.000 $32. Beginning inventory totaled 3.000 units.500 D.500 45.65 C. $13.75 per unit $50.Chapter 5 Variable Costing 44.800 C. Roger Excavating Company experienced the following costs in 2014: Direct materials Direct labor Variable manufacturing overhead Variable selling Fixed manufacturing overhead Fixed selling Fixed administrative $1. $327. $16.40 per unit $84. $15.000 units and sold 24.75 per unit $2.10 per unit $44.800 46. The unit cost is the same throughout the year.90 D.000 $1. $328.400 units.50 per unit $2.50 per unit $0.000 During 2014.000 units.50 per unit $2.000 units and sold 80.600 B. 5-7 Ranger Productions experienced the following costs in 2014: Direct materials Direct labor Variable manufacturing overhead Variable selling costs Fixed manufacturing overhead Fixed selling costs Fixed administrative costs $1. $344. If the average selling price per unit was $22. If the average selling price per unit was $28. the company manufactured 100.000 During 2014. $344. Anders Supply experienced the following costs in May: Direct materials Direct labor Manufacturing overhead costs Variable Fixed Selling & administrative costs Variable selling costs Fixed selling costs Fixed administrative costs $6.000 $15. Beginning inventory is zero.000 units and sold 62.65.000 units.000 $15. the company manufactured 22.000 $5.00 per unit $2. $18.000 During May. $352.65 .000 $16. how much is the company’s contribution margin? A.40 B.400 D. the company manufactured 65. 49. During the past year.600 D. How much is variable cost of goods sold? A. and fixed selling and administrative costs totaled $114. Cold City Blowers produced 780 snow blowers and sold 800 snow blowers.000 312.000. $48.000 C.365. $62. None of these answer choices are correct.000 speakers during 2014 and sold 26.000 D. $69.400 B. Cold City Blowers produces snow blowers. Waxman Electronics manufactured 25.000 B.000 780. How much is the contribution margin per unit? A.000 ?? $150. The selling price per snow blower is $100.235.360 per year.00 C. Net income for the year was $1.5-8 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 47.000.540 C.000 234. $1. . How much was the company’s contribution margin? A.120.000. Data from Rannier Metals for 2014 is as follows: Sales Variable cost of goods sold Fixed manufacturing overhead Variable selling & administrative costs Fixed selling & administrative costs $20 per unit ?? $85. $765.000.000 units. the company has fixed selling and administrative costs of $9. Costs involved in production are: Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year $ 22 15 6 23.00 D. Variable production costs per unit and fixed costs have remained constant all year. During the year. Production costs during the year were as follows: Fixed manufacturing overhead Variable manufacturing overhead Direct labor Direct materials $546. $1. $33. There were 2.000 speakers. Not enough information is provided to determine the answer 48. None of these answer choices are correct.000.200 speakers in beginning inventory.000 The company produced 145.000 Sales totaled $3.00 B.400 In addition.000 units during the year and sold 130. $34. Beginning inventory consisted of 50 snow blowers. variable selling and administrative costs totaled $182. $29. 600 51. Variable costs per unit and fixed production costs have remained constant the entire year. How much is the dollar value of the ending inventory using variable costing? A. The selling price per snow blower is $100.400 In addition. $7. 2014 Sales ($12 per unit) Less variable costs: Cost of goods sold $100. $45. $650.900 C. Sol Enterprises’ contribution income statement utilizing variable costing appears below: Sol Enterprises Income Statement For the Year ended December 31.000 units during the year. Beginning inventory consisted of 50 snow blowers. Costs involved in production are: Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year $ 22 15 6 23. $2.100 Sol produced 21. During the year.900 Selling & administrative costs 15.840 D. $0 52. 5-9 Cold City Blowers produces snow blowers.000 75.000 Selling & administrative costs 18.000 Contribution margin Less fixed costs: Manufacturing overhead 60. $11. $8.000 B.000 122.000 $650.000 20.900 $ 46. How much is net income using variable costing? A.000 Net income $240.000 C.700 B. the company’s first year of operations: Units produced Units sold Units in ending inventory Fixed manufacturing overhead 100. 2014.240 C.000 B. $520.900 .Chapter 5 Variable Costing 50. $12. the company has fixed selling and administrative costs of $9. $12.800 D. $5. There were no beginning inventories.000 80.000 How much fixed manufacturing overhead would be expensed in 2014 using variable costing? A.360 per year.000 118. $130. The following information relates to Charlin Industries for the year ending December 31.000 D. Cold City Blowers produced 780 snow blowers and sold 800 snow blowers. How much are total variable costs on the company’s 2014 contribution margin income statement? A. $36. C.50 per unit $2.00 per unit $70. equal to net income using variable costing.600 14.950 35. Beginning inventory consists of 800 units. There were no beginning inventories.000 $80.000 B.00 per unit $1. . 55.50 per unit $4. When the number of units sold is equal to the number of units produced.850 D.200 units. $37. inventory levels will increase.750 42. $2.250 27.900 C. $2.750 12. $3. Beiber Boxers contribution income statement utilizing variable costing for 2014 appears below: Sales ($12 per unit) Less variable costs: Cost of goods sold Selling & administrative Contribution margin Less fixed costs: Manufacturing overhead Selling & administrative costs Net income $78. Assume the same unit costs in all years.000 units during the year. variable costing will assign some fixed manufacturing costs to the units in ending inventory. Acosta Supplies experienced the following costs in 2014: Direct materials Direct labor Variable manufacturing overhead Variable selling Fixed manufacturing overhead Fixed selling and administrative $1. the net income be using absorption costing will be A.000 units and sold 4.000 During 2014. How much is the dollar value of the ending inventory using full costing? A.550 $ 14. $32. A. None of these answer choices are correct. If the number of units sold is greater than the number of units produced.800 B.000 54.000 9. None of the answer choices is always correct. D. the company manufactured 4.000 C. C. 56. $33. Variable and fixed production costs have remained constant the entire year. net income will be higher under variable costing than under full costing. B. full costing and variable costing will yield the same net income.600 D.000 $26. greater than net income using variable costing. less than net income using variable costing.5-10 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 53. D. B.700 The company produced 7. Each bag of food is sold for $17.00 per unit $48.85 D.000 $30. the company manufactured 47.500 C. Assume the same unit costs in all years.000 59.000 B.000 If the company uses full costing.500 58.000 $30.000 $24.500 D. How much is the unit product cost using full costing? A. During 2014. the company manufactured 16. $28. The company experienced the following costs: Direct materials Direct labor Variable manufacturing overhead Variable selling Fixed manufacturing overhead Fixed selling Fixed administrative $4. $28. $25.80 per unit $3. $9.70 B.000 25-pound bags of cat food in beginning inventory. $8.65 per unit $1. Each bag of food is sold for $17. $7.000 units and sold 40.000 $10. $10.500 D.50 per unit $2. The company experienced the following costs: Direct materials Direct labor Variable manufacturing overhead Variable selling Fixed manufacturing overhead Fixed selling Fixed administrative $4.10 per unit $1.70 C.000 bags and sold 15.000 units.000 $24. $34. $34.000 25-pound bags of cat food in beginning inventory.000 units.000 units.10 per unit $1.000 $35. 