Introduction to Management Accounting 16th Edition Horngren Test Bank

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Introduction to Management Accounting 16th Edition Horngren Test Bank

Description

Introduction to Management Accounting, 16e (Horngren)
Chapter 13 Accounting for Overhead Costs

13.1 Questions

1) Assume machine hours are the cost-allocation base for the budgeted rate for fixed overhead costs. The total fixed overhead cost applied to a product is the result of multiplying the ________ by the ________ for the product.
A) budgeted fixed overhead costs; percent of completion
B) actual fixed overhead rate; budgeted machine hours
C) budgeted fixed overhead costs; budgeted machine hours
D) budgeted fixed overhead rate; actual machine hours used
Answer: D
Diff: 2
LO: 13-1
AACSB: Reflective thinking skills
Learning Outcome: None

2) The cost-allocation base used for the fixed overhead rate should be ________.
A) underestimated due to the conservatism principle
B) overestimated due to the conservatism principle
C) the most plausible and reliable measure available of the cause and effect relationship between overhead costs and production volume
D) the most plausible and reliable measure available of the relationship between overhead costs and sales
Answer: C
Diff: 2
LO: 13-1
AACSB: Reflective thinking skills
Learning Outcome: None

3) The two key items in determining the budgeted factory overhead rate are total budgeted factory overhead costs and ________.
A) actual amount of the cost driver
B) total actual factory overhead costs
C) budgeted cost-allocation base level
D) total estimated factory overhead costs
Answer: C
Diff: 1
LO: 13-1
AACSB: Reflective thinking skills
Learning Outcome: None

4) The budgeted factory overhead rate is computed as ________.
A) actual factory overhead costs divided by actual production in units
B) actual factory overhead costs divided by actual cost driver activity
C) budgeted factory overhead costs divided by actual cost driver activity
D) budgeted factory overhead costs divided by budgeted cost-allocation base level
Answer: D
Diff: 1
LO: 13-1
AACSB: Reflective thinking skills
Learning Outcome: None
5) USC Company has the following information available:

Budgeted factory overhead costs $90,000
Actual factory overhead costs $80,000
Budgeted direct labor hours 20,000
Actual direct labor hours 21,000

Assume direct labor hours are the cost driver of factory overhead costs. The budgeted factory overhead rate is ________.
A) $3.57 per direct labor hour
B) $3.81 per direct labor hour
C) $4.00 per direct labor hour
D) $4.50 per direct labor hour
Answer: D
Diff: 2
LO: 13-1
AACSB: Analytic skills
Learning Outcome: None

6) Dodge Company had the following information:

Budgeted factory overhead costs $90,000
Actual factory overhead costs $82,000
Budgeted machine hours 40,000
Actual machine hours 35,500

Assume machine hours are the cost driver of factory overhead costs. The budgeted factory overhead rate is ________.
A) $2.025 per machine hour
B) $2.05 per machine hour
C) $2.25 per machine hour
D) $2.875 per machine hour
Answer: C
Diff: 2
LO: 13-1
AACSB: Analytic skills
Learning Outcome: None
7) Rocky Company had the following information:

Budgeted factory overhead costs $90,000
Actual factory overhead costs $80,000
Budgeted production setups 12,000
Actual production setups 11,500

Assume production setups are the cost driver for factory overhead costs. The budgeted factory overhead rate is ________.
A) $6.25 per setup
B) $6.52 per setup
C) $6.78 per setup
D) $7.50 per setup
Answer: D
Diff: 2
LO: 13-1
AACSB: Analytic skills
Learning Outcome: None

8) Green Company had the following information:

Budgeted factory overhead costs $144,500
Actual factory overhead costs $151,980
Budgeted direct labor hours 34,000
Actual direct labor hours 30,400

Assume direct labor hours are the cost driver for factory overhead costs. The budgeted factory overhead rate is ________.
A) $4.25 per direct labor hour
B) $4.45 per direct labor hour
C) $4.63 per direct labor hour
D) $4.84 per direct labor hour
Answer: A
Diff: 2
LO: 13-1
AACSB: Analytic skills
Learning Outcome: None

9) To apply the budgeted overhead costs to a job, the budgeted overhead rate is multiplied by the ________.
A) actual production in units
B) expected production in units
C) actual amount of cost driver used by the job
D) expected amount of cost driver used by the job
Answer: C
Diff: 1
LO: 13-1
AACSB: Reflective thinking skills
Learning Outcome: None
10) Kingsway Company had the following information available for the past quarter:

Budgeted factory overhead costs $75,000
Actual factory overhead costs $80,000
Budgeted direct labor hours 20,000
Actual direct labor hours 21,000

Assume the cost driver for factory overhead costs is direct labor hours and a job uses 2,000 direct labor hours. The job was budgeted to use 2,100 direct labor hours. What amount of factory overhead is applied to the job?
A) $7,140
B) $7,500
C) $7,875
D) $8,000
Answer: B
Diff: 2
LO: 13-1
AACSB: Analytic skills
Learning Outcome: None

11) Barenz Builders had the following information available for the past twelve months:

Budgeted factory overhead costs $80,000
Actual factory overhead costs $82,000
Budgeted machine hours 40,000
Actual machine hours 39,500

Assume the cost driver for factory overhead costs is machine hours and a job uses 10,000 machine hours. The job was budgeted to use 11,000 machine hours. What amount of factory overhead is applied to the job?
A) $20,000
B) $20,250
C) $22,000
D) $22,278
Answer: A
Diff: 2
LO: 13-1
AACSB: Analytic skills
Learning Outcome: None

12) A company can increase the accuracy of its product cost information by converting indirect costs to direct costs.
Answer: TRUE
Diff: 1
LO: 13-1
AACSB: Reflective thinking skills
Learning Outcome: None
13) When calculating the budgeted overhead rate, the numerator of the fraction is the actual amount of the cost driver.
Answer: FALSE
Diff: 1
LO: 13-1
AACSB: Reflective thinking skills
Learning Outcome: None

