Chapter 08 5e

Chapter 8—Absorption and Variable Variable Costing, and Inventory Management TRUE/A!"E

1. Variable Variable costing costing and absorption absorption costing costing income statements statements may differ because because of their their treatment of fixed factory overhead. ANS: T PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)easurement "N)easurement / !A: !A: Performance easurement / A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting "e "eatures2-osts 3#4: %loom5s: 3n 3no6ledge  N$T: 1 min. 0. !nventory costs costs under variable costing costing include include only direct direct materials7 direct labor7 labor7 and variable factory factory overhead. ANS: T PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)easurement / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting Accounting "eatures2-osts 3#4: %loom5s: 3no6ledge  N$T: 1 min. 8. !nventory !nventory under under absorption absorption costing costing includes includes only direct direct materials materials and direct labor. labor. ANS: " !nventory under absorption costing includes direct materials7 direct labor7 variable factor y overhead7 and fixed factory overhead. PTS: 1 !": ifficulty: #asy $%&: '$: ()1  NAT  NAT: %*SP+$,: Analytic Analytic STA: STA: A!-PA: A!-PA: "N)easurement / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting Accounting "eatures2-osts 3#4: %loom5s: 3no6ledge  N$T: 1 min. 9. !f the number number of units units produced in a period period is larger than the number of units sold in a period7 absorption costing income 6ill be higher than variable costing income. ANS: T PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)easurement / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting Accounting "eatures2-osts 3#4: %loom5s: 3no6ledge  N$T: 1 min. . !f the number number of units units produced produced in a period period is smaller smaller than than the number number of units units sold sold in period7 period7 absorption costing income 6ill be higher than variable costing income. ANS: " PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)easurement / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting Accounting "eatures2-osts 3#4: %loom5s: 3no6ledge  N$T: 1 min.

;. Product Product cost cost includ includes es all all costs costs of the company company.. ANS: " PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)easurement / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting Accounting "eatures2-osts 3#4: %loom5s: 3no6ledge  N$T: 1 min. . $n a segmented segmented income income statement7 fixed fixed costs are bro. &!T relies relies on a push push system system to control control finished finished good good inventory inventory.. ANS: " &!T relies on a pull system to control finished good inventory. inventory. PTS: 1 !": ifficulty: #asy $%&: '$: ()8  NAT  NAT: %*SP+$,: Analytic Analytic STA: STA: A!-PA: A!-PA: "N)ecision odeling / !A: ecision Analysis / A-%SP: A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting "e "eatures2-osts 3#4: %loom5s: 3n 3no6ledge  N$T: 1 min. 11. 11. A ma?or ma?or dra6bac< dra6bac< to the &!T invento inventory ry approach approach is that it increase increasess carrying carrying costs. ANS: " PTS: 1 !": ifficulty: #asy $%&: '$: ()8 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)ecision odeling / !A: -ost anagement / A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting "e "eatures2-osts 3#4: %loom5s: 3n 3no6ledge  N$T: 1 min. MATC#I

%$ ;. Product Product cost cost includ includes es all all costs costs of the company company.. ANS: " PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)easurement / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting Accounting "eatures2-osts 3#4: %loom5s: 3no6ledge  N$T: 1 min. . $n a segmented segmented income income statement7 fixed fixed costs are bro. &!T relies relies on a push push system system to control control finished finished good good inventory inventory.. ANS: " &!T relies on a pull system to control finished good inventory. inventory. PTS: 1 !": ifficulty: #asy $%&: '$: ()8  NAT  NAT: %*SP+$,: Analytic Analytic STA: STA: A!-PA: A!-PA: "N)ecision odeling / !A: ecision Analysis / A-%SP: A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting "e "eatures2-osts 3#4: %loom5s: 3n 3no6ledge  N$T: 1 min. 11. 11. A ma?or ma?or dra6bac< dra6bac< to the &!T invento inventory ry approach approach is that it increase increasess carrying carrying costs. ANS: " PTS: 1 !": ifficulty: #asy $%&: '$: ()8 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)ecision odeling / !A: -ost anagement / A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting "e "eatures2-osts 3#4: %loom5s: 3n 3no6ledge  N$T: 1 min. MATC#I

