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09 X07 C Responsibility
09 X07 C Responsibility
4. Which of the following statements is true for a firm that uses variable (direct) costing? Contribution margin format income statement
A. The cost of a unit of product changes because of changes in the number of units 15. When variable costing is used, the income statement is usually prepared using
manufactured. A. a contribution margin format C. a functional format
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Responsibility Accounting and Transfer Pricing
(C. Variable Costing & Segmented Reporting)
11. When absorption costing is used, all of the following costs are considered product costs 23. Net profit under absorption costing may differ from net profit determined under direct costing.
except How is this difference calculated?
A. direct labor C. variable selling and administrative costs A. Change in the quantity of all units in inventory times the relevant fixed costs per unit.
B. variable overhead D. fixed overhead B. Change in the quantity of all units produced times the relevant fixed costs per unit.
C. Change in the quantity of all units in inventory times the relevant variable cost per unit.
21. Unabsorbed fixed overhead costs in an absorption costing system are D. Change in the quantity of all units produced times the relevant variable cost per unit.
A. Fixed factory costs not allocated to units produced.
B. Variable overhead costs not allocated to units produced. Sensitivity analysis
C. Excess variable overhead costs. 20. The level of production affects income under which of the following methods?
D. Costs that should be controlled. A. absorption costing C. variable costing
B. both absorption and variable costing D. neither absorption nor variable costing
Variable costing vs. Absorption costing
6. What is the primary difference between variable and absorption costing? 18. Variable-costing income will usually exceed absorption costing income when
A. inclusion of fixed selling expenses in product costs A. sales exceed production C. production exceeds sales
B. inclusion of variable factory overhead in period costs B. production and sales are equal D. none of these
C. inclusion of variable selling expenses in product costs
D. inclusion of fixed factory overhead in product costs 19. Variable costing net income is
A. higher than absorption net income when more units are sold than produced
7. Which of the following statements is true? B. lower than absorption net income when more units are produced than sold
A. Absorption costing net income exceeds variable costing net income when units C. the same as absorption net income when all units produced are sold
produced and sold are equal. D. all of the above
B. Variable costing net income exceeds absorption costing net income when units
produced exceed units sold. 9. A manufacturing company prepares income statements using both absorption and variable
C. Variable costing net income exceeds absorption costing net income when units costing methods. At the end of a period actual sales revenues, total gross profit, and total
produced equal units sold. contribution margin approximated budgeted figures, whereas net income was substantially
D. Absorption costing net income exceeds variable costing net income when units greater than the budgeted amount. There were no beginning or ending inventories. There
produced are greater than units sold. most likely explanation of the net income increase is that, compared to budget, actual
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Responsibility Accounting and Transfer Pricing
(C. Variable Costing & Segmented Reporting)
14. When variable costing is used, fixed manufacturing overhead is recognized as an expense 28. Which of the following costs would continue to be incurred even if a segment is eliminated?
when the A. direct fixed expenses
A. cost is incurred C. product is sold B. common fixed costs
B. product is completed D. product is inventoried C. variable cost of goods sold
D. variable selling and administrative expenses
Segment reporting
24. A segment is any part of an organization about which a manager seeks Cost allocation policy
A. cost data C. quantitative data 31. Which of the following is a good reason for allocating indirect costs to operating departments?
B. revenue data D. any of the above A. The company could lose money if the operating departments do not pay for the services
they use.