5-11 Meow Foods had 2.15 per unit $94.500 C. $9. the company manufactured 16. Macho Enterprises experienced the following costs in 2014: Direct materials Direct labor Variable manufacturing overhead Variable selling Fixed manufacturing overhead Fixed selling Fixed administrative $2. at what amount is the ending inventory for the year valued? A. During 2014.000 If the company uses variable costing. how much will be reported as inventory on the December 31. $25. Meow Foods had 2. 2014 balance sheet? A.90 per unit $1.50 per unit $2.000 bags and sold 15. Assume the same unit costs in all years.Chapter 5 Variable Costing 57.000 During the year.85 .500 B.25 per unit $1.90 per unit $1.00 per unit $48. $9. 500.000 $2.000 units and sold 25. .275 61.50 per unit Manufacturing overhead costs Variable $1. $76.000 units in beginning inventory. Variable costing B.250 C. B. During the year.075 $0. how much is net income using full costing? A. If net income using variable costing was $82.000 units.10 per unit Fixed $60.95 per unit $8.800 units in beginning inventory. During the year.500 units and sold 48.880 B.000 There were 6. neither units sold nor units produced.000 Fixed administrative $13. Both variable and full costing D. under which costing method is it possible for managers to manipulate net income through production? A. $73. The Crab Shack experienced the following costs in 2014 (Assume the same unit costs in all years): Direct materials $2. $5.000 units. Full costing C. the company manufactured 24. how much is net income using full costing? A. both units sold and units produced. $79.750 D.725 D.350 62.625 C.25 per unit $75. units produced only. $78.250.375 B. Full costing income is a function of A. units sold only. D.80 per unit Fixed selling $9. If net income using variable costing was $76. Ranger Roadsters experienced the following costs in 2014 (Assume the same unit costs in all years): Direct materials Direct labor Manufacturing overhead costs Variable Fixed Selling & administrative costs Variable selling Fixed selling Fixed administrative $4. Neither variable nor full costing 63.85 per unit $2. C.25 per unit Direct labor $1. If a company’s levels of total fixed costs and unit variable costs remain unchanged from one year to the next. the company manufactured 45. $86.000 There were 1. $74.5-12 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 60.10 per unit $2.000 Selling & administrative costs Variable selling $0. $88. how much will net income be if the company uses variable costing? A. Beginning inventory is zero. 66.000 units. $450. Radial Fuel Cells experienced the following costs in 2014 (Assume the same unit costs in all years): Direct materials Direct labor Manufacturing Overhead Costs Variable Fixed Selling & Administrative Costs Fixed selling Variable selling Fixed administrative $4 per unit $8 per unit $2 per unit $150. $270. B. what would net income be if the company used variable costing? A. the company manufactured 18. $50. $250. $53.600 units. Full costing will assigns some a portion of the fixed manufacturing costs to the units in ending inventory.000 D. 65. More information is needed to determine the answer. C.000 using full costing.000 C.000 $30.Chapter 5 Variable Costing 64. .000 C.50 per unit $45.00 per unit $1.00 per unit $1. $55.000 D.000 $1 per unit $20. Net income will be higher under variable costing than under full costing.000 There were 600 units in beginning inventory. Variable and full costing income will differ greatly since there will be a large difference between gross margin and contribution margin. During the year. $265. C. D. If net income for the year was $54. Variable and full costing income will differ very little since there is almost no inventory on hand. D. If net income for the year was $265.000 B. Futon Delight experienced the following costs in 2014 (Assume the same unit costs in all years): Direct materials Direct labor Manufacturing Overhead Costs: Variable Fixed 5-13 $2.000 using full costing. Which of the following is true when units produced exceed units sold? A. If a company employs JIT inventory techniques. Inventory levels will decrease.000 67. B. Variable and full costing income will differ greatly since actual costs are difficult to determine.000 units and sold 17.000 units and sold 45. Variable and full costing income will differ very little since there are almost no fixed costs incurred on production. Full costing and variable costing will yield the same net income.000 B. which statement is true? A. the company manufactured 50.000 During the year. variable manufacturing overhead. 2.00 each.500. $21.000 of these calculators at a price of $10. 46. Selling and administrative costs are all fixed and totaled $24. Neither full costing nor variable costing 71. Manufacturing costs consisted of direct labor. Waterloo Skyline experienced the following costs in 2014: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $3. $149.960 C.00 each. Last month. Which is most consistent with cost-volume-profit analysis? A. Beginning inventory consists of no units. $124.5-14 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 68. Absorption costing D. Brand Products manufactured 25. 187. $30.700 C.000 calculators and sold 23.960 B. $3. respectively.60 per unit There was no beginning inventory.000. During the year. direct materials. Full costing C.500. What is Brand Products’ net income using full costing? A. Beginning inventory consists of no units. variable manufacturing overhead. $169.500.000. $32.000.000. Last month.000. Brand Products manufactured 25. the company sold 190.45 per unit $12.700 B. direct materials. $125. Variable costing B.740 D. $149.240 B. Manufacturing costs consisted of direct labor.500. how many units did the company produce in 2014? A. What is Brand Products’ net income using variable costing? A. Variable costing C.000 calculators and sold 23. $3.951 69.000 of these calculators at a price of $10. Selling and administrative costs are all fixed and totaled $24. $21.240 72.000 units. Which method provides an incentive for managers to produce more units in order to increase income for performance evaluations? A.740 D.000.000. $125.020 and $905.960 C. fixed manufacturing overhead. $30. $32. JIT 70.80 per unit $1. Both full costing and variable costing D. fixed manufacturing overhead. If net income using full and variable costing was $939. Full costing B. $169. 192.960 . $124.300 D.15 per unit $2. More than 10% C. $14. Brand Products uses variable costing.000. variable manufacturing overhead.000 $24. pool pumps.000.000 $75.500 $46. fixed manufacturing overhead. Beginning inventory consists of no units.000.00 D.500.00 $31. Brand Products uses full costing. $21.00 5.000 calculators and sold 23.500.000. Brand Products manufactured 25. 10% D.500. $23. Last month.420 74. 