%$  Match the type of income income statement to the the costs it includes. includes. a. Variable riable cost costing ing inco income me state stateme ment nt  b. Absorption costing costing income statement c. %oth %oth typ types es of income income statem statement entss

1. 0. 8. 9. . ;. . (.

irect irect materi materials als for units units sol sold d irect irect labor labor for units units sold sold Variable riable over overhea head d for unit unitss sold sold "ixed "ixed facto factory ry overh overhead ead for for the the period period $nly fixed fixed factory factory overhead overhead for units units sold sold Variable riable sellin selling g expe expense nse "ixe "ixed d ssel elli ling ng expe expens nsee Admi Admini nist stra rati tive ve expen expense se

1. ANS: PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)ecision odeling / !A: -ost anagement / A-%SP: AP-)0)anagerial AP-)0)anagerial Accounting "e "eatures2-osts 3#4: %loom5s: 3n 3no6ledge  N$T: 1 min. 0. ANS: PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)+eporting / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)>=)"inancial AP-)>=)"inancial Statements Statements / A-% A-%SP: SP: APAP-)0 )0) )a an nager ageria iall Accou ccount ntiing "ea "eature turess2-o 2-osts sts 3#4 3#4: %lo %loom om5s 5s:: 3no 3no6 6ledg ledgee  N$T: 1 min. 8. ANS: PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)+eporting / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)>=)"inancial AP-)>=)"inancial Statements Statements / A-% A-%SP: SP: APAP-)0 )0) )a an nager ageria iall Accou ccount ntiing "ea "eature turess2-o 2-osts sts 3#4 3#4: %lo %loom om5s 5s:: 3no 3no6 6ledg ledgee  N$T: 1 min. 9. ANS: A PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)+eporting / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)>=)"inancial AP-)>=)"inancial Statements Statements / A-% A-%SP: SP: APAP-)0 )0) )a an nager ageria iall Accou ccount ntiing "ea "eature turess2-o 2-osts sts 3#4 3#4: %lo %loom om5s 5s:: 3no 3no6 6ledg ledgee  N$T: 1 min. . ANS: % PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)+eporting / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)>=)"inancial AP-)>=)"inancial Statements Statements / A-% A-%SP: SP: APAP-)0 )0) )a an nager ageria iall Accou ccount ntiing "ea "eature turess2-o 2-osts sts 3#4 3#4: %lo %loom om5s 5s:: 3no 3no6 6ledg ledgee  N$T: 1 min. ;. ANS: PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)+eporting / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)>=)"inancial AP-)>=)"inancial Statements Statements / A-% A-%SP: SP: APAP-)0 )0) )a an nager ageria iall Accou ccount ntiing "ea "eature turess2-o 2-osts sts 3#4 3#4: %lo %loom om5s 5s:: 3no 3no6 6ledg ledgee  N$T: 1 min. . ANS: PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)+eporting / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)>=)"inancial AP-)>=)"inancial Statements Statements / A-% A-%SP: SP: APAP-)0 )0) )a an nager ageria iall Accou ccount ntiing "ea "eature turess2-o 2-osts sts 3#4 3#4: %lo %loom om5s 5s:: 3no 3no6 6ledg ledgee  N$T: 1 min. (. ANS: PTS: 1 !": ifficulty: #asy $%&: '$: ()1 NAT: %*SP+$,: Analytic STA: STA: A!-PA: A!-PA: "N)+eporting / !A: -ost -ost anagement / A-%SP: A-%SP: AP-)>=)"inancial AP-)>=)"inancial Statements Statements / A-% A-%SP: SP: APAP-)0 )0) )a an nager ageria iall Accou ccount ntiing "ea "eature turess2-o 2-osts sts 3#4 3#4: %lo %loom om5s 5s:: 3no 3no6 6ledg ledgee

 N$T: 1 min.  Match each statement statement with the correct correct item below. below. a. the costs costs of not not having having a product product availabl availablee 6hen demand demanded ed by a customer  customer   b. the costs of carrying inventory inventory c. approach approach that that maintains maintains goods goods should should be pulled pulled through through the the system system by present present demand demand d. the number number of units units in the the order order @uantity @uantity that that minimi minimies es the total total cost cost e. the cost costss of placi placing ng and and recei receivin ving g an order  order 

=. 1>. 1>. 11. 10. 10. 18. 18.