26. Which of the following could be considered a segment? B. To remind managers of the need to cover indirect costs.
A. division C. product line C. To encourage managers to use more services.
B. sales territory D. all of these D. To determine the true costs of operating departments.
25. The guideline(s) used in assigning costs to a segment include(s) whether 33. The cost allocation policy most likely to encourage use of a service is based on
A. costs are fixed C. costs are directly traceable A. budgeted total costs of the service department
B. costs are variable D. all of the above B. actual total costs of the service department
C. budgeted variable costs for the service department
27. Segment margin is equal to D. actual variable costs for the service department
A. sales less variable costs
B. sales less variable costs and direct fixed costs 32. The term “dual rates” refers to
C. sales less variable costs and indirect fixed costs A. allocating costs to several operating departments
D. sales less cost of goods sold B. allocating fixed costs based on capacity requirements and variable costs based on use
C. allocating both actual costs and budgeted costs
29. Revenue less variable costs and direct fixed costs equals D. using the budgeted rate to allocate some costs, the actual rate to allocate others
A. contribution margin C. income before taxes
B. segment margin D. income after taxes 34. The WORST method of allocating service department costs is to allocate
A. total actual costs based on actual use of the service
30. Indicate which of the following costs would be avoided if a segment is eliminated. B. total budgeted costs based on long-term expected use of the service
1. variable manufacturing costs C. total budgeted cost based on actual use of the service
2. direct fixed costs D. none of the above, because all the above are equally undesirable
3. common fixed costs
4. variable selling costs PROBLEMS:
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Responsibility Accounting and Transfer Pricing
(C. Variable Costing & Segmented Reporting)
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Responsibility Accounting and Transfer Pricing
(C. Variable Costing & Segmented Reporting)
Year 2 95,000 95,000 100,000 income before taxes would have been
Year 3 90,000 90,000 100,000 A. P 9.50 higher C. P11.00 higher
Because Blue Company uses an absorption costing system, one would predict gross margin B. P 8.50 higher D. P 8.33 higher
for Year 3 to be
A. Greater than Year 1. C. Equal to Year 1. ix. At its present level of operations, a small manufacturing firm has total variable costs equal to
B. Greater than Year 2. D. Equal to Year 2. 75% of sales and total fixed costs equal to 15% of sales. Based on variable costing, if sales
change by P1.00, income will change by
Reconciliation A. P 0.25 C. P 0.75
Income under absorption costing B. P 0.12 D. P 0.10
vi. A company had income of P50,000 using direct costing for a given period. Beginning and
ending inventories for that period were 13,000 units and 18,000 units, respectively. Ignoring Segmented Income Statement
income taxes, if the fixed overhead application rate were P2.00 per unit, what would the Effect of dropping a department
income have been using absorption costing? x. Zambales Mining Co. mines three products. Gold Ore sells for P1,000,000 per ton, variable
A. P40,000 costs are P600,000 per ton, and fixed mining costs are P5,000,000. The segment margin
B. P50,000 for 2005 was P(1,000,000). The management of Zambales Mining was considering
C. P60,000 dropping the mining of Gold Ore. Only one-half of the fixed expenses are direct and would
D. Cannot be determined from the information given. be eliminated if the segment was dropped. If Gold Ore were dropped, net income for
Zambales Mining would
Income under variable costing A. Increase by P1,000,000 C. Decrease by P1,000,000
vii. Luna Company had income of P65,000 using absorption costing for a given period. B. Increase by P1,500,00 D. Decrease by P1,500,000
Beginning and ending inventories for that period were 13,000 units and 18,000 respectively.
Ignoring income taxes, if the fixed overhead application rate were P2.50 per unit, what xi. Aging Company plans to discontinue a segment with a P32,000 segment margin. Common
would the income have been using variable costing? expenses allocated to the segment amounted to P45,000, of which P20,000 cannot be
A. P 77,500 C. P 52,500 eliminated if the segment were closed. The effect of closing down the segment on Aging
B. P 60,000 D. P 20,000 Company’s before tax profit would be
A. P12,000 decrease C. P 7,000 decrease
Unit contribution margin B. P12,000 increase D. P 7,000 increase
viii. The following information was extracted from the first year of absorption-based accounting
records of Soulmate Co. Use this data to respond to questions 16 through 17.
Total fixed costs incurred P100,000 Omid Publishing Company has three divisions: A, B, and C. The revenues of these divisions are
Total variable costs incurred 50,000 P29,000, 48,000, and 63,000 respectively. Variable costs of these divisions amount to 57%, 59%,
Total period costs incurred 70,000 and 64% of the given revenues. The divisions' short-term controllable fixed costs are P4,200,
Total variable period costs incurred 30,000 5,200, and 6,200 respectively. The divisions' long-term controllable fixed costs amount to P3,800,
Units produced 20,000 4,900, and 5,700 in the order given. The company's uncontrollable costs amount to P7,150, and
Units sold 12,000 income tax is at 20% of operating income.