14) Accountants use actual overhead rates when applying overhead costs to jobs as they are completed.
Answer: FALSE
Diff: 2
LO: 13-1
AACSB: Reflective thinking skills
Learning Outcome: None

15) The overhead cost applied to a job is equal to the budgeted overhead rate times the budgeted amount of the cost driver.
Answer: FALSE
Diff: 2
LO: 13-1
AACSB: Reflective thinking skills
Learning Outcome: None

13.2 Questions

1) Machine usage in a department causes most of the overhead costs such as depreciation expense, maintenance expense and repair expense. What is the most appropriate cost-allocation base for applying overhead costs to products?
A) the number of machines
B) the salvage value of the machines
C) the average age of the machines
D) the number of machine hours
Answer: D
Diff: 2
LO: 13-2
AACSB: Reflective thinking skills
Learning Outcome: None

2) In a clothing factory, clothing items are sewn by hundreds of workers using sewing machines and hand stitching. The sewing machines are used 80 percent of the time it takes to make the clothing items. Overhead costs relate primarily to electricity and indirect materials such as needles, bobbins, thread and thimbles. What is the most appropriate cost-allocation base for applying overhead costs to the clothing items?
A) the number of sewing machines
B) the number of direct labor hours
C) the number of sewing machine hours
D) the number of workers
Answer: C
Diff: 2
LO: 13-2
AACSB: Reflective thinking skills
Learning Outcome: None
3) What is the 80-20 rule used when selecting cost allocation bases for the budgeted overhead rate?
A) 80% of the cost-allocation bases drive 20% of the overhead costs
B) 20% of the cost-allocation bases drive 80% of the overhead costs
C) 80% of the overhead rate is determined by 20% of the cost-allocation bases
D) 20% of the overhead rate is determined by 80% of the cost-allocation bases
Answer: B
Diff: 2
LO: 13-2
AACSB: Reflective thinking skills
Learning Outcome: None

4) Ideally, if a department has more than one cost-allocation base for overhead costs, it should ________.
A) use only one cost-allocation base with the highest amount of overhead costs
B) use only two cost-allocation bases with the highest amount of overhead costs
C) accumulate a separate cost pool for each cost-allocation base and put the overhead costs into the appropriate cost pool
D) determine the budgeted overhead rate using the budgeted overhead costs and the budgeted amount of only one cost driver
Answer: C
Diff: 2
LO: 13-2
AACSB: Reflective thinking skills
Learning Outcome: None

5) If a department identifies more than one cost driver for overhead costs, the department ideally should ________.
A) put 80 percent of the costs into one pool and 20 percent into a second pool
B) select a single cost driver
C) allocate 80 percent of the costs with 20 percent of the cost drivers
D) create as many cost pools as there are cost drivers
Answer: D
Diff: 1
LO: 13-2
AACSB: Reflective thinking skills
Learning Outcome: None

6) The cost driver chosen for applying factory overhead costs should be the cost driver that ________.
A) is easiest to understand
B) incurs the least administrative costs
C) is easiest to calculate
D) causes most of the overhead costs
Answer: D
Diff: 1
LO: 13-2
AACSB: Reflective thinking skills
Learning Outcome: None
7) There should be a strong cause-and-effect relationship between factory overhead costs incurred and the cost-allocation base chosen for its application.
Answer: TRUE
Diff: 1
LO: 13-2
AACSB: Reflective thinking skills
Learning Outcome: None

8) When selecting a cost driver for a budgeted overhead rate, no one cost driver is appropriate for all situations.
Answer: TRUE
Diff: 1
LO: 13-2
AACSB: Reflective thinking skills
Learning Outcome: None

9) In practice, it may be too costly to have several cost-allocation bases for applying overhead costs to products.
Answer: TRUE
Diff: 1
LO: 13-2
AACSB: Reflective thinking skills
Learning Outcome: None

13.3 Questions

1) Causes for the difference between applied and actual overhead costs do NOT include ________.
A) different number of workdays in different months
B) price changes in individual overhead items
C) inefficient use of overhead items
D) repairs made on a regular, consistent basis
Answer: D
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

2) When we use an annual overhead rate consistently throughout the year for product costing, without altering it month to month, this is called a(n) ________.
A) direct costing system
B) absorption costing system
C) normal costing system
D) constant costing system
Answer: C
Diff: 1
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

3) A departments applied overhead cost will ________ equal the actual overhead cost incurred.
A) always
B) never
C) about fifty percent of the time
D) rarely
Answer: D
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

4) When the actual overhead costs exceed the amount of applied overhead costs, the overhead costs are ________. At the end of the accounting period, accountants dispose of the underapplied or overapplied overhead using ________ or ________.
A) overapplied; proration; immediate write-off
B) underapplied; proration; immediate write-off
C) overapplied; flexible budget variance; proration
D) underapplied; flexible budget variance; immediate write-off
Answer: B
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

5) Under the immediate write-off method of disposing of underapplied or overapplied overhead costs, current net income is ________ by underapplied overhead costs and current net income is ________ by overapplied overhead costs.
A) increased, decreased
B) decreased, increased
C) not affected, not affected
D) none of the above
Answer: B
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

6) To determine the cost of a manufactured product, a normal costing system uses ________.
A) actual direct material, actual direct labor and actual overhead costs
B) applied direct material, applied direct labor and applied overhead costs
C) applied direct material, applied direct labor and actual overhead costs
D) actual direct materials, actual direct labor and normal applied overhead costs
Answer: D
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None
7) The most important contributor to the variance between actual and applied overhead costs is ________.
A) poor forecasting
B) inefficient use of overhead items
C) price changes in overhead items
D) operating at a different level of volume than the level used as a denominator in calculating the budgeted overhead rate
Answer: D
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