-arr -arry ying ing cos costs #con #conom omic ic orde orderr @uant @uantity ity &ust &ust)i )in) n)ti tim me $rde $rderi ring ng cost costss Stoc Stoc. A BBBBBBBBBBBB is a subunit of a company of sufficient importance to 6arrant the production of  performance reports. ANS: segment PTS: 1 !": ifficulty: #asy $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)+eporting / !A: -ost anagement / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: 3no6ledge N$T: 1 min. 11. $n a segmented income statement7 fixed expenses are bro  b. H97>> c. H1>7=>> d. H107;>> e. H7> ANS: *nit product cost I FH07>>> J H87>>> J H107>>> J H87>>>G20>7>>> I H.9 #nding inventory I H.9 x 07>>> I H1>7=>>

PTS: 1 !": ifficulty: #asy $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: -ost anagement / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 19. +efer to "igure ()1. Assuming that beginning inventory 6as ero7 6hat is the value of ending inventory under variable costingE a. H878>>  b. H07>> c. H7>>> d. H870> e. H70>> ANS: # *nit product cost I FH07>>> J H87>>> J H107>>>G20>7>>> I H8.;> #nding inventory I H8.;> x 07>>> I H70>> PTS: 1 !": ifficulty: #asy $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: -ost anagement / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 1. +efer to "igure ()1. Chat is operating income for last year under absorption costingE a. H917>>>  b. H;70> c. H(7=>> d. H11178>> e. H97>>> ANS: Sales 'ess: -$,S ,ross margin 'ess: Selling expenses Admin. expenses $perating income

01;7>>> =(71>> 117=>> 1;7>> 17>> (7=>>

PTS: 1 !": ifficulty: #asy $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: -ost anagement / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 8 min. 1;. +efer to "igure ()1. Chat is operating income for last year under variable costingE a. H1117(>>  b. H=17(> c. H(070>> d. H(79>>

e. H;;78> ANS: Sales 'ess: variable expenses: Variable -$,S Variable selling expense -ontribution margin 'ess: fixed expenses:   " ixed factory overhead "ixed selling expense "ixed admin. #xpense $perating income

01;7>>> ;97(>> =7>>> 19070>> 87>>> 7>> 17>> (070>>

PTS: 1 !": ifficulty: #asy $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: -ost anagement / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 8 min. ig(re 8)+ 'oring -ompany had the follo6ing data for the month:

Variable costs per unit: irect materials irect labor Variable overhead Variable selling expenses

H9.>> 8.0> 1.>> .9>

"ixed overhead is H97>>> per monthK it is applied to production based on normal activity of 07>>> units. uring the month7 07>>> units 6ere produced. 'oring started the month 6ith 8>> units in  beginning inventory7 6ith unit product cost e@ual to this month5s unit product cost. A total of 071>> units 6ere sold during the month at price of H19. Selling and administrative expense for the month7 all fixed7 totaled H87;>>. 1. +efer to "igure ()0. Chat is the unit product cost under absorption costingE a. H(.;>  b. H1>.;> c. H(.0> d. H1>.0> e. H.0> ANS:  irect materials irect labor Variable overhead "ixed overhead Total

H 9.>> 8.0> 1.>> 0.>> H1>.0>

PTS: 1 !": ifficulty: #asy $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting

"eatures2-osts  N$T: 8 min.

3#4:

%loom5s: Application

1(. +efer to "igure ()0. Chat is operating income under variable costingE a. H879>  b. H7=(> c. H11789> d. −H9> e. H879> ANS: # Sales − Var. -$,S − Var. Selling expense -ontribution margin − "ixed factory overhead − "ixed selling and admin. expense $perating income

H0=79>> 1700> (9> H11789> 97>>>   87;>> H 879>

irect materials irect labor Variable overhead Total

H9.>> 8.0> 1.>> H(.0>

071>> units sold L H19 I H0=79>> 071>> units cost L H(.0> I H1700> 071>> units variable selling cost L.9> I H(9> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 8 min. 1=. +efer to "igure ()0. Chat is the unit product cost under variable costingE a. H(.;>  b. H1>.;> c. H(.0> d. H1>.0> e. H.0> ANS: irect materials irect labor Variable overhead Total

H9.>> 8.0> 1.>> H(.0>

PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 0>. +efer to "igure ()0. Chat is operating income under absorption costingE

a.  b. c. d. e.

