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Exam 12: Absorption Versus Variable Costing

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Question 51

Multiple Choice

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Angels R Us is currently operating at 100% capacity and incurred the following costs during the first month of operations: If the company has ending inventory of 1,600 units for the month, how much inventory would be reported on the balance sheet using absorption costing?

A) $64,000.
B) $56,000.
C) $66,400.
D) $78,400.

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Question 52

Multiple Choice

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When computing product costs, direct materials, direct labor, and all manufacturing overhead (fixed and variable) are used with

A) product costing.
B) full costing.
C) variable costing.
D) absorption costing.

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Question 53

Multiple Choice

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Crystal, the owner of Crystal Clean, is planning for the next year. She uses the absorption method to determine the evaluation of employees and how much to increase their hourly wage. She has budgeted the following information: There were no price or efficiency variances for either year. Crystal writes off any fixed MOH volume variance directly to COGS. Calculate the gross margin for year 2.

Which of the following statements is true?

Stanczyk Inc. started operations in January 2025. The company produces and sells cabinets for $5,200 each. The following information pertains to the cost and sales of the cabinets each year: The company produced 25 units per year for 2025, 2026, and 2027. The company sold 22 units in 2025, 20 units in 2026, and 26 units in 2027. It reported no volume variances for the three-year period. For 2025,

When the monthly units produced are constant, and sales in units are less than the units produced, net income determined with absorption costing procedures will

Crystal, the owner of Crystal Clean, is planning for the next year. She uses the absorption method to determine the evaluation of employees and how much to increase their hourly wage. She has budgeted the following information: There were no price or efficiency variances for either year. Crystal writes off any fixed MOH volume variance directly to COGS. Calculate the operating income for year 2.

BioClinic sells its product for $80 per unit. During 2025, it produced 120,000 units and sold 105,000 units. Costs per unit are: direct materials $25, direct labor $10, variable overhead $5, and variable operating expenses $3. Fixed costs are $840,000 manufacturing overhead, and $75,000 operating expenses. Assuming no variances were reported, no beginning inventory and the company uses absorption costing, what will be reported as the ending inventory value?

Stanczyk Inc. started operations in January 2025. The company produces and sells cabinets for $5,200 each. The following information pertains to the cost and sales of the cabinets each year: The company produced 25 units per year for 2025, 2026, and 2027. The company sold 22 units in 2025, 20 units in 2026, and 26 units in 2027. It reported no volume variances for the three-year period. For 2026,

Which method of closing out the fixed MOH volume variance will have no effect on the financial statements, no matter the capacity used?

Hall Enterprises has budgeted variable and fixed manufacturing costs of $90,000 and $51,000, respectively. The budgets are based on producing 3,000 units. For the same budget period, variable and fixed operating expenses were budgeted at $12,000 and $24,000, respectively. Hall Enterprises currently uses absorption costing. Assuming no beginning inventory for the period, all 3,000 units were produced, and the company sold 2,700 units, how much in COGS did the company report for the year? How much inventory cost will be on the balance sheet at year end?

Amanha just learned her company will start a new workday policy. There is a 60% chance the company will start to enforce the policy this year and she has been tasked in determining how the new policy will affect the company. The new policy will have a significant effect on the company's production output because specific lines will close for periods of time during mandatory layoffs. The current demand of the company is 400,000 units per year. The budgeted fixed MOH costs are $920,000. She has put together the following information to plan for the coming policy: If the company's actual production was 450,000 units, what is the fixed MOH volume variance using practical capacity? (round the budgeted fixed MOH rate to the nearest two decimals)

Conform AI planned to produce 6,000 units but only produced 5,300 for the current year. They had a beginning inventory of 300 units with variable manufacturing cost of $11 per unit. Budgeted fixed MOH for the year was $72,000 with actual costs incurred of $66,000. What will Conform AI report as total overhead variance for the current year?

Patterson Inc.'s income statement, using absorption costing is as follows: Patterson produced 3,000 units and sold 2,500 units. The company shows a cost per unit for variable manufacturing costs of $20 per unit and $1 per unit for variable operating expenses. If the manager would like to use the same period and create a variable costing income statement, what would it look like?

Utensils N More manufactures a special ladle that sits upright or can be attached to any pot. The accounting manager, Candace, presents three different income statements to the board of directors at year-end. The board understands absorption costing, as they evaluate the gross margin and gross margin rate on a regular basis. However, it's Candace's job to help them understand how fixed-MOH affects the product cost under absorption costing. Information for three possible capacity levels is shown below. Candace also notes there are no price or efficiency variances this period. Therefore, any fixed-MOH volume variance is written off to COGS. Instructions a. Calculate the cost per unit that would be capitalized under each possible denominator level. Break out the variable and fixed components and list the total cost per unit. b.Calculate the fixed-MOH volume variance for each denominator level, identifying amount and sign, for (1) 2025 and (2) 2026. c. Prepare income statements for 2025 for each denominator level. d.Prepare income statements for 2026 for each denominator level. e.Why is income the same or different under each denominator level? f.What gross margin percentage is earned under each capacity level for (1) 2025 and (2) 2026? g.If the budgeted sales volume for 2025 was 19,000 units, prepare an income statement for 2025 if Candace used the budgeted sales as its denominator. (Round the fixed-MOH cost per unit to the nearest two cents.) h. Candace is worried that the demand will decrease in 2027. If the budgeted demand does decrease, how will that affect the fixed-MOH rate? The gross margin and operating income? Should Candace increase the selling price on the ladles? Explain your answer.

There are three categories of capacity. What are they and why do they exist?

When the units sold is greater than the units produced,

BioClinic sells its product for $80 per unit. During 2025, it produced 120,000 units and sold 105,000 units. Costs per unit are: direct materials $25, direct labor $10, variable overhead $5, and variable operating expenses $3. Fixed costs are $840,000 manufacturing overhead, and $75,000 operating expenses. Assuming no variances were reported, no beginning inventory and the company uses variable costing, what will be reported as cost of goods sold?

BioClinic sells its product for $80 per unit. During 2025, it produced 120,000 units and sold 105,000 units. Costs per unit are: direct materials $25, direct labor $10, variable overhead $5, and variable operating expenses $3. Fixed costs are $840,000 manufacturing overhead, and $75,000 operating expenses. Assuming no variances were reported, no beginning inventory and the company uses absorption costing, what will be reported as operating income?

BioClinic sells its product for $80 per unit. During 2025, it produced 120,000 units and sold 105,000 units. Costs per unit are: direct materials $25, direct labor $10, variable overhead $5, and variable operating expenses $3. Fixed costs are $840,000 manufacturing overhead, and $75,000 operating expenses. Assuming no variances were reported, no beginning inventory and the company uses variable costing, how much is the per unit product cost?