8) The excess of applied overhead costs over the actual overhead costs is called ________.
A) overapplied overhead
B) underapplied overhead
C) underbudgeted overhead
D) overestimated overhead
Answer: A
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

9) Victor Company incurred actual overhead costs of $297,500 for the year. A budgeted factory overhead rate of 150% of direct labor cost was determined at the beginning of the year. Budgeted factory overhead was $300,000 and budgeted direct labor cost was $200,000. Actual direct labor cost was $205,000 for the year. The factory overhead variance for the year was ________.
A) $2,500 underapplied
B) $2,500 overapplied
C) $10,000 underapplied
D) $10,000 overapplied
Answer: B
Diff: 2
LO: 13-3
AACSB: Analytic skills
Learning Outcome: None

10) The following information was gathered for all the products made by the BBB Company:

Budgeted direct labor hours 8,000
Actual direct labor hours 8,100
Budgeted factory overhead costs $224,000
Actual factory overhead costs $224,970

Assume the cost driver for factory overhead costs is direct labor hours. What is the amount of overapplied or underapplied overhead?
A) $970 underapplied
B) $970 overapplied
C) $1,830 underapplied
D) $1,830 overapplied
Answer: D
Diff: 2
LO: 13-3
AACSB: Analytic skills
Learning Outcome: None

11) The following information was gathered for all the products made by the Ringaling Company:

Budgeted direct labor hours 31,000
Actual direct labor hours 32,400
Budgeted factory overhead costs $147,250
Actual factory overhead costs $149,980

Assume the cost driver for factory overhead costs is direct labor hours. What is the amount of overapplied or underapplied overhead?
A) $2,730 underapplied
B) $2,730 overapplied
C) $3,920 underapplied
D) $3,920 overapplied
Answer: D
Diff: 2
LO: 13-3
AACSB: Analytic skills
Learning Outcome: None

12) The immediate write-off of overhead variances is used because ________.
A) it is simpler
B) the company has probably sold most of the goods produced during the period so prorating the variance to inventory accounts would not produce materially different results
C) the extra overhead costs result from inefficiencies in the current period and therefore do not represent assets
D) all of the above
Answer: D
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None
13) The most widely used approach to disposing of overhead variances is ________.
A) to allocate it between finished goods inventory, work-in-process inventory and direct materials inventory
B) to allocate it between cost of goods sold, finished goods inventory and work-in-process inventory
C) to allocate it between cost of goods sold, finished goods inventory and direct materials inventory
D) immediate write-off
Answer: D
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

14) In the immediate write-off of overhead variances, underapplied overhead is regarded as a(n) ________.
A) addition to the cost of inventory
B) deduction from the cost of inventory
C) decrease in cost of goods sold
D) increase in cost of goods sold
Answer: D
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

15) In the immediate write-off approach to overhead variances, overapplied overhead is regarded as a(n) ________.
A) addition to the cost of inventory
B) reduction to the cost of inventory
C) increase in cost of goods sold
D) decrease in cost of goods sold
Answer: D
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

16) In practice, companies generally prorate overhead variances when it would materially affect ________ and ________.
A) inventory valuations; stock dividends
B) inventory valuations; cash dividends
C) inventory valuations; net income
D) stock option plans; manager bonuses
Answer: C
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None
17) The proration method of disposing of overhead variances assigns the variance in proportion to the sizes of the ending account balances of ________.
A) work-in-process inventory, finished goods inventory and direct materials inventory
B) work-in-process inventory, direct materials inventory and cost of goods sold
C) work-in-process inventory and direct materials inventory
D) work-in-process inventory, finished goods inventory and cost of goods sold
Answer: D
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

18) The most common reason for a variance between actual overhead costs and applied overhead costs is the actual level of volume does not equal the level used to calculate the budgeted overhead rate.
Answer: TRUE
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

19) When the amount of overhead applied to a product exceeds the amount incurred to make the product, the difference is called overapplied overhead.
Answer: TRUE
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

20) The most widely used approach in disposing of an overhead variance is proration to the affected accounts.
Answer: FALSE
Diff: 1
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

21) The proration method of disposing of an overhead variance prorates the variance among three accounts that include Direct Materials Inventory, Work-in-Process Inventory and Finished Goods Inventory.
Answer: FALSE
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

22) The immediate write-off method of disposing of underapplied overhead subtracts the dollar amount from Cost of Goods Sold.
Answer: FALSE
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None
23) The proration method of disposing of overhead variances prorates the variance based on the beginning of the reporting period account balances in Cost of Goods Sold, Work-in-Process Inventory and Finished Goods Inventory.
Answer: FALSE
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

24) In practice, proration of overhead variances among the affected accounts is undertaken when it materially affects inventory valuations and net income.
Answer: TRUE
Diff: 2
LO: 13-3
AACSB: Reflective thinking skills
Learning Outcome: None

25) The following information was gathered for Edwards Company:

Budgeted direct labor hours 75,000
Actual direct labor hours 77,500
Budgeted factory overhead costs $562,500
Actual factory overhead costs $540,000
Cost driver of overhead costs Direct labor hours

Required:
A) Compute the budgeted factory overhead rate.
B) Compute the factory overhead applied.
C) Compute the amount of underapplied or overapplied factory overhead.
Answer:
A) $562,500/75,000 = $7.50 per direct labor hour
B) $7.50 77,500 = $581,250
C) $581,250 $540,000 = $41,250 overapplied
Diff: 2
LO: 13-3
AACSB: Analytic skills
Learning Outcome: None

26) Johannes Corporation uses a budgeted factory overhead rate to apply overhead to production. Direct labor costs are the cost driver for overhead costs. The following data are available for the year ending December 31, 2015:

