Product Costing: Quizzer (Do-It-Yourself Drill)
Product Costing: Quizzer (Do-It-Yourself Drill)
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
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
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
A. P920,000 C. P960,000
B. P950,000 D. P970,000
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