Unit sales Price P 12
Based on variable costing, if Soulmate Co. had sold 12,001 units instead of 12,000, its xii. Long-term controllable margin for division A amounts to
A. P4,470 C. P12,470
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Responsibility Accounting and Transfer Pricing
(C. Variable Costing & Segmented Reporting)
xiii. Short-term controllable margin for division B amounts to xiv. The amount of fixed factory costs applied to product during the first six months under
A. P9,580 C. P19,680 absorption costing would be
B. P14,480 D. P23,580 A. Overapplied by P20,000. C. Underapplied by P40,000.
B. Equal to the fixed costs incurred. D. Underapplied by P80,000
Comprehensive
Questions 10 through 13 are based on the following annual flexible budget which has been xv. Reported net income (or loss) for the first six months under absorption costing would be
prepared for use in making decisions relating to Product X. A. P160,000 C. P 80,000
Budgeted units 100,000 150,000 200,000 B. P 40,000 D. P (40,000)
Sales Volume P800,000 P1,200,000 P1,600,000
Manufacturing costs: xvi. Reported net income (or loss) for the firs six months under direct costing would be
Variable P300,000 P 450,000 P 600,000 A. P144,000. C. P 72,000
Fixed 200,000 200,000 200,000 B. P0 D. P(36,000)
P500,000 P 650,000 P 800,000
Selling expenses: xvii. Assuming that 90,000 units of Product X were sold during the first six months and that this is
Variable P200,000 P 300,000 P 400,000 to be used as a basis, the revised budget estimate for the total number of units to be sold
Fixed 160,000 160,000 160,000 during this year would be
P360,000 P 460,000 P 560,000 A. 360,000. C. 240,000
Income (or loss) (P60,000) P 90,000 P 240,000 B. 200,000. D. 300,000
The 200,000-unit budget has been adopted and will be used for allocating fixed manufacturing
costs to units of Product X. At the end of the first six months the following information is available: i. Answer: C
Units Direct materials P 8
Production completed 120,000 Direct labor 10
Sales 60,000 Variable overhead 2
Total unit cost- variable costing P20
All fixed costs are budgeted and incurred uniformly throughout the year and all costs incurred Value of ending inventory (5,000 x P20) P100,000
coincide with the budget.
ii. Answer: C
Over- and underapplied fixed manufacturing costs are deferred until year-end. Annual sales have Sales P40,000
the following seasonal pattern: Cost of goods sold
Portion of Annual Sales Direct materials P9,050
First quarter 10% Direct labor 6,050
Second quarter 20% Rent (0.9 x P3,000) 2,700
Third quarter 30% Depreciation 2,000
Fourth quarter 40% Supervision (2/3 x P1,500) 1,000
Insurance (2/3 x P1,200) 800 (21,600)
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Responsibility Accounting and Transfer Pricing
(C. Variable Costing & Segmented Reporting)
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Responsibility Accounting and Transfer Pricing
(C. Variable Costing & Segmented Reporting)
xv. Answer: B
Sales (60,000 x P8) P480,000
Cost of goods sold (60,000 x P4) 240,000
Gross profit 240,000
Selling and other expenses (60,000 x 2) + P80,000 200.000
Absorption profit P 40,000
xvi. Answer: B
Total contribution margin (60,000 x P3) P180,000
Less: Fixed manufacturing OH P100,000
Fixed selling and other expenses 80,000 180,000
Variable costing profit NIL
CM per unit (P1.6M – P0.6M – P0.4M) ÷ 200,000) P3.00
xvii. Answer: D
The sales pattern indicated that sales for the first semester was 30%. The assumption was
that the pattern was still valid. Therefore the assumed 90,000 units would be 30 percent of
expected annual sales.
(90,000 ÷ 0.3) = 300,000 units
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