H879> H7=(> H11789> −H9> H879>

ANS: A Sales − -$,S ,ross margin − Variable selling expense − "ixed selling M admin. expense $perating income

H0=79>>   01790> H 7=(> (9>   87;>> H 879>

Sales I H19 × 071>> -$,S I H1>.0> × 071>> Variable Selling expense I .9> × 071>> irect materials irect labor Variable overhead "ixed overhead Total

H 9.>> H 8.0> H 1.>> H 0.>> H1>.0>

PTS: 1 !": ifficulty: #asy $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 8 min. ig(re 8)-+ The follo6ing information pertains to ayberry -orporation:

%eginning inventory #nding inventory irect labor per unit irect materials per unit Variable overhead per unit "ixed overhead per unit Variable selling and admin. costs per unit "ixed selling and admin. costs per unit

17>>> units ;7>>> units H9> 0> 1> 8> ; 19

01. +efer to "igure ()9. Chat is the value of the ending inventory using the absorption costing methodE a. H09>7>>>  b. H8;>7>>> c. H;>>7>>> d. H90>7>>> ANS: S*PP$+T!N, -A'-*'AT!$NS: FH9> J H0> J H1> J H8>G × ;7>>> I H;>>7>>> PTS: 1

!":

ifficulty: oderate

$%&: '$: ()1

 NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 00. +efer to "igure ()9. Absorption costing income 6ould be BBBB variable costing income. a. H1>7>>> greater than  b. H1>7>>> less than c. H09>7>>> less than d. H09>7>>> greater than ANS: A S*PP$+T!N, -A'-*'AT!$NS: "ixed overhead in beginning inventory "ixed overhead in ending inventory ifference

H 8>7>>> 1(>7>>> H1>7>>>

Since production exceeds sales7 absorption costing income is larger by H1>7>>>. PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Analysis  N$T: 0 min. 08. +efer to "igure ()9. Chat is the value of the ending inventory using the variable costing methodE a. H09>7>>>  b. H8;>7>>> c. H8>7>>> d. H90>7>>> ANS:  S*PP$+T!N, -A'-*'AT!$NS: FH9> J H0> J H1>G × ;7>>> I H90>7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. ig(re 8).+ Sanders -ompany has the follo6ing information for last year:

Selling price Variable production costs Variable selling and admin. expenses "ixed production costs "ixed selling and admin. expenses *nits produced *nits sold There 6ere no beginning inventories.

H1=> per unit H0 per unit produced H1( per unit sold H09>7>>> H1(>7>>> 107>>> 7>>>

09. +efer to "igure (). Chat is the value of ending inventory for Sanders using the absorption costing methodE a. H8;>7>>>  b. H0(>7>>> c. H00>7>>> d. H8(>7>>> ANS: A S*PP$+T!N, -A'-*'AT!$NS: FH0 JF H09>7>>>G2107>>>GGO x 7>>> I H8;>7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 0. +efer to "igure (). Chat is the income for Sanders using the absorption costing methodE a. H0>7>>>  b. H9(>7>>> c. H170>>7>>> d. H>>7>>> ANS: A S*PP$+T!N, -A'-*'AT!$NS: FH1=> ) H0G x 7>>>O ) H1(>7>>> ) F7>>> x H1(G I H0>7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 8 min. 0;. +efer to "igure (). Chat is the cost of ending inventory for Sanders using the variable costing methodE a. H8>>7>>>  b. H0(>7>>> c. H10>7>>> d. H0;>7>>> ANS:  S*PP$+T!N, -A'-*'AT!$NS: H0 x 7>>> I H0;>7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 0. +efer to "igure (). Chat is the income for Sanders using the variable costing methodE a. H90>7>>>  b. H9(>7>>> c. H0>7>>>

d. H>>7>>> ANS: A S*PP$+T!N, -A'-*'AT!$NS: FH1=> ) H0 ) H1(G x 7>>>O ) H90>7>>> I H90>7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 8 min. ig(re 8)+ %ailey -ompany incurred the follo6ing costs in manufacturing des< calculators:

irect materials !ndirect materials FvariableG irect labor !ndirect labor FvariableG $ther variable factory overhead "ixed factory overhead Variable selling expenses "ixed selling expenses