Budgeted factory overhead costs $675,000
Actual factory overhead costs $1,200,000
Budgeted direct labor costs $250,000
Actual direct labor costs $482,000
Cost of goods sold $150,000
Direct materials inventory, December 31, 2015 $120,000
Work-in-process inventory, December 31, 2015 $100,000
Finished goods inventory, December 31, 2015 $250,000

Required:
A) Compute the budgeted factory overhead rate.
B) Compute the applied overhead costs.
C) What is the overhead variance?
D) Prorate the overhead variance to the appropriate accounts.
Answer:
A) $675,000/$250,000 = 270% of direct labor cost
B) 270% $482,000 = $1,301,400
C) $1,301,400 $1,200,000 = $101,400 overapplied
D) Cost of goods sold: $150,000/$500,000 $101,400 = $30,420
Finished goods inventory: $250,000/$500,000 $101,400 = $50,700
Work-in-process inventory: $100,000/$500,000 $101,400 = $20,280
Diff: 2
LO: 13-3
AACSB: Analytic skills
Learning Outcome: None

27) Stanley Company applies overhead based on machine hours. The following data was available:

Budgeted factory overhead costs $280,000
Budgeted machine hours 20,000
Actual factory overhead costs $292,000
Actual machine hours 19,050
Cost of goods sold $560,000
Direct materials inventory, ending balance $60,000
Work-in-process inventory, ending balance $190,000
Finished goods inventory, ending balance $250,000

Required:
A) Compute the budgeted factory overhead rate.
B) Compute the underapplied or overapplied factory overhead.
C) Under the immediate write-off approach to overhead variances, how would you dispose of the overhead variance?
D) If the immediate write-off approach to overhead variances is not used, how would you dispose of the overhead variance?
Answer:
A) $280,000/20,000 = $14.00 per machine hour
B) $14.00 19,050 = $266,700
$292,000 $266,700 = $25,300 underapplied
C) Should add $25,300 to Cost of Goods Sold.
D) Cost of Goods Sold: $560,000/$1,000,000 $25,300 = $14,168 (Increase account)
Work-in-process inventory: $190,000/$1,000,000 $25,300 = $4,807 (Increase account)
Finished goods inventory: $250,000/$1,000,000 $25,300 = $6,325 (Increase account)
Diff: 2
LO: 13-3
AACSB: Analytic skills
Learning Outcome: None

13.4 Questions

1) In determining product costs, variable costing and absorption costing differ in the treatment of ________.
A) variable overhead costs
B) variable selling costs
C) fixed selling costs
D) fixed overhead costs
Answer: D
Diff: 1
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

2) Under variable costing, fixed manufacturing overhead costs are a ________ cost. Under absorption costing, fixed manufacturing overhead costs are a ________ cost.
A) product, period
B) period, product
C) product, product
D) period, period
Answer: B
Diff: 2
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

3) Why is absorption costing more widely used than variable costing?
A) Variable costing is not allowed for tax purposes, but absorption costing is allowed.
B) Variable costing is not allowed for external reports, but absorption costing is allowed.
C) Absorption costing removes the impact of changing inventory levels from the financial results.
D) A and B
Answer: D
Diff: 2
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

4) Why is variable costing used for internal reports?
A) It can also be used for external reports.
B) It is readily available through most computer systems.
C) It removes the impact of changing inventory levels from the financial results.
D) B and C
Answer: D
Diff: 2
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

5) Variable costing net income does not equal absorption costing net income due to ________.
A) variable selling costs
B) variable manufacturing overhead costs
C) fixed manufacturing overhead costs
D) variable and fixed manufacturing overhead costs
Answer: C
Diff: 2
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

6) Under absorption costing, fixed overhead costs applied to products will be included in ________.
A) Cost of Goods Sold on the income statement when the products are sold
B) Ending Inventory on the balance sheet before the products are sold
C) Extraordinary Item on the income statement when the products are sold
D) A and B
Answer: D
Diff: 2
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

7) Variable costing considers fixed manufacturing overhead costs as a(n) ________.
A) inventoriable cost
B) product cost
C) future cost
D) immediate expense
Answer: D
Diff: 2
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

8) The only difference between the net income between variable costing and absorption costing is the treatment of ________.
A) variable selling costs
B) variable administrative costs
C) fixed selling costs
D) fixed manufacturing overhead costs
Answer: D
Diff: 2
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

9) Variable costing is also called ________.
A) functional costing
B) indirect costing
C) absorption costing
D) the contribution approach
Answer: D
Diff: 1
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

10) ________ is used for external reporting.
A) Absorption costing
B) Variable costing
C) Direct costing
D) The contribution margin approach
Answer: A
Diff: 1
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

11) The variable-costing method regards fixed manufacturing costs as a period expense when incurred.
Answer: TRUE
Diff: 2
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

12) Variable costing is more important for external reports than internal reports.
Answer: FALSE
Diff: 1
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

13) Fixed manufacturing overhead costs are excluded from product costs under absorption costing.
Answer: FALSE
Diff: 2
LO: 13-4
AACSB: Reflective thinking skills
Learning Outcome: None

13.5 Questions

1) To compute contribution margin under variable costing, we deduct ________ and ________ from sales.
A) variable manufacturing costs; fixed manufacturing costs
B) variable selling costs; fixed manufacturing costs
C) variable administrative costs; fixed manufacturing overhead costs
D) variable manufacturing costs; variable selling and administrative costs
Answer: D
Diff: 2
LO: 13-5
AACSB: Reflective thinking skills
Learning Outcome: None

2) Product costs for variable costing include direct materials, direct labor and ________.
A) variable selling costs
B) fixed manufacturing overhead costs
C) variable manufacturing overhead costs
D) variable manufacturing overhead costs plus variable selling costs
Answer: C
Diff: 2
LO: 13-5
AACSB: Reflective thinking skills
Learning Outcome: None