75.00 C. How much will the company’s contribution margin increase if sales increase 10%? A. $23.500.00 . Selling and administrative costs are all fixed and totaled $24. $30.000. Less than 10% B. $18. $30. Beginning inventory consists of no units. $12. Selling and administrative costs are all fixed and totaled $24. $29. $21.00 B. direct materials.000 of these calculators at a price of $10.200 1. $32. $24.Chapter 5 Variable Costing 5-15 73. $32. $3.996 D.800 6. Last month. variable manufacturing overhead.00 each. Brand Products manufactured 25. $3. Manufacturing costs consisted of direct labor. It depends on other factors not given. Affinity makes a single product. fixed manufacturing overhead. $16.00 each. direct materials. Manufacturing costs consisted of direct labor. How much will the company’s gross margin increase if sales increase 10%? A.000.974 B. Information for 2014 appears below: Sales in units Production in units Beginning inventory Variable production cost per unit Variable selling cost per unit Fixed production cost per year Fixed selling and administrative cost per year Selling price per unit How much is the contribution margin per unit of inventory? A.000 calculators and sold 23.00 $6.000 C.000 of these calculators at a price of $10. 00 $6. Affinity makes a single product.500 $46. pool pumps.200 1. pool pumps.00 $31.000 $75.400 B.200 1.00 $6.5-16 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 76.00 $6.400 D. $52.600 C. Affinity makes a single product.00 77.00 C. $57.600 D. pool pumps. $80.500 $46. $87. None of these answer choices are correct.800 6.000 $24. None of these answer choices are correct. $78. $80. $46. 78.00 $31.000 $75.800 6.000 $24. Information for 2014 appears below (Assume the same unit costs in all years): Sales in units Production in units Beginning inventory Variable production cost per unit Variable selling cost per unit Fixed production cost per year Fixed selling and administrative cost per year Selling price per unit How much is net income for the year under full costing? A.000 $75.00 $31.00 B.00 .400 C.00 How much is net income for the year under variable costing? A. $51. Affinity makes a single product.00 D.000 $24. 5. Information for 2014 appears below (Assume the same unit costs in all years): Sales in units Production in units Beginning inventory Variable production cost per unit Variable selling cost per unit Fixed production cost per year Fixed selling and administrative cost per year Selling price per unit 5. $87. Information for 2014 appears below (Assume the same unit costs in all years): Sales in units Production in units Beginning inventory Variable production cost per unit Variable selling cost per unit Fixed production cost per year Fixed selling and administrative cost per year Selling price per unit 5.200 1.400 B.500 $46. $78.800 6.00 How much is the full cost per unit of inventory? A. 00 How much will be reported for inventory on the balance sheet if variable costing is used? A.000. Affinity makes a single product.000 .300 D.000 C. Leesburg Bags produces backpacks.000 per year $540. $87.000 backpacks for the year and sold 200.00 per backpack $900. $1.200 1. The answer cCannot be determined from the information provided.00 $31.00 $6.00 $6.400 B.00 per backpack $2.500 $46.800 6.500 $46.Chapter 5 Variable Costing 79.200 1. $550. 5-17 Affinity makes a single product. Information for 2014 appears below (Assume the same unit costs in all years): Sales in units Production in units Beginning inventory Variable production cost per unit Variable selling cost per unit Fixed production cost per year Fixed selling and administrative cost per year Selling price per unit 5.000 D. Full costing C. Net income under both the variable and full costing methods will be the same. 80. $96. and costs throughout the year were stable.00 per backpack $11. $650. Variable costing B.00 Under which method will net income be larger? A. There was no beginning inventory. $118.900 C.400 81.800 6. The costs and prices for the backpacks follow (Assume the same unit costs in all years): Selling price Variable costs: Production Selling Fixed Costs: Production Selling and administrative $23. $730. $108. pool pumps. Information for 2014 appears below (Assume the same unit costs in all years): Sales in units Production in units Beginning inventory Variable production cost per unit Variable selling cost per unit Fixed production cost per year Fixed selling and administrative cost per year Selling price per unit 5. pool pumps.000 B.450.000 $24.000 $75.000 $75.000 $24.000 per year Leesburg Bags produced 250. D.00 $31. How much is the cost of ending inventory under variable costing? A. 5-18 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition . and costs throughout the year were stable.000 backpacks for the year and sold 200. $848.000 83.00 per backpack $11.00 per backpack $2.000. $560. $650.00 per backpack $11.000 D.000 per year Leesburg Bags produced 250.000 per year Leesburg Bags produced 250. There was no beginning inventory. $550.000 B.000 C.Chapter 5 Variable Costing 82. The costs and prices for the backpacks follow (Assume the same unit costs in all years): Selling price Variable costs: Production Selling Fixed Costs: Production Selling and administrative $23. $2.000 backpacks for the year and sold 200.00 per backpack $900.000 D.000 B. and costs throughout the year were stable. Leesburg Bags produces backpacks. How much is net income under variable costing? A.000. $730. $740.000 per year $540.000 C. 5-19 Leesburg Bags produces backpacks.000. The costs and prices for the backpacks follow (Assume the same unit costs in all years): Selling price Variable costs: Production Selling Fixed Costs: Production Selling and administrative $23.00 per backpack $2.000 per year $540. There was no beginning inventory.00 per backpack $900.000 . How much is the cost of ending inventory under full costing? A. $938. 00 per backpack $900.000 per year Leesburg Bags produced 250.000 backpacks for the year and sold 200. $340.000 per year Leesburg Bags produced 250.000 backpacks for the year and sold 200.00 per backpack $900.000 lower D.000. $560.000 per year $540.000 higher B. $320.000 lower .000 D.00 per backpack $2. How much is net income under full costing? A. There was no beginning inventory. $320.000 85.000 C. How much higher or lower will variable costing be than full costing income? A. $740.000 B. $380. There was no beginning inventory. Leesburg Bags produces backpacks. and costs throughout the year were stable. Leesburg Bags produces backpacks.000 higher C. The costs and prices for the backpacks follow (Assume the same unit costs in all years): Selling price Variable costs: Production Selling Fixed Costs: Production Selling and administrative $23.000 per year $540. The costs and prices for the backpacks follow (Assume the same unit costs in all years): Selling price Variable costs: Production Selling Fixed Costs: Production Selling and administrative $23. and costs throughout the year were stable. $180.000.5-20 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 84.00 per backpack $11.00 per backpack $2.00 per backpack $11. $180. Chapter 5 Variable Costing 86.00 per backpack $2.00 per backpack $11.400 D.000 backpacks for the year and sold 200. and costs throughout the year were stable.000 per year Leesburg Bags produced 250. There was no beginning inventory.000? A.000 backpacks instead of 250. The following information is available (Assume the same unit costs in all years): .000 per year $540.00 per backpack $900. What would be the difference in income between variable costing income and full costing income if the company had produced 215. $46. $54.00 each.000 C. The costs and prices for the backpacks follow (Assume the same unit costs in all years): Selling price Variable costs: Production Selling Fixed costs: Production Selling and administrative $23.400 87. WebFlicks is an online DVD company that produces its own DVD copies of first-run movies that it sells for $8. 