H1( 8 =  18 89 0; 10

uring the period7 the company produced and sold 07>>> units. 0(. +efer to "igure ();. Chat is the inventory cost per unit using absorption costingE a. H1>9  b. H c. H(9 d. H80 ANS: S*PP$+T!N, -A'-*'AT!$NS: H> J H89 I H(9 PTS: 1 !": ifficulty: #asy $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 0=. +efer to "igure ();. Chat is the inventory cost per unit using variable costingE a. H0  b. H;; c. H0 d. H> ANS:  S*PP$+T!N, -A'-*'AT!$NS: irect materials !ndirect materials FvariableG irect labor

H1( 8 =

!ndirect labor FvariableG $ther variable factory overhead Total

 18 H>

PTS: 1 !": ifficulty: #asy $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. ig(re 8)0+ +amon -ompany reported the follo6ing units of production and sales for &une and &uly:

onth &une &uly

*nits Produced 1>>7>>> 1>>7>>>

Sold =>7>>> 1>7>>>

!ncome under absorption costing for &une 6as H9>7>>>K income under variable costing for &uly 6as H>7>>>. "ixed costs 6ere H;>>7>>> for each month. 8>. +efer to "igure (). o6 much 6as income for &uly using absorption costingE a. H>7>>>  b. H0>7>>> c. H(>7>>> d. H9>7>>> ANS: % S*PP$+T!N, -A'-*'AT!$NS: FH;>>7>>>21>>7>>>G × 7>>> I H8>7>>> Absorption costing is lo6er by H8>7>>>. Therefore7 H>7>>> less H8>7>>> e@uals a profit of H0>7>>>. PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Analysis  N$T: 0 min. 81. +efer to "igure (). o6 much 6as income for &une using variable costingE a. H9>7>>>  b. H0>7>>> c. HF9>7>>>G d. HF0>7>>>G ANS:  S*PP$+T!N, -A'-*'AT!$NS: FH;>>7>>>21>>7>>>G × 1>7>>> I H;>7>>> Absorption costing is higher by H;>7>>>. Therefore7 H9>7>>> less H;>7>>> e@uals a loss of H0>7>>>. PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0)

anagerial Accounting "eatures2-osts  N$T: 0 min.

3#4:

%loom5s: Analysis

ig(re 8)8+ Steele -orporation has the follo6ing information for &anuary7 "ebruary7 and arch:

*nits produced *nits sold

1an(ary 1>7>>> 7>>>

ebr(ary 1>7>>> (7>>

Mar2h 1>7>>> 1>7>>

Production costs per unit Fbased on 1>7>>> unitsG are as follo6s: irect materials irect labor Variable factory overhead "ixed factory overhead Variable selling and admin. expenses "ixed selling and admin. expenses

H10 ( ; 9 1> 9

There 6ere no beginning inventories for &anuary7 and all units 6ere sold for H>. -osts are stable over the three months. 80. +efer to "igure ()(. Chat is the "ebruary ending inventory for Steele -orporation using the absorption costing methodE a. H8=7>>>  b. H97>>> c. H187>>> d. H8>>7>>> ANS: S*PP$+T!N, -A'-*'AT!$NS: 97>> × FH10 J H( J H; J H9G I H187>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Analysis  N$T: 0 min. 88. +efer to "igure ()(. Chat is the &anuary ending inventory for Steele -orporation using the variable costing methodE a. H0;>7>>>  b. H(7>>> c. H1>(7>>> d. H=>7>>> ANS: % S*PP$+T!N, -A'-*'AT!$NS: 87>>> × FH10 J H( J H;G I H(7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Analysis

 N$T: 0 min. 89. +efer to "igure ()(. Chat is the arch ending inventory for Steele -orporation using the variable costing methodE a. H10>7>>>  b. H1>97>>> c. H0;>7>>> d. H17>>> ANS: % S*PP$+T!N, -A'-*'AT!$NS: *nits of beginning inventory *nits produced *nits sold *nits of ending inventory

1an(ary > 1>7>>> 7>>> 87>>>

ebr(ary 87>>> 1>7>>> (7>> 97>>

Mar2h 97>> 1>7>>> 1>7>> 97>>>

97>>> × H0; I H1>97>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Analysis  N$T: 0 min. 8. +efer to "igure ()(. Chat is the "ebruary contribution margin for Steele -orporation using the variable costing methodE a. H09>7>>>  b. H1>7>>> c. H11=7>>> d. H0>97>>> ANS: S*PP$+T!N, -A'-*'AT!$NS: (7>> × FH> − H8;G I H11=7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 8 min. ig(re 8)3+ The follo6ing information pertains to Star< -orporation:

%eginning inventory #nding inventory irect labor per unit irect materials per unit Variable overhead per unit "ixed overhead per unit Variable selling costs per unit "ixed selling costs per unit

> units 7>>> units H0> 1; 9 1> 10 1;

8;. +efer to "igure ()=. Chat is the value of ending inventory using the variable costing methodE a. H81>7>>>  b. H0>7>>> c. H0>>7>>> d. H8=>7>>> ANS: S*PP$+T!N, -A'-*'AT!$NS: FH0> J H1; J H9G × 7>>> I H0>>7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 8. +efer to "igure ()=. Absorption costing income 6ould be BBBB the variable costing income. a. H>7>>> greater than  b. H>7>>> greater than c. H>7>>> less than d. H>7>>> less than ANS: A S*PP$+T!N, -A'-*'AT!$NS: There is H>7>>> more in fixed cost in ending inventory relative to beginning inventory. !n addition7  production exceeds sales. Therefore7 absorption costing income is larger by H>7>>>. PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Analysis  N$T: 0 min. 8(. +efer to "igure ()=. Chat is the value of ending inventory using the absorption costing methodE a. H81>7>>>  b. H0>7>>> c. H0>>7>>> d. H8=>7>>> ANS: % S*PP$+T!N, -A'-*'AT!$NS: FH0> J H1; J H9 J H1>G × 7>>> I H0>7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 8=. +edding -ompany has t6o divisions 6ith the follo6ing segment margins for the current year:  Northern7 H0>>7>>>K Southern7 H9>>7>>>. -ommon expenses of the company are H>7>>>. Chat is +edding -ompany5s incomeE a. H1>7>>>  b. H>7>>>

c. H;>>7>>> d. H;>7>>> ANS: % S*PP$+T!N, -A'-*'AT!$NS: H0>>7>>> J H9>>7>>> − H>7>>> I H>7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()1 / '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 1 min. 9>. Segment margin is e@ual to segment sales revenue minus a. variable cost of goods sold7 variable selling expense7 and direct fixed costs.  b. variable cost of goods sold7 variable selling expense7 and common fixed costs. c. variable cost of goods sold7 total selling expense7 and direct fixed costs. d. variable cost of goods sold7 variable selling expense7 administrative expense7 and direct fixed costs. e. cost of goods sold7 variable selling expense7 and fixed factory overhead. ANS: A PTS: 1 !": ifficulty: oderate $%&: '$: ()0 NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: 3no6ledge  N$T: 1 min. 91. Chich of the follo6ing could be considered a segmentE a. division  b. product)line c. sales territory d. All of these. ANS:  PTS: 1 !": ifficulty: #asy $%&: '$: ()0 NAT: %*SP+$,: Analytic STA: A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: 3no6ledge N$T: 1 min. 90. -onsider the follo6ing portion of a segmented income statement for the year ?ust ended. Assume fixed expenses of ivision Q include H8>7>>> of direct expenses and that the discontinuance of the department 6ill not affect the sales of the other departments nor reduce the common expenses.

Sales Variable costs ,ross profit "ixed expenses Fdirect and selling and administrativeG $perating income FlossG Chat is Q5s divisional segment marginE a. FH1>7>>>G  b. H9>7>>> c. H1>7>>> d. H1>>7>>>

ivision Q H1>>7>>> ;>7>>> H 9>7>>> >7>>> H F1>7>>>G

ANS: S*PP$+T!N, -A'-*'AT!$NS: H9>7>>> − H8>7>>> I H1>7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 1 min. 98. ,rass Valley ining mines three products. ,old ore sells for H17>>> per ton7 variable costs are H9>>  per ton7 and fixed mining costs are H0>7>>>. 'ast year the segment margin 6as HF1>>7>>>G. o6 many tons of gold ore did ,rass Valley ining sell last yearE a. 8 tons  b. 17>>> tons c. 0> tons d. 0>> tons ANS: S*PP$+T!N, -A'-*'AT!$NS: Segment margin plus direct fixed costs e@uals contribution margin. Therefore7 FH1>>7>>>G J H0>7>>> I H1>7>>> H1>7>>>2H;>> I 0> tons PTS: 1 !": ifficulty: oderate $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. ig(re 8)*4+  Nauman -ompany has the follo6ing information pertaining to its t6o divisions for last year:

Variable selling and admin. expenses irect fixed expenses Sales irect fixed selling and admin. expenses Variable expenses

5ivision 6 H >7>>> 87>>> 0>>7>>> 8>7>>> 9>7>>>

-ommon expenses are H097>>> for the year. 99. +efer to "igure ()1>. Chat is the segment margin for ivision 4E a. H81>7>>>  b. H01>7>>> c. H09>7>>> d. H9>7>>> ANS:  S*PP$+T!N, -A'-*'AT!$NS: H9>>7>>> − H=>7>>> − H1>>7>>> − H>7>>> − H1>>7>>> I H9>7>>>

5ivision 7 H =>7>>> 1>>7>>> 9>>7>>> >7>>> 1>>7>>>

PTS: 1 !": ifficulty: oderate $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 9. +efer to "igure ()1>. Chat is the income for Nauman -ompanyE a. H;7>>>  b. H807>>> c. H8>>7>>> d. H917>>> ANS:  S*PP$+T!N, -A'-*'AT!$NS: Segment income for 4: H9>>7>>> − H=>7>>> − H1>>7>>> − H>7>>> − H1>>7>>> I H9>7>>> Segment income for Q: H0>>7>>> − H>7>>> − H87>>> − H8>7>>> − H9>7>>> I H07>>> !ncome for Nauman -ompany I H07>>> J H9>7>>> − H097>>> I H917>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 8 min. ig(re 8)**+ Tyler -ompany has the follo6ing information pertaining to its t6o product lines for last year:

Variable selling and admin. expenses irect fixed expenses Sales irect fixed selling and admin. expenses Variable expenses $perating income

'rod(2t A H8(7>>> 1=7>> 0>7>>> 8(7>>> 907>>> H1107>>

'rod(2t  H817>>> 897>> 01>7>>> 007>>> 817>>> H=17>>

-ommon expenses are H1>7>>> for the year. 9;. +efer to "igure ()11. Chat is the segment margin for Product %E a. H17>>>  b. H1>7>>> c. H(7>>> d. H=17>> ANS:  S*PP$+T!N, -A'-*'AT!$NS: H01>7>>> ) H817>>> ) H897>> ) H007>>> ) H817>>> I H=17>> PTS: 1 !": ifficulty: #asy $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application

 N$T: 0 min. 9. +efer to "igure ()11. Chat is the income for Tyler -ompanyE a. H1>17>>>  b. H10>7>> c. H==7>>> d. H1>07>> ANS: S*PP$+T!N, -A'-*'AT!$NS: H1107>> J H=17>> ) H1>7>>> I H==7>>> PTS: 1 !": ifficulty: oderate $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 8 min. ig(re 8)*+ Assume the follo6ing information for a product line:

Sales Variable expenses irect fixed expenses Variable selling and administrative expenses irect fixed selling and admin. expenses

H>>7>>> 1(7>>> 117>>> >7>>> =>7>>>

9(. +efer to "igure ()10. Chat is the contribution margin of the product lineE a. H9>>7>>>  b. H07>>> c. H997>>> d. H17>>> ANS: S*PP$+T!N, -A'-*'AT!$NS: H>>7>>> ) H1(7>>> ) H>7>>> I H997>>> PTS: 1 !": ifficulty: #asy $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. 9=. +efer to "igure ()10. Chat is the segment margin of the product lineE a. H0>>7>>>  b. H807>>> c. H8>7>>> d. H09>7>>> ANS:  S*PP$+T!N, -A'-*'AT!$NS: H997>>> ) H0>7>>> I H09>7>>> PTS: 1

!":

ifficulty: #asy

$%&: '$: ()0

 NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0 min. >. The t6o ma?or costs associated 6ith inventory are a. ordering costs and setup costs.  b. setup costs and stoc>> units and sold 0(7>>> units. %eginning inventory 6as ero. uring the period7 the follo6ing costs 6ere incurred: !ndirect labor FvariableG !ndirect materials FvariableG $ther variable overhead "ixed manufacturing overhead "ixed administrative expenses "ixed selling expenses Variable selling expenses7 per unit irect labor7 per unit irect materials7 per unit Re:(ired; -ompute the dollar amount of ending inventory using: A. Absorption costing %. Variable costing

ANS:

H ;>7>>> 8>7>>> =>7>>> 1(>7>>> 1>7>>> 10>7>>> 9> (> 0>

A.

