11/17/2020 Absorption Costing vs Variable Costing

Absorption Costing vs Variable Costing

3rd Formative Assessment

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Untitled Title

Untitled Title

Name *

Your answer

Section *

True or False

Using variable costing rather than absorption costing is anadvantage to a 1 point

company because it agrees with the income information released to
external usersunder GAAP. *

True

False

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11/17/2020 Absorption Costing vs Variable Costing

Total manufacturing overhead is treated as a product cost when using 1 point

absorption costing *

True

False

Variable manufacturing overhead is assigned to inventory when using 1 point

variable costing but not when using absorption costin *

True

False

Under absorption costing, fixed manufacturing overhead costs andvariable 1 point

manufacturing overhead costs are both product costs. *

True

False

Net income is higher under absorption costing than under variablecosting 1 point
when units produced exceed units sold. *

True

False

A company will be in compliance with GAAP when it prepares 1 point

financialstatements in accordance with variable-costing principles
because they include both fixed and variable manufacturing costs. *

True

False

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11/17/2020 Absorption Costing vs Variable Costing

A manager can increase reported income by producing lesser units than 1 point
are sold under absorption costing *

True

False

Contribution margin is disclosed on an income statement prepared 1 point

usingabsorption costing. *

True

False

Identification: Identify costs as product costs or period costs under variable

costing.

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11/17/2020 Absorption Costing vs Variable Costing

* 10 points

Period cost Product cost

Commission fees for

salespersons

Glue for wooden chairs—

variable

Fabric for T-shirts

Labour costs for producing

TVs

Factory rent expense—fixed

Factory utility costs—variable

Car mileage for salespersons

Administrative expenses—
fixed

Administrative Internet
connection fees

Wages—assembly line

Short Problems
If the answer is in dollars, please write your answers in this manner $100,000 or $5,287.35.There should
be no space after the dollar sign and make sure to use the appropriate commas. Provide only decimals if
the answer is not in whole numbers, otherwise, omit the decimals.

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11/17/2020 Absorption Costing vs Variable Costing

Calculate product costs under variable costing * 2 points

Your answer

Calculate product costs under absorption costing * 2 points

Your answer

During 2020, Rax Corp. produced 40,000 units and sold 40,000 for $15 2 points
per unit. Variable manufacturing costs were $6 per unit. Annual fixed
manufacturing overhead was $80,000 ($2 per unit). Variable selling and
administrative costs were $2 per unit sold, and fixed selling and
administrative expenses were $20,000. How much is the net operating
income under absorption costing? *

Your answer

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11/17/2020 Absorption Costing vs Variable Costing

Casper Company produced 20,000 units and sold 18,000 during the 2 points
current year. Under absorption costing, net income was $25,000.Fixed
overhead was $190,000. Determine the net income under variable
costing. *

Your answer

Xu Equipment Company manufactures and distributesindustrial air 2 points

compressors. The following data are available for the year ended
December 31, 2020. The company had no beginning inventory. In 2020, it
produced 1,500 units but sold only 1,200 units. The unit selling price was
$4,500. Costs and expenses were as follows: (see picture) Determine the
net income of the company using variable costing *

Your answer

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11/17/2020 Absorption Costing vs Variable Costing

A manufacturing company that produces a single product has provided 2 points

the following data concerning its most recent month of operations: (see
image) What is the variable costing unit product cost for the month? *

Your answer

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11/17/2020 Absorption Costing vs Variable Costing

A manufacturing company that produces a single product has provided 2 points

the following data concerning its most recent month of operations: (see
image) What is the total period cost for the month under absorption
costing? *

Your answer

Atlantic Company produces a single product. For the most recent year, 2 points

the company's net operating income computed by the absorption costing

method was $7,400, and its net operating income computed by the
variable costing method was $10,100. The company's unit product cost
was $17 under variable costing and $22 under absorption costing. If the
ending inventory consisted of 1,460 units, the beginning inventory must
have been: *

Your answer

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11/17/2020 Absorption Costing vs Variable Costing

Lee Company produces a single product. At the end of last year, the 2 points
company had 30,000 units in its ending inventory. Lee's variable
production costs are $10 per unit and its fixed manufacturing overhead
costs are $5 per unit every year. The company's net operating income for
the year was $12,000 higher under variable costing than under absorption
costing. Given these facts, the number of units of product in inventory at
the beginning of the year must have been: *

Your answer

Roberts Company produces a single product. During the year just ended, 2 points

the company's net operating income under absorption costing was

$3,000 lower than under variable costing. The company sold 9,000 units
during the year, and its variable costs were $9 per unit, of which $3 was
variable selling expense. If production cost is $11 per unit under absorption
costing every year, then how many units did the company produce during
the year?

Your answer

Harris Company produces a single product. Last year, Harris 2 points

manufactured 17,000 units and sold 13,000 units. Production costs for the
year were as follows: (see image) Sales were $780,000 for the year,
variable selling and administrative expenses were $88,400, and fixed
selling and administrative expenses were $170,000. There was no
beginning inventory. Assume that direct labor is a variable cost. Under
absorption costing, the carrying value on the balance sheet of the ending
inventory for the year would be? *

Your answer

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11/17/2020 Absorption Costing vs Variable Costing

Comprehensive Problem A

The vice-president of Hustle Ltd. is not happy. Sales have been rising steadily,
but profits have been falling. In September 2020,Hustle had record sales, but
the lowest profits ever. The results for the months of July, August, and
September 2020 follow (see image 1). You have been asked to explain to the
vice-president that the problem is more a matter of appearance than reality
by reinterpreting the results in a variable costing format. You obtain the
following information that will help you (see image 2). Additional information
about the company's operations is as follows (see image 3).

Image 1

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11/17/2020 Absorption Costing vs Variable Costing

Image 2

Image 3

Calculate the monthly break-even point in (units). * 2 points

Your answer

Calculate the net income for the month of September * 2 points

Your answer

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11/17/2020 Absorption Costing vs Variable Costing

Reconcile the variable-costing and absorption-costing net incomes for 10 points

each month (July, August, September). Explain why profits have not been
more closely related to changes in the sales volume. (Email your answer
to me) *

Your answer

Comprehensive Problem B

Chuck Rhoades was hired in January 2020 to manage the home products
division of Axelrod Techno. As part of his employment contract, he was told that
he would get an extra $5,000 bonus for every 1% increase by which the division's
profits exceeded the previous year's profits. Soon after coming on board,
Rhoades met with his plant managers and explained that he wanted the plants to
be run at full capacity. Previously, the plant had employed just-in-time inventory
practices and had consequently produced units only as they were needed.
Rhoades stated that, under the previous management, the company had missed
out on too many sales opportunities because it did not have enough inventory on
hand. Because the previous management had employed just-in-time inventory
practices, when Rhoades came on board, there was virtually no beginning
inventory. The selling price and variable cost per unit remained the same from
2019 to 2020. Additional information follows (see image):

Calculate Rhoades's bonus in 2020 based on the net income figures 2 points

shown. *

Your answer

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11/17/2020 Absorption Costing vs Variable Costing

Calculate the 2020 net income under variable costing * 2 points

Your answer

Re-calculate Rhoades's bonus in 2020 under variable costing * 2 points

Your answer

Were Rhoades's actions ethical or not? Explain in not more than 40 words. 5 points

Your answer

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