5-21 Leesburg Bags produces backpacks. $62.000. $77.791 B. 30 per DVD $1.000 per month $130.600 B. The following information is available (Assume the same unit costs in all years): Variable costs: Product royalty fees DVD production Selling and admin costs Fixed costs: Production Selling and administration $3.000 DVDs were produced and 144.000 DVDs in beginning inventory. 160. $130.000 per month During June.800 C.20 per DVD $0.5-22 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 87. There were 17.000 were sold.640 D.00 each. $130. How much is net income per month under variable costing? A. . $143. None of these answer choices are correct. WebFlicks is an online DVD company that produces its own DVD copies of first-run movies that it sells for $8.80 per DVD $128. $143.000 DVDs in beginning inventory.600 B. $148. The following information is available (Assume the same unit costs in all years): Variable costs: Product royalty fees DVD production Selling and admin costs Fixed Costs: Production Selling and administration $3.000 per month $130. 89.30 per DVD $1.900 D. There were 17. $72. $84.000 per month $130. None of these answer choices are correct.640 C. There were 17.80 per DVD $128.000 per month During June.000 were sold.000 DVDs were produced and 144.000 DVDs in beginning inventory. WebFlicks is an online DVD company that produces its own DVD copies of first-run movies that it sells for $8.20 per DVD $0.80 per DVD $128.000 per month During June.800 . $174.000 were sold.500 C. 160.00 each. How much is net income per month under full costing? A.20 per DVD $0.Chapter 5 Variable Costing 88. 5-23 WebFlicks is an online DVD company that produces its own DVD copies of first-run movies that it sells for $8. The following information is available (Assume the same unit costs in all years): Variable costs: Product royalty fees DVD production Selling and admin costs Fixed Costs: Production Selling and administration $3. $130.000 B.30 per DVD $1.00 each.800 D. 160. $130.000 DVDs were produced and 144. How much is inventory at the end of the month under variable costing? A. 5-24 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 90.00 per t-shirt $3. $2.000. $1. $850. The following information is available (Assume the same unit costs in all years): Variable costs: Product royalty fees DVD production Selling and admin costs Fixed Costs: Production Selling and administration $3.20 per DVD $0.00 per t-shirt $1. $1.00 each.250. Following is information about its t-shirts for 2014: Selling price Variable costs: Production (manufacturing costs) Selling & administration Fixed costs: Production (manufacturing costs) Selling & administration $15.000 t-shirts and sold 350.000 per year During 2014.400.000 B. $975.400. $174.250.000 per year During 2014.80 per DVD $128.000 DVDs in beginning inventory. Assume that there was no beginning inventory.000.800 91. How much is inventory at the end of the month under full costing? A. Aerotrino produces and sells popular t-shirts.000 B.000 C. the company produced 400. $148.000 92. $72.00 per t-shirt $1.000 per year $2.000 were sold.000 D.000 per year $2.000.000 C.500 C.000 DVDs were produced and 144.000 t-shirts and sold 350. $84. $975. Following is information about its t-shirts for 2014: Selling price Variable costs: Production (manufacturing costs) Selling & administration Fixed costs: Production (manufacturing costs) Selling & administration $15. How much is the net income under full costing? A.900 D. 160.00 per t-shirt $3. There were 17. $2.00 per t-shirt $1.00 per t-shirt $1.000 D. the company produced 400.000 per month During June.000 .000 per month $130.000 B.000 of them. Assume that there was no beginning inventory.30 per DVD $1. Aerotrino produces and sells popular t-shirts.000 of them.000. $850. How much is the net income under variable costing? A. WebFlicks is an online DVD company that produces its own DVD copies of first-run movies that it sells for $8. 000.000 . Following is information about its t-shirts for 2014: Selling price Variable costs: Production (manufacturing costs) Selling & administration Fixed costs: Production (manufacturing costs) Selling & administration $15. Following is information about its t-shirts for 2014: Selling price Variable costs: Production (manufacturing costs) Selling & administration Fixed costs: Production (manufacturing costs) Selling & administration $15. $150.00 per t-shirt $1.000 D.000 B. $325.00 per t-shirt $1.000. How much is the inventory under full costing at December 31. How much is the inventory under variable costing at December 31. 5-25 Aerotrino produces and sells popular t-shirts.000 per year $2.000 per year $2. 2014? A.000 t-shirts and sold 350. 2014? A.000 D.000 t-shirts and sold 350.000 of them. $325.000.00 per t-shirt $1. the company produced 400.00 per t-shirt $3. $150.000 C.000 C. Aerotrino produces and sells popular t-shirts. Assume that there was no beginning inventory.000 B.000 of them. Assume that there was no beginning inventory.000. $275.Chapter 5 Variable Costing 93.000 94.000 per year During 2014. $200. $275. the company produced 400.000 per year During 2014.00 per t-shirt $3. $200.00 per t-shirt $1. $70. How much is net income for February using full costing? A.00 per mug $2. How much is net income for January using variable costing? A. $67.000 44. Brislin Gifts makes ceramic mugs and has the following amounts for 2014 (Assume the same unit costs in all years): Selling price Variable production cost Variable selling cost Fixed production cost Fixed selling and administrative cost $9.000 March 44.000 Inventory at January 1.000 44. 2014 consisted of 1.600 B. None of these answer choices are correct. .000 per month $60.000 Inventory at January 1. 2014 consisted of 1.000 45.000 February 40. Brislin Gifts makes ceramic mugs and has the following amounts during 2014 (Assume the same unit costs in all years): Selling price Variable production cost Variable selling cost Fixed production cost Fixed selling and administrative cost $9.000 D.480 D.000 per month $60.000 45.000 March 50. $89.000 per month Production and sales in units for the first three months of 2014 are as follows: Year Production Sales January 50. $183.000 mugs.10 per mug $100.000 per month Production and sales in units for the first three months of 2014 are as follows: Year Production Sales January 50.10 per mug $100. 96. $77.50 per mug $1.000 45.00 per mug $2.000 C. None of these answer choices are correct.000 46.600 C.50 per mug $1.000 mugs. $83.000 February 40.500 B.5-26 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 95. 50 per mug $1. 2014 consisted of 1. February and March C.Chapter 5 Variable Costing 97.000 45.00 per mug $2.000 44.000 mugs.000 per month $60. No two months would have the same ending inventory .000 per month Production and sales in units for the first three months of 2014 are as follows: Year Production Sales January 50.10 per mug $100.000 March 50. January and March D. January and February B. 5-27 Brislin Gifts makes ceramic mugs and has the following amounts during 2014 (Assume the same unit costs in all years): Selling price Variable production cost Variable selling cost Fixed production cost Fixed selling and administrative cost $9.000 Inventory at January 1.000 February 40. During which months will ending inventory be the same if variable costing is used? A.000 45. 