3) When the variable costing method is used, fixed factory overhead appears on the income statement as a ________.
A) component of cost of goods sold
B) component of cost of goods sold and production volume variance
C) production volume variance
D) fixed expense
Answer: D
Diff: 2
LO: 13-5
AACSB: Reflective thinking skills
Learning Outcome: None

4) Wininger Incorporated reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $300
Sales $480,000
Direct materials used $220,000
Direct labor $200,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units

Under variable costing, the product cost per unit is ________.
A) $160
B) $170
C) $200
D) $240
Answer: D
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None
5) Durante Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $300
Sales $480,000
Direct materials used $220,000
Direct labor $200,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units

Under variable costing, the cost of finished goods ending inventory is ________.
A) $64,000
B) $68,000
C) $80,000
D) $96,000
Answer: D
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

6) Kaprelian Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $300
Sales $480,000
Direct materials used $220,000
Direct labor $200,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units

Under variable costing, the variable manufacturing cost of goods sold is ________.
A) $256,000
B) $272,000
C) $320,000
D) $384,000
Answer: D
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

7) Jorgensen Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $300
Sales $480,000
Direct materials used $220,000
Direct labor $200,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units

Under variable costing, the contribution margin is ________.
A) $20,000
B) $40,000
C) $76,000
D) $104,000
Answer: C
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

8) Gnat Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $300
Sales $480,000
Direct materials used $220,000
Direct labor $200,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units

Under variable costing, the operating income or loss is ________.
A) $(6,000)
B) $(14,000)
C) $10,000
D) $41,000
Answer: B
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

9) Stelloh Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $65
Sales $78,000
Direct materials used $25,000
Direct labor $35,000
Variable factory overhead $15,000
Fixed factory overhead $10,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units

Under variable costing, what is the product cost per unit?
A) $30.00
B) $31.25
C) $35.42
D) $39.00
Answer: B
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

10) Lorna Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $65
Sales $78,000
Direct materials used $25,000
Direct labor $35,000
Variable factory overhead $15,000
Fixed factory overhead $10,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units

Under variable costing, the cost of ending inventory of finished goods is ________.
A) $35,000
B) $37,500
C) $39,000
D) $42,500
Answer: B
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

11) Dolhun Industries Inc. reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $65
Sales $78,000
Direct materials used $25,000
Direct labor $35,000
Variable factory overhead $15,000
Fixed factory overhead $10,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units

Under variable costing, the variable manufacturing cost of goods sold is ________.
A) $35,000
B) $37,500
C) $39,000
D) $42,500
Answer: B
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

12) Seidner Industries reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $65
Sales $78,000
Direct materials used $25,000
Direct labor $35,000
Variable factory overhead $15,000
Fixed factory overhead $10,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units

Under variable costing, the contribution margin is ________.
A) $32,000
B) $36,000
C) $37,500
D) $39,500
Answer: C
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

13) Freund Industries Inc. reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $100.00
Sales $100,000
Direct materials used $37,500
Direct labor $36,000
Variable factory overhead $25,500
Fixed factory overhead 20,000
Variable selling and administrative expenses $2,000
Fixed selling and administrative expenses $7,500
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units

Under variable costing, what is the product cost per unit?
A) $40.00
B) $42.00
C) $45.00
D) $54.09
Answer: C
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

14) Marian Industries Inc. reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $100.00
Sales $100,000
Direct materials used $37,500
Direct labor $36,000
Variable factory overhead $25,500
Fixed factory overhead $20,000
Variable selling and administrative expenses $2,000
Fixed selling and administrative expenses $7,500
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units

Under variable costing, what is the cost of the finished goods ending inventory?
A) $48,000
B) $50,000
C) $54,000
D) $58,000
Answer: C
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

15) Joseph Industries Inc. reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $100.00
Sales $100,000
Direct materials used $37,500
Direct labor $36,000
Variable factory overhead $25,500
Fixed factory overhead $20,000
Variable selling and administrative expenses $2,000
Fixed selling and administrative expenses $7,500
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units

Under variable costing, what is the variable manufacturing cost of goods sold?
A) $45,000
B) $54,000
C) $101,000
D) $119,000
Answer: A
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

16) Comerowski Industries Inc. reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $100.00
Sales $100,000
Direct materials used $37,500
Direct labor $36,000
Variable factory overhead $25,500
Fixed factory overhead $20,000
Variable selling and administrative expenses $2,000
Fixed selling and administrative expenses $7,500
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units

Under variable costing, what is the total contribution margin?
A) $10,500
B) $31,500
C) $49,500
D) $53,000
Answer: D
Diff: 3
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None
17) Under variable costing, ________ is NOT an inventoriable cost.
A) direct materials
B) variable manufacturing overhead
C) variable selling and administrative expenses
D) direct labor
Answer: C
Diff: 2
LO: 13-5
AACSB: Reflective thinking skills
Learning Outcome: None

18) The variable-costing method does not include fixed overhead costs in a products costs.
Answer: TRUE
Diff: 2
LO: 13-5
AACSB: Reflective thinking skills
Learning Outcome: None

19) The variable-costing income statement uses the contribution-approach format.
Answer: TRUE
Diff: 1
LO: 13-5
AACSB: Reflective thinking skills
Learning Outcome: None

20) The variable-costing income statement separates costs into fixed costs and variable costs.
Answer: TRUE
Diff: 2
LO: 13-5
AACSB: Reflective thinking skills
Learning Outcome: None

21) Gross margin is a subtotal on a variable-costing income statement.
Answer: FALSE
Diff: 1
LO: 13-5
AACSB: Reflective thinking skills
Learning Outcome: None

22) Trebowski Company prepared the following absorption-costing income statement for the first year of operations. The income statement is for the fiscal year ended May 31, 2015:

Sales (16,000 units) $320,000
Cost of Goods Sold 216,000
Gross Margin 104,000
Selling and administrative expenses 46,000
Operating income $58,000

