MS 9005_PRODUCT COSTING BATCH OCTOBER 2021

MS9005 – PRODUCT COSTING

QUIZZER (DO-IT-YOURSELF DRILL)

THEORIES
1. Which cost is charged to the product under variable costing?
A. Variable manufacturing overhead C. Variable administrative expenses
B. Fixed manufacturing overhead D. Fixed administrative expenses
2. The manufacturing cost per unit for absorption costing is
A. usually, but not always, higher than manufacturing cost per unit for variable costing.
B. usually, but not always, lower than manufacturing cost per unit for variable costing.
C. always higher than manufacturing cost per unit for variable costing.
D. always lower than manufacturing cost per unit for variable costing.
3. Under absorption costing and variable costing, how are direct labor costs treated?
Absorption Variable
A. Product Cost Product Cost
B. Product Cost Period Cost
C. Period Cost Product Cost
D. Period Cost Period Cost
4. When production exceeds sales,
A. some fixed manufacturing overhead costs are deferred until a future period under absorption
costing.
B. some fixed manufacturing overhead costs are deferred until a future period under variable
costing.
C. variable and fixed manufacturing overhead costs are deferred until a future period under
absorption costing.
D. variable and fixed manufacturing overhead costs are deferred until a future period under
variable costing.
5. Calculating income under variable costing does NOT require knowing
A. selling price. C. unit sales.
B. unit production. D. unit variable manufacturing costs.
6. Orion's management recently committed to incurring direct labor and all manufacturing overhead
charges regardless of the number of units produced. Under throughput costing, the company's cost
of goods sold would include charges for:
A. selling and administrative costs.
B. direct materials.
C. direct labor and manufacturing overhead.
D. direct materials, direct labor, and manufacturing overhead.
E. direct materials, direct labor, manufacturing overhead, and selling and administrative costs.
7. Income reported under absorption costing and variable costing is:
A. always the same.
B. typically different.
C. always higher under absorption costing.
D. always higher under variable costing.
E. always the same or higher under absorption costing.
8. If inventory quantities increase during a period,
A. Variable costing profits will equal absorption costing profits.
B. Absorption costing profits will exceed variable costing profits.
C. Variable costing profits will exceed absorption costing profits.
D. Variable costing will show a higher inventory value than absorption costing.

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9. A manufacturing company prepares income statements using both absorption- and variable-costing
methods. At the end of the period, actual sales revenues, total gross margin, and total contribution
margin approximated budgeted figures, whereas net income was substantially below the budgeted
amount. There were no beginning or ending inventories. The most likely explanation of the net
income shortfall is that, compared to budget, actual
A. Manufacturing fixed costs had increased.
B. Selling and administrative fixed expenses had increased.
C. Sales price and variable costs had declined proportionately.
D. Sales prices had declined proportionately more than variable costs.
10. As compared with total absorption costing profit over the entire life of a company, total variable
costing profit will
A. Be less.
B. Be equal.
C. Be greater.
D. Be substantially greater or less depending upon external factors
11. A cost that is included as part of product costs under both absorption costing and direct costing is:
A. insurance D. variable marketing expenses.
B. managerial staff costs E. variable materials handling labor
C. taxes on factory building
12. If unit costs remain unchanged and sales volume and sales price per unit both increase from the
preceding period when operating profits were earned, operating profits must
A. Increase under the variable costing method.
B. Decrease under the variable costing method.
C. Increase under the absorption costing method.
D. Decrease under the absorption costing method.
13. The fixed-overhead volume variance under variable costing:
A. coincides with the fixed manufacturing overhead that was applied to production.
B. is deducted on the income statement.
C. does not exist.
D. will equal the fixed-overhead budget variance.
E. must be unfavorable.
14. Which of the following formulas can often reconcile the difference between absorption- and variable-
costing net income?
A. Change in inventory units x predetermined variable-overhead rate per unit.
B. Change in inventory units ÷ predetermined variable-overhead rate per unit.
C. Change in inventory units x predetermined fixed-overhead rate per unit.
D Change in inventory units ÷ predetermined fixed-overhead rate per unit.
E. (Absorption-costing net income - variable-costing net income) x fixed-overhead rate per unit.
15. ABC had the same activity in 20X4 as in 20X3 except that production was lower in 20X4 than in 20X3.
ABC will show
A. lower income in 20X4 than in 20X3.
B. the same income in both years.
C. the same income in both years under variable costing.
D. the same income in both years under absorption costing
16. What factor, related to manufacturing costs, causes the difference in net earnings computed using
absorption costing and net earnings computed using variable costing? (E**)
A. Absorption costing "inventories" all direct costs, but variable costing considers direct costs to be
period costs.
B. Absorption costing considers all costs in the determination of net earnings, whereas variable
costing considers fixed costs to be period costs.
C. Absorption costing "inventories" all fixed costs for the period in ending finished goods inventory,
but variable costing expenses all fixed costs.
D. Absorption costing allocates fixed overhead costs between cost of goods sold and inventories,
and variable costing considers all fixed costs to be period costs.
17. Absorption costing and variable costing are two different methods of assigning costs to units
produced. Of the following five cost items listed, identify the one that is not correctly accounted for as
a product cost.
Part of Product Cost under
Part of Product Absorption Cost Variable Cost
A. Direct labor cost Yes Yes
B. Insurance on factory Yes No
C. Manufacturing supplies Yes Yes
D. Packaging and shipping costs Yes Yes