000 March 50.10 per mug $100. No two months would have the same net income. Which two months would have the same net income under full costing? A. . January and March D. Brislin Gifts makes ceramic mugs and has the following amounts during 2014 (Assume the same unit costs in all years): Selling price Variable production cost Variable selling cost Fixed production cost Fixed selling and administrative cost $9.000 44.00 per mug $2.000 February 40.000 Inventory at January 1.50 per mug $1. January and February B. February and March C.000 45.5-28 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 98.000 per month $60.000 mugs.000 per month Production and sales in units for the first three months of 2014 are as follows: Year Production Sales January 50. 2014 consisted of 1.000 45. 000 per year Production and sales in units for the first three months of 2014 are as follows: Year Production Sales January 50.10 per mug $100.000 44. 7. 2.000 45.000 Inventory at January 1.000 B.000 45.000 per year $60.000 mugs. How many units will remain in inventory at the end of February? A. 0 C. 6.000 February 40.Chapter 5 Variable Costing 99.50 per mug $1. 5-29 Brislin Gifts makes ceramic mugs and has the following amounts during 2014 (Assume the same unit costs in all years): Selling price Variable production cost Variable selling cost Fixed production cost Fixed selling and administrative cost $9.000 . 2014 consisted of 1.000 March 50.00 per mug $2.000 D. 000 44.000 March 50.000 per year $60. $4.10 .10 per mug $100.00 per mug $2. $4.000 Inventory at January 1.000 per year Production and sales in units for the first three months of 2014 are as follows: Year Production Sales January 50.50 per mug $1. $5. How much is the inventory cost per unit under full costing during March? A.000 45. 2014 consisted of 1.000 February 40. $2.000 45.50 B.5-30 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 100.00 C.000 mugs.50 D. Brislin Gifts makes ceramic mugs and has the following amounts during 2014 (Assume the same unit costs in all years): Selling price Variable production cost Variable selling cost Fixed production cost Fixed selling and administrative cost $9. $4.000 per year $60.60 C.60 102. The company sells 90.000 units in 2014 and 125.Chapter 5 Variable Costing 101. Assume that there was no beginning inventory in 2014. Other costs and selling price are unchanged for 2014 and 2015. B. A company with fixed manufacturing costs of $500.10 per mug $100. All of these answer choices are correct. Which of the following is true? A. $5.000 Inventory at January 1. The dollar amount of ending inventory will be greater in 2014 than in 2015.000 units each in both years. Variable costing income will be greater in 2014 than in 2015.000 45.000 units in 2015.000 February 40.50 per mug $1.000 45. Variable costing income will be the same in 2015 and 2014.50 B.000 March 50.000 per year Production and sales in units for the first three months of 2014 are as follows: Year Production Sales January 50. $2. $3. D.00 per mug $2.50 D.000 mugs. 2014 consisted of 1. How much is the inventory cost per unit under variable costing during March? A. 5-31 Brislin Gifts makes ceramic mugs and has the following amounts during 2014 (Assume the same unit costs in all years): Selling price Variable production cost Variable selling cost Fixed production cost Fixed selling and administrative cost $9. .000 44.000 produces 100. C. the company has fixed selling and administrative costs of $150. Boulder Blowers produces snow blowers.000 106. $679. D.000 snow blowers and sells 30.000 snow blowers. How much is the cost of goods sold using full costing? A. Costs involved in production are: Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year $ 20 12 10 148. $652. Zintec has fixed manufacturing costs of $400. Boulder produces 45. Boulder produces 45.500 D.000 .000 per year. There was no beginning inventory. $630.000 snow blowers.000 B.000 and sells 8.000 higher than variable costing income. During the year.260.5-32 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 103.500 B.000 C.000 per year. $780.000 per year.000 snow blowers and sells 30. $780.500 B.000 C. The selling price per snow blower is $100. Boulder Blowers produces snow blowers. There is no beginning inventory. Variable and full costing income will be the same.500 In addition.000 105. The selling price per snow blower is $100. Which of the following conclusions can be drawn? A. What is the value of ending inventory using full costing? A. 104.000 higher than full costing income. $1.359. B.000 snow blowers. There was no beginning inventory. $679. There was no beginning inventory. the company has fixed selling and administrative costs of $150.500 In addition. the company has fixed selling and administrative costs of $150.500 In addition. Costs involved in production are: Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year $ 20 12 10 148. Boulder Blowers produces snow blowers. $630. During the year. The selling price per snow blower is $100. There is not enough information to draw a conclusion.500 D.000 and produces 10. $1. Boulder produces 45. Full costing income will be $80. C. $652. What is the value of ending inventory using variable costing? A. Variable costing income will be $80.000 snow blowers and sells 30. Costs involved in production are: Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year $ 20 12 10 148. During the year.000 wagons during the year. $1. 107. How much is net income using full costing? A.500 In addition. 5-33 $2.441. There was no beginning inventory.038.000 .000 snow blowers. The selling price per snow blower is $100.491. $1.000 C.500 Boulder Blowers produces snow blowers.000 B. During the year.500 $1. $1. Costs involved in production are: Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year $ 20 12 10 148.Chapter 5 Variable Costing C.500 D. Boulder produces 45. the company has fixed selling and administrative costs of $150. $1.408.641.000 per year.000 snow blowers and sells 30. D.590. 000 per year. During the year.000 snow blowers and sells 30. Boulder Blowers produces snow blowers. $200. $20. $99.000 10. How much fixed manufacturing overhead is in ending inventory under full costing? A.500 In addition.000 1. $0 . $49. the company has fixed selling and administrative costs of $150.000 D.000 How much fixed manufacturing overhead will be expensed during the year using full costing? A. Boulder produces 45.5-34 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 108.000 B. $220.500 C.000 C. Costs involved in production are: Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year $ 20 12 10 148. The selling price per snow blower is $100. Beginning inventory consists of no units.000 snow blowers.500 D. $0 B. $148.000 109. The following information relates to Winslee Widgets during the company’s first year of operations: Units produced Units sold Units in ending inventory Fixed manufacturing overhead 11.000 $220. Chapter 5 Variable Costing 5-35 Multiple Choice Answers 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 B B B C B C B D A C D D D B D 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 A B D A B B B C A C C A A B B 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 C D A B A C B C B A A A A A A 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 D B A B C B A B B A A A C D D 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 A B A B C C A A B B A C D A A 101 102 103 104 105 106 107 108 109 C C B A B A D B B . 