Additional data follow:
Variable selling and administrative expenses $1.50 per unit
Variable manufacturing costs $11.00 per unit
Direct materials inventory, May 31, 2015 0
Work-in-process inventory, May 31, 2015 0
Units produced 17,500 units
Units expected to be produced 17,500 units

Required:
Assume actual fixed costs were equal to budgeted fixed costs. Prepare a variable-costing income statement for the year ended May 31, 2015.
Answer: Sales $320,000
Variable expenses:
Manufacturing cost of goods sold ($11 16,000) 176,000
Selling and administrative expenses ($1.50 16,000) 24,000
Contribution margin 120,000
Fixed expenses:
Fixed factory overhead (17,500 $40,000/16,000) 43,750
Fixed selling and administrative expenses 22,000
Operating income $54,250
Diff: 2
LO: 13-5
AACSB: Analytic skills
Learning Outcome: None

13.6 Questions

1) A direct-costing income statement has a subtotal for ________ whereas an absorption-costing income statement has a subtotal for ________.
A) gross profit; contribution margin
B) contribution margin; gross profit
C) cost of goods sold; variable cost of goods sold
D) cost of goods manufactured; variable cost of goods manufactured
Answer: B
Diff: 1
LO: 13-6
AACSB: Reflective thinking skills
Learning Outcome: None
2) Product costs for absorption costing include direct materials, direct labor and ________.
A) fixed manufacturing overhead costs
B) variable manufacturing overhead costs
C) fixed and variable selling costs
D) fixed and variable manufacturing overhead costs
Answer: D
Diff: 2
LO: 13-6
AACSB: Reflective thinking skills
Learning Outcome: None

3) The production volume variance appears when ________.
A) the actual production volume equals the expected production volume used in computing the fixed overhead rate
B) the actual production volume deviates from the expected production volume used in computing the fixed overhead rate
C) the actual production volume deviates from the expected production volume used in computing the variable overhead rate
D) the actual production volume equals the expected production volume used in computing the variable overhead rate
Answer: B
Diff: 2
LO: 13-6
AACSB: Reflective thinking skills
Learning Outcome: None

4) Absorption costing assigns ________ to the product.
A) variable manufacturing costs only; not fixed manufacturing costs
B) fixed manufacturing costs only; not variable manufacturing costs
C) variable manufacturing costs and variable selling costs
D) variable and fixed manufacturing costs
Answer: D
Diff: 2
LO: 13-6
AACSB: Reflective thinking skills
Learning Outcome: None

5) Fixed factory overhead costs appear on the absorption-costing income statements as ________.
A) a fixed expense
B) part of cost of goods sold
C) a production volume variance
D) part of cost of goods sold and a production volume variance
Answer: D
Diff: 2
LO: 13-6
AACSB: Reflective thinking skills
Learning Outcome: None
6) BOTH variable-costing and absorption-costing include ________ as product costs.
A) indirect manufacturing costs
B) variable selling and administrative expenses
C) fixed selling and administrative expenses
D) direct manufacturing costs
Answer: D
Diff: 2
LO: 13-6
AACSB: Reflective thinking skills
Learning Outcome: None

7) Andy Basil Industries Inc. reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $225.00
Sales $360,000
Direct materials used $176,000
Direct labor $100,000
Variable factory overhead $44,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Production volume variance 0
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units

Under absorption costing, what is the Cost of Goods Sold?
A) $256,000
B) $272,000
C) $320,000
D) $360,000
Answer: C
Diff: 3
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

8) Ambrose Industries Inc. reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $225.00
Sales $360,000
Direct materials used $176,000
Direct labor $100,000
Variable factory overhead $44,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Production volume variance 0
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units

Under absorption costing, what is the Gross Profit?
A) $0
B) $40,000
C) $84,000
D) $104,000
Answer: B
Diff: 3
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

9) Central Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $225.00
Sales $360,000
Direct materials used $176,000
Direct labor $100,000
Variable factory overhead $44,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Production volume variance 0
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units

Under absorption costing, what is the operating income or loss?
A) $(6,000)
B) $(70,000)
C) $10,000
D) $20,000
Answer: C
Diff: 3
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

10) Union Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $225.00
Sales $315,000
Direct materials used $160,000
Direct labor $100,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $30,000
Production volume variance 0
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 600 units

Under absorption costing, what is the product cost per unit?
A) $130.00
B) $160.00
C) $200.00
D) $225.00
Answer: C
Diff: 3
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

11) Medved Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $225.00
Sales $315,000
Direct materials used $160,000
Direct labor $100,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $30,000
Production volume variance 0
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 600 units

Under absorption costing, what is the cost of the ending inventory of finished goods?
A) $78,000
B) $96,000
C) $120,000
D) $135,000
Answer: C
Diff: 3
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

12) Jantore Industries Inc. reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $65.00
Sales $78,000
Direct materials used $25,000
Direct labor $42,000
Variable factory overhead $17,000
Fixed factory overhead $15,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Production volume variance 0

The company sold one-half of the units it produced. Under absorption costing, what is the cost of goods sold?
A) $30,000
B) $42,000
C) $49,500
D) $78,000
Answer: C
Diff: 3
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

13) Jimmy Industries Inc. reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $65.00
Sales $78,000
Direct materials used $25,000
Direct labor $42,000
Variable factory overhead $17,000
Fixed factory overhead ?
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Gross profit $30,000
Production volume variance 0

The company sold one-half of the units it produced. The company uses absorption costing. Fixed factory overhead costs included in the ending inventory of finished goods are ________.
A) 0
B) $6,000
C) $8,400
D) $12,000
Answer: B
Diff: 3
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

14) Couric Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $117.00
Sales $117,000
Direct materials used $37,500
Direct labor $63,000
Variable factory overhead $25,500
Fixed factory overhead $80,000
Variable selling and administrative expenses $4,500
Fixed selling and administrative expenses $7,500
Units produced 2,000 units
Units sold 1,000 units
Production volume variance $0