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18. Advocates of variable costing argue that fixed production costs should be
A. charged to the period in which they are incurred.
B. capitalized as an asset and amortized over future periods when benefits from such costs are
expected to be received.
C. added to inventory because such costs have future service potential and therefore are
inventoriable as an asset.
D. charged to the period in which they are incurred unless sales do not equal production in which
case any difference should be capitalized as an asset and amortized over future periods.
19. Which of the following is not true of variable costing? (E*)
A. Profits fluctuate with sales.
B. Profits may increase though sales decrease.
C. The cost of the product consists of all variable production costs.
D. The income statement under variable costing does not include overhead volume variance.

20. Which of the following is true of a company that uses absorption costing?
A. Variable selling expenses are included in product costs.
B. Net operating income fluctuates directly with changes in sales volume.
C. Fixed production and fixed selling costs are considered to be product costs.
D. Unit product costs can change as a result of changes in the number of units manufactured.
PROBLEMS
1. PROSPERIDAD CORP. produces a single product and has the following cost structure:
Number of units produced each year 7,000
Variable costs per unit:
Direct materials P51
Direct labor P12
Variable manufacturing overhead P2
Variable selling and administrative expense P5
Fixed costs per year:
Fixed manufacturing overhead P441,000
Fixed selling and administrative expense P112,000
The unit product cost under absorption costing is:
A. P149 C. P63
B. P65 D. P128
Use the following information in answering the next item(s):
KABUGAO INC. produces a single product. Data concerning June's operations follow:
Units in beginning inventory 0
Units produced 6,000
Units sold 5,000
Variable costs per unit:
Manufacturing P7
Selling and administrative P3
Fixed costs in total:
Manufacturing P12,000
Selling and administrative P3,000
2. Under variable costing, ending inventory on the balance sheet would be valued at:
A. P10,000 C. P9,000
B. P7,000 D. P12,000
3. Under absorption costing, ending inventory on the balance sheet would be valued at:
A. P10,000 C. P9,000
B. P7,000 D. P12,000
4. For the year in question, net operating income under variable costing will be:
A. higher than net operating income under absorption costing.
B. lower than net operating income under absorption costing.
C. the same as net operating income under absorption costing.
D. none of these
Use the following information in answering the next item(s):
BALER CORP. manufactures a variety of products. The following data pertain to the company's
operations over the last two years:
Variable costing net operating income, last year P52,000
Variable costing net operating income, this year P68,000
Fixed manufacturing overhead costs released from
inventory under absorption costing, last year P4,000
Fixed manufacturing overhead costs deferred in

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inventory under absorption costing, this year P6,000

5. What was the absorption costing net operating income last year?
A. P50,000 C. P52,000
B. P48,000 D. P56,000
6. What was the absorption costing net operating income this year?
A. P62,000 C. P70,000
B. P74,000 D. P66,000
7. LAMITAN COMPANY’s gross margin exceeded its contribution margin by P25,000. If sales totaled
P175,000 when net operating income equaled P20,000 and total selling and administrative expenses
equaled P55,000, then the contribution margin equaled:
A. P75,000 C. P30,000
B. P80,000 D. P50,000