660 32.260 $99.700 How much net income will be reported under full costing? Reconcile the difference in profit between the two income amounts.500 $99.000 units and sold 940 units. $169.540 130.200 46.5-36 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition EXERCISES 110.320 12. In 2014. Arctic AC Company is a small manufacturer of window air conditioners.580 4.64 0 38. b. Beginning inventory was zero. 2012 Sales Less variable costs: Variable cost of goods sold Variable selling expense Contribution margin Less fixed costs: Fixed manufacturing expense Fixed selling expense Fixed administrative expense Net income a. the company produced 1.140 23.200 Variable costing net income Add: Fixed costs deferred in inventory ($21 × 60) Full costing net income $21.640 $98.060 $123. The units sell for $180 each.000 $ 21. Fixed manufacturing overhead Divided by units produced Fixed manufacturing overhead per unit Sales Less cost of goods sold Gross margin Less selling and administrative expense Selling expense Net income b.000 6. Answer a.380 . Below is the variable costing income statements for 2014: Arctic AC Company Variable Costing Income Statement For the Year Ending December 31.280 $98.00 $169.220 21.380 1.000 1. $26. 000.000.000 $144. a manufacturer of four-wheel all-terrain vehicles: Vehicles produced Vehicles sold 2014 20.600 $3.000 93.600 $3.000 3. How much is reported as ending inventory when using variable costing? Does variable costing profit present a more realistic view of performance during the two years? Explain.800.200 $144.Chapter 5 Variable Costing 111. Calculate profit for both years using variable costing.000 18.000 Total $85. so it cut back production to 16.000 $8.600. which is consistent with the firm having the same cost structure and level of sales in both years.400.000 units) ($5. . 5-37 The following information is available for Trailblazer.200 × 2.000 $ 42.000 50.000 × 18.000.000 4.000 $3.000 Selling price per unit Direct material per unit Direct labor per unit $8.000 2015 16. Ending inventory $10. the company needed to get rid of excess inventory (the extra units produced but not sold in 2014).600.200.400.000 50. b.000 Variable manufacturing overhead per unit Fixed manufacturing overhead per year Fixed selling and administrative expense per year In the company’s second year.600.600.000 $3.000 b.000 $1.000 units) Contribution margin Less fixed costs: Manufacturing Selling and administrative Net income 2014 $5. Answer a.000 93.000 $600 $4. Variable manufacturing costs per unit Sales ($8.800.000.200 × 18.200 × 0 units) c.000 $0 ($5.000 18. c.000.000 units.800.000 4.400.000 $ 42. a.800.000 3.200 2015 $5.000 units) Less cost of goods sold: ($5.000.000 $600 $4. Variable costing presents a more realistic view of firm performance in that income is the same in both years.000 $1. 800 units.800 units. the company has selling and administrative costs: Fixed selling costs per year Fixed administrative costs per year Variable selling and administrative costs per year $175. Inc. produces e-readers that it sells for $80 each. Assume the same unit costs in all years.000 readers and sold 29.400 698.400) Less variable cost of goods sold ($38 × 29. Nader produced 28.000 readers and sold 29.058. Costs involved in production are: Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year $11 per unit 15 per unit 12 per unit $448.200 176.000 In addition.400 = 400 units Ending inventory under variable costing: ($11 + $15 + $12) × 400 = $15.800 + 28. Nader.400 1. What is the value of ending inventory using variable costing? Answer Ending inventory in units = 1.000 – 29.000 $6 per unit During the year.5-38 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 112. Costs involved in production are: Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year $11 per unit 15 per unit 12 per unit $448. How much is net income using variable costing? Answer Sales ($80 × 29.000 Net income $2.400 . Nader. the company has selling and administrative costs: Fixed selling costs per year Fixed administrative costs per year Variable selling and administrative costs per year $175.000 Selling expense 175.400.400) Less variable selling and administrative costs ($6 × 29.000 75.400.000 75.200 113.117.000 In addition. Beginning inventory totaled 1.400) Contribution margin Less Fixed manufacturing overhead $448. Beginning inventory totaled 1. produces e-readers that it sells for $80 each. Nader produced 28.000 1.000 Administrative expense 75. Inc. Assume the same unit costs in all years.352.000 $ 360.000 $6 per unit During the year. 400.000 = $16 per unit Cost of ending inventory = $16 × 400 = $6. produces e-readers that it sells for $80 each.000 Variable selling and admin expenses ($6 × 29.600 764.800 + 28.400 = 400 Fixed manufacturing cost per unit = $448. Costs involved in production are: Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year $11 per unit 15 per unit 12 per unit $448.000 = $16 per unit Product cost per unit = $11 + $15 + $12 + $16 = $54 b. Units in ending inventory = 1.000 $6 per unit During the year. the company has selling and administrative costs: Fixed selling costs per year Fixed administrative costs per year Variable selling and admin costs per year $175.400)* Gross margin Less selling and administrative expenses: Fixed selling and administrative expense $250.400 Net income $2. a.000 In addition.800 units.400 $ 338.587. 5-39 Nader.000 ÷ 28.000 1. Nader produced 28. Answer a.352.400) Less cost of goods sold ($54 × 29.400 426. How much is net income using full costing? How much fixed manufacturing overhead is in ending inventory under full costing? Sales ($80 × 29.000 readers and sold 29.Chapter 5 Variable Costing 114.000 ÷ 28. Assume the same unit costs in all years.400) 176. b.000 * Fixed manufacturing cost per unit = $448.400 .000 – 29. Beginning inventory totaled 1. Inc.000 75. 000 6.800.500. .000 × .000 5.000 For the coming year. Calculate the impact on profit of the proposed hiring decision.200.000 each for base salary plus 5 percent of their sales for commissions.000 $ 500.000.000.000.000 profit increase Since profit increases. The budget for 2014 follows: Hops Dollar Store Budgeted Variable Costing Income Statement For the Year Ending December 31.000.000 2.000 1. Below is a variable costing income statement for Hops Dollar Store. the company is considering hiring two additional sales representatives at $80.000 − ($1. Hops Dollar Store should hire the two additional sales representatives.000 = 0.05) = $470.000.000 ÷ $15.000 × .000.5-40 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 115.000 4.000 9.40) − $160.800.40 = 40.000. Should the company hire the two additional sales representatives? Answer Contribution margin ÷ Sales = Contribution margin ratio $6.00% (Incremental sales × CMR) − Salaries – Commission = Incremental profit ($1. The company anticipates that each sales representative will generate $900.000 $5. 2014 Sales Less variable costs: Cost of goods sold Selling expense Contribution margin Less fixed costs: Manufacturing expense Selling expense Administrative expense Net income $15.000.000 of incremental sales.300.000 2. 000 $500.000 $500.000 $1.000.000 $1.000 150.350. Answer a.000 $0 $500.000 500.000.000) Contribution margin Less fixed costs: Production Selling and administrative Net income Ending inventory ($100 × 5.000 $100 $200 $150.Chapter 5 Variable Costing 116.000 $500. profit does not fluctuate from year to year. 5-41 Perfect Buy produces electronic garage door openers.350. Explain why.000 2.000 150.000 $100 $200 2016 20.000 2015 20. Under variable costing system. Units sold Selling price per unit Sales Less variable cost of goods sold: ($100 × 20.000.000) 2014 20.000 500.000 2.000.000 $ 200 4.000 2.000 2016 20.000 500. 