Under absorption costing, what is the Cost of Goods Sold?
A) $63,000
B) $103,000
C) $126,000
D) $206,000
Answer: B
Diff: 3
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None
15) In absorption costing, sales revenue less cost of goods sold is equal to ________.
A) contribution margin
B) operating margin
C) operating income
D) gross margin
Answer: D
Diff: 2
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

16) In absorption costing, costs are separated into two categories of ________.
A) fixed costs and variable costs
B) variable costs and manufacturing costs
C) fixed costs and manufacturing costs
D) manufacturing costs and nonmanufacturing costs
Answer: D
Diff: 2
LO: 13-6
AACSB: Reflective thinking skills
Learning Outcome: None

17) Absorption-costing income is not affected by differences in expected volume and actual volume.
Answer: FALSE
Diff: 2
LO: 13-6
AACSB: Reflective thinking skills
Learning Outcome: None

18) Under absorption-costing, fixed factory overhead costs appear only in cost of goods sold.
Answer: FALSE
Diff: 2
LO: 13-6
AACSB: Reflective thinking skills
Learning Outcome: None

19) In an absorption-costing income statement, revenue less variable manufacturing costs is equal to the gross margin.
Answer: FALSE
Diff: 1
LO: 13-6
AACSB: Reflective thinking skills
Learning Outcome: None

20) Campbell Company gathered the following information for the year ended December 31, 2015:

Units produced 45,000
Units expected to be produced 45,000
Units sold 43,200
Direct labor $137,200
Direct materials used $126,400
Fixed selling and administrative expenses $51,000
Variable selling and administrative expenses $58,000
Fixed manufacturing overhead $83,250
Variable manufacturing overhead $73,900
Direct materials inventory, December 31, 2015 0
Direct materials inventory, December 31, 2014 0
Work-in-process inventory, December 31, 2015 0
Work-in-process inventory, December 31, 2014 0
Finished goods inventory, December 31, 2014 0

Required:
A) Under absorption costing, what is the cost of the finished goods inventory on December 31, 2015?
B) Under variable costing, what is the cost of the finished goods inventory on December 31, 2015?
Answer:
A) ($126,400 + $137,200 + $73,900 + $83,250)/45,000 = $9.35
$9.35 1,800 = $16,830
B) ($126,400 + $137,200 + $73,900)/45,000 = $7.50
$7.50 1,800 = $13,500
Diff: 2
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

21) Smith Company gathered the following information for the year ended April 30, 2015:

Units produced 11,200
Units expected to be produced 11,200
Units sold 8,400
Direct labor $99,600
Direct materials used $155,000
Fixed selling and administrative expenses $64,800
Fixed manufacturing overhead $52,640
Variable manufacturing overhead $70,200
Direct materials inventory, April 30, 2015 0
Direct materials inventory, April 30, 2014 0
Work-in-process inventory, April 30, 2015 0
Work-in-process inventory, April 30, 2014 0
Finished goods inventory, April 30, 2014 0

Required:
A) Under variable costing, what is the cost of the finished goods inventory on April 30, 2015?
B) Under absorption costing, what is the cost of the finished goods inventory on April 30, 2015?
Answer:
A) ($155,000 + $99,600 + $70,200)/11,200 = $29.00 per unit
$29.00 2,800 = $81,200
B) ($155,000 + $99,600 + $70,200 + $52,640)/11,200 = $33.70
$33.70 2,800 = $94,360
Diff: 2
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

22) The following data are available for Atkinson Company for the year ended December 31, 2015:

Sales 38,000 units
Sales price $50 per unit
Actual variable manufacturing costs $1,400,000
Actual fixed manufacturing costs $228,000
Actual variable nonmanufacturing costs $76,000
Actual fixed nonmanufacturing costs $135,000
Work-in-process inventory, January 1, 2015 0
Finished goods inventory, January 1, 2015 0
Direct materials inventory, January 1, 2015 0
Work-in-process inventory, December 31, 2015 0
Direct materials inventory, December 31, 2015 0
Expected production 40,000 units
Actual production 40,000 units

Required:
A) Using the variable-costing approach, prepare an income statement for the year ended December 31, 2015. Assume actual fixed costs were equal to budgeted fixed costs.
B) Using the absorption-costing approach, prepare an income statement for the year ended December 31, 2015. Assume actual fixed costs were equal to budgeted fixed costs.
Answer:
A)
Sales (38,000 $50) $1,900,000
Variable expenses:
Manufacturing ($1,400,000/40,000 38,000) 1,330,000
Nonmanufacturing 76,000
Contribution Margin 494,000
Fixed expenses:
Manufacturing 228,000
Nonmanufacturing 135,000
Operating income $131,000

B)
Sales $1,900,000
Cost of goods sold ($1,628,000/40,000 38,000) 1,546,600
Gross margin 353,400
Nonmanufacturing expenses 211,000
Operating income $142,400
Diff: 3
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

23) Randy Company has obtained the following data for the first year of operations:

Sales $2,868,750
Direct materials and labor $1,125,000
Variable manufacturing overhead $431,250
Fixed manufacturing overhead $656,250
Variable selling expenses $337,500
Fixed selling expenses $131,250
Units produced 125,000
Units sold 112,500
Units expected to be produced 125,000

Required:
A) Using variable costing, prepare an income statement for the first year of operations. Assume budgeted fixed costs were equal to actual fixed costs.
B) Using absorption costing, prepare an income statement for the first year of operations. Assume budgeted fixed costs were equal to actual fixed costs.
Answer:
A)
Sales $2,868,750
Variable expenses:
Manufacturing cost of goods sold 1,400,625
Selling expenses 337,500
Contribution margin 1,130,625
Fixed expenses:
Fixed factory overhead 656,250
Selling expenses 131,250
Operating income $343,125