Use the following information in answering the next item(s):

BALANGA CORP. manufactures a single product. Variable production costs are P20 and fixed
production costs are P150,000. BALANGA uses a normal activity of 10,000 units to set its standard
costs. BALANGA began the year with no inventory, produced 11,000 units, and sold 10,500 units.
8. Ending inventory under variable costing would be
A. P10,000 C. P17,500
B. P15,000 D. P20,000
9. Ending inventory under absorption costing would be
A. P10,000 C. P17,500
D. P20,000 B. P15,000
10. The volume variance under variable costing would be
A. P0 C. P15,000
B. P10,000 D. Some other number.
11. The volume variance under absorption costing would be
A. P0 C. P15,000
B. P10,000 D. Some other number.
12. The standard cost of goods sold under variable costing would be
A. P200,000 C. P367,500
B. P210,000 D. Some other number.
13. The standard cost of goods sold under absorption costing would be
A. P200,000 C. P367,500
B. P210,000 D. Some other number.
14. LA TRINIDAD CORP. manufactures a variety of products. Variable costing net operating income was
P96,300 last year and ending inventory decreased by 2,600 units. Fixed manufacturing overhead cost
was P1 per unit. What was the absorption costing net operating income last year?
A. P2,600 C. P96,300
B. P93,700 D. P98,900
15. NAVAL INC. had P100,000 income using absorption costing. NAVAL has no variable manufacturing
costs. Beginning inventory was P5,000 and ending inventory was P12,000. What is the income
under variable costing?
A. P88,000 C. P100,000.
B. P93,000 D. P107,000
Use the following information in answering the next item(s):
MALAYBALAY CORP. produces a single product that sells for P7.00 per unit. Last year, 100,000 units
were produced and 80,000 units were sold. There were no beginning inventories. The company has
the following cost structure:
Fixed Costs Variable Costs
Raw materials -- P1.50 per unit produced
Direct labor -- P1.00 per unit produced
Factory overhead P150,000 P0.50 per unit produced
Selling and administrative P80,000 P0.50 per unit sold
16. The unit product cost under absorption costing is:
A. P2.50 C. P3.50
B. P3.00 D. P4.50
17. The net operating income under variable costing is:
A. P50,000 C. P90,000
B. P80,000 D. P120,000

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18. A company manufactures a single product for its customers by contracting in advance of production.
Thus, the company produces only units that will be sold by the end of each period. For the last
period, the following data were available:
Sales P40,000
Direct materials 9,050
Direct labor 6,050
Rent (9/10 factory, 1/10 office) 3,000
Depreciation on factory equipment 2,000
Supervision (2/3 factory, 1/3 office) 1,500
Salespeople’s salaries 1,300
Insurance (2/3 factory, 1/3 office) 1,200
Office supplies 750
Advertising 700
Depreciation on office equipment 500
Interest on loan 300
The gross profit margin percentage (rounded) was
A. 34% C. 44%
B. 41% D. 46%
19. MALOLOS CORP.’s 1988 manufacturing costs were as follows:
Direct materials and direct labor P700,000
Other variable manufacturing costs 100,000
Depreciation of factory building and manufacturing equipment 80,000
Other fixed manufacturing overhead 18,000
What amount should be considered product cost for external reporting purposes?
A. P700,000 C. P880,000
B. P800,000 D. P898,000
20. DAET CORP. manufactures and sells boxed coconut cookies. The biggest market for these cookies are
as gifts that college students buy for their business teachers. There are 100 cookies per box. The
following income statement shows the result of the first year of operations. This statement was the
one included in the company’s annual report to the stockholders.
Sales (400 boxes at P12.50 a box) P5,000.00
Less: Cost of goods sold (400 boxes at P8 per box) 3,200.00
Gross margin 1,800.00
Less: Selling and administrative expenses 800.00
Net income 1,000.00
Variable selling and administrative expenses are P0.90 per box sold. The company produced 500
boxes during the year. Variable manufacturing costs are P5.25 per box and fixed manufacturing
overhead costs total P1,375 for the year.
What is the company’s direct costing net income?
A. P 725 C. P2,265
B. P1,000 D. P2,540
Use the following information in answering the next item(s):
The following information is available for PILI CORP. for its first year of operations:
Sales in units 5,000
Production in units 8,000
Manufacturing costs:
Direct labor P3 per unit
Direct material 5 per unit
Variable overhead 1 per unit
Fixed overhead P100,000
Net income (absorption method) P30,000
Sales price per unit P40
21. What would PILI CORP. have reported as its income before income taxes if it had used variable
costing?
A. (P30,000) C. P30,000
B. (P7,500) D. P67,500
22. What was the total amount of SG&A expense incurred by PILI CORP.?
A. P6,000 C. P36,000
B. P30,000 D. P62,500
23. Based on variable costing, what would PILI CORP. show as the value of its ending inventory?
A. P24,000 C. P64,500
B. P27,000 D. P120,000

