Chapter Six Managerial Accounting

Information presented in a variable costing format can assist management when making short-term pricing decisions.

• True

• False

When the number of units produced is equal to the number of units sold, net income reported under variable costing is identical to net income under absorption costing

• True

• False

A company normally sells a product for $20 per unit. Variable per unit costs for this product are: $2 direct materials, $4 direct labor, and $1.50 variable overhead. The company is currently operating at 70% of capacity producing 14,000 units per year. Total fixed costs are $42,000 per year. The company should not accept a special order for 2,000 units which would be sold for $10 per unit because there would be an incremental loss on the order.

• True

• False

A company normally sells a product for $25 per unit. Variable per unit costs for this product are: $3 direct materials, $5 direct labor, and $2 variable overhead. The company is currently operating at 100% of capacity producing 30,000 units per year. Total fixed costs are $75,000 per year. The company should accept a special order for 1,000 units which would be sold for $13 per unit because the special order price exceeds variable costs.

• True

• False

Income ________ when there is zero beginning inventory and all inventory units produced are sold.

• will be lower than administrative costs under absorption costing

• will be higher than gross margin under variable costing

• Will be lower under variable costing than absorption costing

• will be the same under both variable and absorption costing

Accurate Metal Company sold 32,000 units of its product at a price of $250 per unit. Total variable cost per unit is $150, consisting of $145 in variable production cost and $5 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.

• 4,800,000

• 3,360,000

• 3,200,000

• 8,000,000

Pact Company had net income of $972,000 based on variable costing. Beginning and ending inventories were 7,800 units and 5,200 units, respectively. Assume the fixed overhead per unit was $3.61 for both the beginning and ending inventory. What is net income under absorption costing?

• 1,018,923

• 981,379

• 925,077

• 962,614

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. Income calculated under variable costing is determined to be $315,000. How much income is reported under absorption costing?

• 265,000

• 365,000

• 565,000

• 315,000

Many companies link manager bonuses to income computed under absorption costing because this is how income is reported to shareholders.

• True

• False

Which of the following would be reported on a variable costing income statement?

• Cost of goods available for sale

• Contribution Margin

• Gross Margin

• Total Cost of Goods Sold.