2014 20.000 2.000 2.000 20.350.000 25.000.000 $150.000. using variable costing.000 $ 200 4.000 $100 $200 2015 20.000 $1.000 150.000 $150.000 15. . profit remains the same each period because fixed manufacturing overhead is treated as a period cost and expensed each year even if units produced differ from the units sold.000.000.000 $0 b.000 $ 200 4.000 2. b.000 Calculate net income and the value of ending inventory for each year using variable costing.000. Information on the first three years of business follows: Units sold Units produced Fixed production costs Variable production costs per unit Selling price per unit Fixed selling and administrative expense a. 200) Net income $1.000 $20 $35.440.200 $350 $220 $40 $112.000 * Fixed manufacturing cost per unit = $112.200)* Gross margin Less selling and administrative expenses: Fixed selling and administrative expense Variable selling and admin expenses ($20 × 1.000 $40 $112. Answer Sales ($1. The following information is available for Trailblazer.000 24.000 $35.200 $350 $220 $1.200) Less cost of goods sold ($690 × 1.200 × 1.000 1.000 $ 553. a manufacturer of four-wheel all-terrain vehicles for its first two years of operation: 2014 2015 Vehicles produced 1.000 828.000 ÷ 1.000 612.200 Selling price per unit Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per year Variable selling and administrative expense per unit Fixed selling and administrative expense per year $1.000 Calculate net income for 2015 using full costing.400 Vehicles sold 900 1.000 .5-42 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 117.400 = $80 per unit Product cost per unit = $350 + $220 + $40 + $80 = $690 59.000 $20 $35. 000 $30 $5 $5 $2 $3 $160.000) Less cost of goods sold ($20 × 17.000 51.000) Selling costs ($3 × 17.000 51.000) Profit $510.000) Less variable expenses Production costs ($12 × 17.000 $80.000 $ 15. Markley Mattresses Full Costing Income Statement For the Year Ending December 31.000 240.000 $80.000 170.000 255. the company’s first year of operations: Units produced Units sold Selling price per unit Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Variable selling cost per unit Annual fixed manufacturing overhead Annual fixed selling and administrative expense a. 20. 5-43 The following information relates to Markley Mattresses for fiscal year 2014.000) = $20 b.000 160. Answer a.000)* Gross margin Less selling and administrative expenses Fixed selling and administrative expense Variable selling expenses ($3 × 17.000 80.Chapter 5 Variable Costing 118.000 Prepare an income statement using full costing. 2014 Sales ($30 × 17.000 $204. 2014 Sales ($30 × 17. b.000 ÷ 20.000) Contribution margin Less fixed expenses Manufacturing overhead Selling and administrative expense Profit $510. Prepare an income statement using variable costing.000 17.000 340.000 255. Markley Mattresses Variable Income Statement For the Year Ending December 31.000 131.000 .000 $ 39.000 * Product cost per unit: $5 + $5 + $2 + $8 ($160. 400.800 69. Costs involved in production are: Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year $11 per unit 15 per unit 12 per unit $448. Adam Tools produces screwdrivers and had 1.000 – 29. Nader produced 28.000 13. What is the value of ending inventory using full costing? Answer Ending inventory in units = 1.75 per unit. Inc. Beginning inventory totaled 1.000 119.600 .000 + ($0.000 per year.400)] Net income 105. Omit the statement heading. a.00 per screwdriver.700 in inventory at the beginning of the year. Assume the same unit costs in all years.400 × $0.75 × 18. Sales (18.000 screwdrivers were produced and 18.800 $ 81. 18.000 ÷ 18. and a fixed selling and administrative cost of $24.00 b. Answer: a.800 45.800 units.00 per unit.600 $92.00 + ($45.800 $257.400 were sold.50) Gross margin Selling & administrative [$24.000 per year.000 $6 per unit During the year.000 readers and sold 29. 120. b.400 × $7. The selling price is $14.400 × $14) Variable manufacturing cost (18.5-44 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 119. c. $5.000) = $7.50 c.800 + 28.400 = 400 units Fixed manufacturing cost per unit = $448.600 138.000 Sales (18. During the year. d. It has a variable manufacturing cost of $5. $257. a fixed manufacturing cost of $45.800 151.000 75.600 37. a variable selling cost of $0. the company has selling and administrative costs: Fixed selling costs per year Fixed administrative costs per year Variable selling and admin costs per year $175.800 Nader. Assume the same unit costs in all years. Omit the statement heading. produces e-readers that it sells for $80 each.000 24.000 In addition.000 $ 82.400 × $5) Variable selling cost (18.75) Contribution margin Fixed production costs Fixed selling & administrative costs Net income d. $5.000 = $16 per unit Product cost per unit = $11 + $15 + $12 + $16 = $54 Ending inventory under full costing: $54 × 400 units = $21.000 ÷ 28.400 × $14) Cost of goods sold (18. What is the product cost per screwdriver using variable costing? What is the product cost per screwdriver using full costing? Prepare an income statement using variable costing. Prepare an income statement using full costing. 300 + $21.000 = $22.400 = $764.000 + $27.400 Variable manufacturing cost per unit = ($84.200 × $62 = $384.400.000 ÷ 28.05 × 6. Inc.200 = $89.00 – $12. General and administrative fixed costs totaled $32. Answer a.490 Net income using variable costing approach: Revenue = 6. Calculate Toro Tools’ net income using variable costing.200 × $62 = $384.400 Variable manufacturing cost per unit = ($84. Assume the same unit costs in all years.710 – $32. Manufacturing costs consisted of direct materials of $84.000 = $20. b.000 = $22.000 readers and sold 29. b.200 = $85.000.000 – $32. Calculate Toro Tools’ net income using full costing.000.300 + $21. Net income using full costing approach: Revenue = 6.000 75.710 Variable selling costs = $1 × 6.200) = $260.400 – ($22.000 wheelbarrows and sold 6. and fixed manufacturing overhead of $120. variable manufacturing overhead of $21.000) ÷ 6. Variable selling costs were $1 per wheelbarrow.05 Fixed manufacturing cost per unit = $120.200 Net income = $384.000 In addition.05 Variable selling costs = $1 × 6.00 – $11. Assume the same unit costs in all years.200 at a price of $62 each.000 $6 per unit During the year. the company has selling and administrative costs: Fixed selling costs per year Fixed administrative costs per year Variable selling and admin costs per year $175.000 – $6. Toro Tools produced 6.00 – $16.05 × 6. produces e-readers that it sells for $80 each. direct labor of $27. Nader produced 28. Last month.000 = $16 Gross margin per unit = $80. Beginning inventory totaled 1.000.400 – $260. a.000) ÷ 6.400 122.200 Net income = $384.200) – $120.000 – $6.00 Total gross margin = $26 × 29.800 units.00 = $26.Chapter 5 Variable Costing 121. Toro had 900 wheelbarrows in beginning inventory.00 – $15. How much is gross margin per unit and in total? Answer Fixed manufacturing cost per unit = $448.000.200 = $6.00 Cost of goods sold = ($42. Costs involved in production are: Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year $11 per unit 15 per unit 12 per unit $448.490 . 5-45 Nader.000 ÷ 6.300.000 + $27.200 = $6. 000 60. 