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Use the following information in answering the next item(s):

ROXAS CORP. employs an absorption costing system for internal reporting purposes; however, the
company is considering using variable costing. Data regarding ROXAS’ planned and actual operations
for the 1995 calendar year are presented below.
Planned Activity Actual Activity
Beginning finished goods inventory in units 35,000 35,000
Sales in units 140,000 125,000
Production in units 140,000 130,000
The planned per unit cost figures shown in the next schedule were based on the estimated production
and sale of 140,000 units in 1995. ROXAS uses a predetermined manufacturing overhead rate for
applying manufacturing overhead to its product. Thus, a combined manufacturing overhead rate of
P9.00 per unit was employed for absorption costing purposes in 1995. Any over- or under-applied
manufacturing overhead is closed to the cost of goods sold account at the end of the reporting year.

Planned Cost Incurred

Per Unit Total Costs
Direct materials P12.00 P1,680,000 P1,560,000
Direct labor 9.00 1,260,000 1,170,000
Variable manufacturing overhead 4.00 560,000 520,000
Fixed manufacturing overhead 5.00 700,000 715,000
Variable selling expenses 8.00 1,120,000 1,000,000
Fixed selling expenses 7.00 980,000 980,000
Variable administrative expenses 2.00 280,000 250,000
Fixed administrative expenses 3.00 420,000 425,000
Total P50.00 P7,000,000 P6,620,000
The 1995 beginning finished goods inventory for absorption costing purposes was valued at the 1994
planned unit manufacturing cost, which was the same as the 1995 planned unit manufacturing cost.
There are no work-in-process inventories at either the beginning or the end of the year. The planned
and actual unit selling price for 1995 was P70.00 per unit.
24. The value of ROXAS’ 1995 actual ending finished goods inventory on the absorption costing bases
was
A. P900,000 C. P1,220,000
B. P1,200,000 D. P1,350,000
25. The value of ROXAS’ 1995 actual ending finished goods inventory on the variable costing basis was
A. P750,000 C. P1,125,000.
B. P1,000,000. D. P1,400,000.
26. ROXAS’ total fixed costs expensed in 1995 on the absorption costing bases were
A. P2,030,000 C. P2,095,000
B. P2,055,000 D. P2,120,000
27. ROXAS’ actual manufacturing contribution margin for 1995 calculated on the variable costing basis
was
A. P4,375,000 C. P4,910,000
B. P4,935,000 D. P5,625,000.
28. The total variable costs expensed in 1995 by ROXAS on the variable costing basis was
A. P4,325,000 C. P4,500,000
B. P4,375,000 D. P4,550,000
29. The difference between ROXAS’ 1995 operating income calculated on the absorption costing basis and
calculated on the variable costing basis was
A. P25,000 C. P65,000
B. P40,000 D. P90,000
30. IMUS CORP. Manufactures a single product for which the costs and selling prices are:
Variable production costs P 50 per unit
Selling price¶ P125 per unit
Fixed production overhead P200,000 per quarter
Fixed selling and administrative overhead P80,000 per quarter
Normal capacity 20,000 units per quarter
Production in first quarter was 19,000 units and sales volume was 16,000 units. No opening inventory
for the quarter.
The absorption costing profit for the quarter was

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A. P920,000 C. P960,000
B. P950,000 D. P970,000
- END OF HANDOUTS -

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