B)
Sales $2,868,750
Cost of goods sold 1,991,250
Gross margin 877,500
Selling expenses 468,750
Operating income $408,750
Diff: 2
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

24) The variable costing income statement for Bouve Company is seen below:

Sales (6,000 units $35) $210,000
Variable expenses:
Beginning inventory (680 units $20) $13,600
Variable cost of goods manufactured
(6,400 units $20) 128,000
Available for sale 141,600
Less: Ending inventory (1,080 units $20) 21,600
Variable manufacturing cost of goods sold 120,000
Variable selling and administrative expenses 24,000
Contribution margin 66,000
Fixed expenses:
Fixed factory overhead 20,000
Fixed selling and administrative expenses 15,300
Operating income $30,700

Required:
Prepare an absorption-costing income statement for the same period of time. Assume that actual fixed costs were equal to budgeted fixed costs and the budgeted fixed overhead rate was constant over the period examined. Assume the production volume variance equals zero.
Answer: Sales $210,000
Cost of goods sold 138,750
Gross margin 71,250
Selling and administrative expenses 39,300
Operating income $31,950
Diff: 2
LO: 13-6
AACSB: Analytic skills
Learning Outcome: None

13.7 Questions

1) Which of the following statements is FALSE?
A) The expected variable overhead costs per unit used in the flexible budget are equal to the variable overhead costs per unit used in product costing.
B) If the actual volume of production equals the expected volume of production, the variable overhead costs per unit are the same for product costing and budgeting.
C) If the actual volume of production exceeds the expected volume of production, the variable overhead costs per unit are different for product costing and budgeting.
D) If the actual volume of production exceeds the expected volume of production, the variable overhead costs per unit are the same for product costing and budgeting.
Answer: C
Diff: 2
LO: 13-7
AACSB: Reflective thinking skills
Learning Outcome: None
2) If the actual volume of production differs from the expected volume of production, the same variable overhead costs per unit are used for ________ and ________ purposes.
A) budgeting; employee motivation
B) budgeting; product costing
C) flexible budgets; employee hiring
D) planning; employee hiring
Answer: B
Diff: 2
LO: 13-7
AACSB: Reflective thinking skills
Learning Outcome: None

3) If the actual volume of production differs from the expected volume of production, the fixed overhead costs used for budgeting and product costing are ________.
A) the same
B) different
C) indeterminate
D) changing over the accounting period
Answer: B
Diff: 2
LO: 13-7
AACSB: Reflective thinking skills
Learning Outcome: None

4) The absorption costing approach applies fixed overhead costs to products as though they have a ________ pattern.
A) mixed cost behavior
B) variable cost behavior
C) step cost behavior
D) fixed cost behavior
Answer: B
Diff: 2
LO: 13-7
AACSB: Reflective thinking skills
Learning Outcome: None

5) In absorption costing, production volume does NOT affect the ________.
A) amount of fixed overhead costs applied to products
B) amount of variable overhead costs applied to products
C) budgeted amount of fixed overhead costs
D) amount of direct materials costs applied to products
Answer: C
Diff: 2
LO: 13-7
AACSB: Reflective thinking skills
Learning Outcome: None

6) Under absorption costing, fixed manufacturing overhead costs appear on two places on the income statement that include ________ and ________.
A) usage variance for fixed overhead costs; cost of goods sold
B) production volume variance; cost of goods sold
C) efficiency variance for fixed overhead costs; production volume variance
D) efficiency variance for fixed overhead costs; cost of goods sold
Answer: B
Diff: 2
LO: 13-7
AACSB: Reflective thinking skills
Learning Outcome: None

13.8 Questions

1) A favorable production volume variance indicates ________.
A) an effective use of manufacturing capacity
B) an ineffective use of manufacturing capacity
C) that the use of manufacturing capacity is lower than expected
D) that the use of manufacturing capacity is higher than expected
Answer: D
Diff: 2
LO: 13-8
AACSB: Reflective thinking skills
Learning Outcome: None

2) When the actual volume of production exceeds the expected volume of production, the production volume variance is ________ and fixed overhead is ________.
A) favorable; underapplied
B) favorable; overapplied
C) unfavorable; underapplied
D) unfavorable; overapplied
Answer: B
Diff: 2
LO: 13-8
AACSB: Reflective thinking skills
Learning Outcome: None

3) An unfavorable production volume variance ________ a companys operating income.
A) increases
B) decreases
C) does not affect
D) it depends on the size of the variance
Answer: B
Diff: 2
LO: 13-8
AACSB: Reflective thinking skills
Learning Outcome: None
4) An unfavorable production volume variance ________ manufacturing costs on the ________ income statement.
A) decreases; variable costing
B) increases; variable costing
C) decreases; absorption costing
D) increases; absorption costing
Answer: D
Diff: 2
LO: 13-8
AACSB: Reflective thinking skills
Learning Outcome: None

5) The following information was compiled by Gorgeous Incorporated:

Expected volume of production 50,000 units
Actual volume of production 47,500 units
Budgeted fixed overhead costs(for 50,000 budgeted units) $400,000
Actual fixed overhead costs $415,000
Actual variable overhead costs $790,000
Budgeted variable overhead costs(for 50,000 budgeted units) $855,000

Assume the cost-allocation base for overhead costs is units of production. What is the production volume variance?
A) $15,000 Favorable
B) $15,000 Unfavorable
C) $20,000 Favorable
D) $20,000 Unfavorable
Answer: D
Diff: 3
LO: 13-8
AACSB: Analytic skills
Learning Outcome: None

6) The production volume variance is the difference between ________.
A) expected fixed overhead costs and actual fixed overhead costs
B) expected fixed overhead costs and budgeted fixed overhead costs
C) budgeted fixed overhead costs and actual fixed overhead costs
D) budgeted fixed overhead costs and applied fixed overhead costs
Answer: D
Diff: 2
LO: 13-8
AACSB: Reflective thi

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