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Exam 21: Variable Costing

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Question 31

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When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold,the operating income will be higher under absorption costing than variable costing.

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Question 32

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Managers do not consider the sales mix when making decisions because it does not affect the overall profitability of the company.

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Question 33

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When there are no beginning or ending balances in Finished Goods Inventory,variable and absorption costing will result in ________.

When all of the units produced are sold,the operating income is the same under both the absorption and variable costing methods.Assume no beginning and ending inventories.Which of the following gives the correct reason for the above statement?

In its first year of business,Talula,Inc.produced and sold 600 units.If Talula uses variable costing,________.

Kertas,Inc.produces paper and office supplies and uses the just-in-time inventory system.Currently,the company is using variable costing.Which of the following is true of the effect of costing systems on the financial results of Kertas?

Which of the following is NOT a product cost under variable costing?

When units produced exceed units sold,how does operating income differ between variable costing and absorption costing? Assume no beginning Finished Goods Inventory.Explain your answer.

Variable costing considers only ________ costs when determining product costs.

Following GAAP,the income statement issued to investors and creditors must ________.

Windspring Spas,Inc.reports the following information for August: $\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 590,000 \\\hline \text { Variable Costs } & 160,000 \\\hline \text { Fixed Costs } & 50,000 \\\hline\end{array}$ Calculate the contribution margin for August.

For decisions that affect controlling costs,consider the following decision focuses.State the appropriate costing method and the reason for your answer. $\begin{array} { | l | c | l | } \hline{ \begin{array} { c } \textbf { Decision } \\\textbf { Focus }\end{array} } & \begin{array} { c } \textbf { Appropriate Costing } \\\textbf { Method }\end{array} & \textbf { Reason } \\\hline \textbf { Upper } \\\textbf { management } & & \\\hline \textbf { Lower } \\\textbf { management } & & \\\hline\end{array}$

Which of the following statements is true of absorption costing?

The fixed manufacturing overhead is considered a product cost in variable costing and a period cost in absorption costing.

Answer the following absorption costing questions: $\begin{array} { | l | l | } \hline \text { Question } & \text { Absorption Costing } \\\hline \begin{array} { l } \text { Which costs are included as } \\\text { product costs? }\end{array} & \\\hline \begin{array} { l } \text { Which costs are included as } \\\text { period costs? }\end{array} & \\\hline\end{array}$

Service companies do not have fixed costs; all costs incurred by service companies are variable costs.

Absorption costing is required by the Generally Accepted Accounting Principles (GAAP)for financial statements issued to investors,creditors,and other external users.

PC Solutions,Inc.provides services to corporate and individual customers.During the month of June,the corporate business segment provided services to 500 customers and earned $60,000 in revenue.The individual business segment provided services to 400 customers and earned $35,000 in revenue.The variable costs for the corporate and individual business segments amounted to $32,000 and $25,100,respectively.In addition,the fixed costs of the company amounted to $7500.Calculate the contribution margin from each customer of the individual business segment.(Round your answer to the nearest cent.)

In absorption costing,the manufacturing costs expensed are greater than the amount expensed in variable costing when units produced are less than sold because the units in beginning inventory under absorption costing were assigned a greater cost in the previous accounting period.

In absorption costing,fixed manufacturing overhead is expensed ________.