2014 20.00 2015 $500.00 100.600.000 $33.000 150.000 $1.000 2016 20.000 Less cost of goods sold: ($125 × 20.000 15.000 $4. profit fluctuates.000) 2. Explain why profit fluctuates from year to year even though the number of units sold.000.00 100.000 $500.400. and the cost structure remain constant.599.000 $20. the selling price.00 2016 $500.000 Total 60. Information on its first three years of business is as follows: Units sold Units produced Fixed production costs Variable production costs per unit Selling price per unit Fixed selling and administrative exp.000 a.000 150.250.000 Gross margin Less selling and admin expense Net income 1.000 $100 $200 $150. Assess Digital produces digital controls. Calculate net income and the value of ending inventory for each year using full costing.33 Sales ($200 × 20.000 25.000) $4.400.050 150.350.000.950 Even though sales revenue amounts are the same in each period.5-46 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 123.000 $100 $200 $150.000 $25. .000 1.000) + ($133.050 $0 $600.00 $ 125.450.000) ($120 × 5.00 $ 120.33 100.000.000 25.000 $0 Fixed production overhead Divided by units produced Fixed production overhead per unit Variable production costs per unit Full cost per unit Ending inventory ($120 × 5. b.33 × 15.00 $ 133.000 $100 $200 $150.000 2015 20. Answer 2014 $500.000 $1.500. 2.000 ($120 × 20.500.000 $500.000 20. This results because different quantities are produced each period which affects the fixed manufacturing overhead included in cost of goods sold versus ending inventory.000 units) $4.000 1.000 $1.000 2.000) b.000 20.000 15.000 $500. 000.000 2015 70.Chapter 5 Variable Costing 124.000 Units sold 55. .00 per unit in variable production costs and $3.000 Since sales equals production for the 4-year period.000 2016 80. Complete the table below for the number of units and dollar value of ending inventory under variable costing for each year.000 2017 90.000 55.000 = b.000 = $40.000 $8 × 3000 = $8 × 1.000 2017 90.000.000 91.000 82. Assume that the selling price and cost structure stayed the same over the 4-year period.000 82. How would the total net income compare for the entire period between variable and full costing? Answer a.000 Ending inventory using variable costing $8 × 5.000 0 $8. a. The annual fixed production cost is $180. Units produced Units sold Units in ending inventory 2014 60. The annual fixed selling and administrative cost is $20.000 Ending inventory using variable costing b.000 91. 2014 Units produced 60. 5-47 Wise Company began operations in 2014. 2015 70.000 1.000 72.000 Units in ending inventory 5. net income will remain be the same.000 3.000 72.000 2016 80. A company has $8.00 per unit in variable selling and administrative costs.000 $0 $24. 000 units were sold and 150.20 $0.000 $1.00 $930. The entire fixed manufacturing cost is expensed under variable costing.000) Variable cost of production ($1.80 × 155.80 $127.000) Gross margin c.000) Cost of goods sold ($2.05 Sales ($6 × 155. making income smaller than if only part of the fixed cost was expensed. ABT makes a single product.20 × 155.85 Full cost per unit = $0. a proportional share of the fixed manufacturing overhead costs is attached to each unit produced. The fixed costs associated with the extra units are reported on the balance sheet as ending inventory.000 317.000) Contribution margin $930. 155. b.20 = $2.000 186.500 ÷ 150. Answer a. During 2014.000 = $0. 6.750 $612.000 Fixed cost per unit = $127.000 $6.000 124. . rather than on the income statement as an expense. How much is the contribution margin for 2014 under variable costing? How much is the gross margin for 2014 under full costing? Explain why variable and full costing produce different results. bucket stoppers.000 units were produced.250 Under full costing.000 $620.05 × 155.5-48 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition CHALLENGE EXERCISES 125. b. Sales ($6 × 155.85 + $1.000) Variable operating costs ($0.500 $32. Information for 2014 appears below: Beginning inventory in units Variable production cost per unit Variable operating costs per unit Fixed production cost per year Fixed selling and administrative cost per year Selling price per unit a. c. so the change in the inventory level is very close to zero. Units they produce are approximately equal to those they sell. 5-49 Bucket Zone had 2.75 × 400 units = $1. Since the difference in variable and full costing income is due to the change in inventory units. each on a per unit basis. fixed manufacturing overhead is considered a cost that becomes part of inventory and is not expensed until the goods are sold. b. The company has annual fixed selling and administrative costs of $78. How would the difference between variable and full costing be impacted if the company switched to a JIT system? Explain. Explain the significant difference between variable costing and full costing. SHORT-ANSWER ESSAYS 127. In variable costing. Also. c. Change in inventory level = 23. fixed manufacturing overhead is treated as a period cost and expensed as it is incurred. Operating income using variable costing is $33. b.250 ÷ 23.000 and fixed annual manufacturing overhead costs totaling $86.000 buckets and sold 23.250. Determine operating income under absorption costing. It manufactured 23.000. Determine the amount by which net income will differ under absorption costing compared to variable costing.000 (1. it discourages over-production since managers cannot increase income by increasing production.200 buckets in its beginning inventory.500 c. . the net income difference will be close to zero as well. Why is a variable costing income statement more useful for internal purposes? Answer The format separates fixed and variable costs facilitating cost-volume-profit analysis.400 – 23. a. In full costing.20 for variable overhead. $2 for direct labor. Answer The significant difference between variable costing and full costing is the treatment of fixed manufacturing overhead. Costs involved in production are $3 for direct materials.Companies that use JIT inventory systems have very low inventory levels since they don’t produce until they are ready to sell products.000 = 400 units decrease Fixed manufacturing cost per unit = $86.500 Variable costing operating income Less fixed costs difference Absorption costing operating income $33.400 buckets during the year. Answer a.Chapter 5 Variable Costing 126.500) $31.75 per unit Difference = $3.000 = $3. and $1. 128. Under full costing. . and expenses the full amount regardless of production. income will be higher. What is the implication of a company using JIT with full costing versus using JIT with variable costing? Answer JIT companies have very little inventory and so there is very little difference between full and variable costing income. This will result in a continuous buildup of inventory. Variable costing treats fixed production costs as a period cost. When these reduced costs are included in cost of goods sold. Thus. 130. The only way to do this is to produce more than is sold in each year. 131. increasing production will reduce the fixed cost per unit.5-50 Test Bank to accompany Jiambalvo Managerial Accounting 5th Edition 129. Can a company continue to increase income indefinitely by using full costing? Answer It is possible that a growing company can do this. how does increasing production increase income? Does this work under variable costing? Why or why not? Answer Since fixed production costs are included in the unit product cost using full costing. that would not be a good strategy as it would lead to expensive cash outflow for buildups of inventories along with all the associated carrying costs. income is unaffected by increasing production. For most companies.