%.

Variable costs: irect materials irect labor !ndirect labor !ndirect materials $ther variable overhead Variable product costs per unit "ixed manufacturing overhead Total product costs per unit !nventory units !nventory value

0>.>> (>.>> 0.>> 1.>> 8.>> H 1>;.>> ;.>> H 110.>> 07>>> H0097>>>

Variable product costs per unit !nventory units !nventory value

H 1>;.>> 07>>> H0107>>>

H

PTS: 1 !": ifficulty: oderate $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T:  min. 0. uring the most recent year7 %oston -orp. had the follo6ing data: %eginning inventory in units *nits produced *nits sold FH10 per unitG Variable costs per unit: irect materials irect labor Variable overhead "ixed costs: "ixed overhead per unit produced "ixed selling and administrative

) 179>> (70>> H H H

18 1; (

H 08 H 1(7>>>

Re:(ired; A. o6 many units are in ending inventoryE %. *sing absorption costing7 calculate the per)unit product cost. Chat is the value of ending inventoryE -. *sing variable costing7 calculate the per)unit product cost. Chat is the value of ending inventoryE . Prepare an income statement using absorption costing. #. Prepare an income statement using variable costing.

ANS: A. %eginning units J units produced )units sold 70>> units %. irect materials irect labor

H H

18 1;

Variable overhead "ixed overhead per unit produced Total product cost

H H

( 08

H

;>

#nding inventory value I H;> x 70>> I

9807>>>

-. irect materials irect labor Variable overhead Total product cost #nding inventory value I H8 x 70>> I

H H H

18 1; (

H

8 0;;79>>

. %oston -orp. Absorption)-osting !ncome Statement "or the ost +ecent 4ear  Sales 'ess: -ost of goods sold

17>07>>> 9=07>>>

,ross margin 'ess: Selling and administrative expenses

887>>> 1(7>>>

$perating income

89(7>>>

#. %oston -orp. Variable)-osting !ncome Statement "or the ost +ecent 4ear  Sales 'ess: -ost of goods sold ,ross margin 'ess: fixed expenses: $verhead Selling and administrative expenses $perating income

17>07>>> 8>879>> 017;>> 8970>> 1(7>>>

8=70>> 1(079>>

PTS: 1 !": ifficulty: -hallenging $%&: '$: ()1  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: -ost anagement / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 1> min. 8. The variable costing income statement for &ac11 is as follo6s: Sales F7>>> unitsG

H1>>7>>>

Variable expenses: -ost of goods sold Selling F1> of salesG -ontribution margin "ixed expenses: anufacturing overhead Administrative $perating income

H8>7>>> 1>7>>>

9>7>>> H ;>7>>>

H097>>> 1979>>

8(79>> H 017;>>

Selected data for 0>11 concerning the operations of the company are as follo6s: %eginning inventory *nits produced

)>) units (7>>> units

anufacturing costs: irect labor irect materials Variable overhead

H8.>> per unit 1.;> per unit 1.9> per unit

Re:(ired; Prepare an absorption costing income statement for 0>11.

ANS: 1a27>>>

81(71;>

;071;>

0=7>>> 807>>>

8(7>>> ;;7>>>

;7>>> =(7>>>

Segment margin

09;7>>>

01971;>

9;>71;>

'ess: common fixed expenses: -ommon fixed overhead -ommon selling and administrative

(87>>> 197>>>

$perating income

8;871;>

PTS: 1 !": ifficulty: oderate $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: -ost anagement / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 1 min. . ario -o. produces three products: '-7 -7 3P-. "or the coming year they expect to produce 1;>7>>> units. $f these7 ;7>>> 6ill be '-7 9>7>>> 6ill be - and 7>>> 6ill be 3P-. The follo6ing information 6as provided for the coming year:

Price *nit direct materials *nit direct labor *nit variable overhead *nit variable selling expense Total direct fixed overhead

H

!MC > 0> 1(> ;> 9 09>7>>>

H

5MC (;> 9> 01> 0 ;> 907>>>

H

>'C ;0 8>> 0>  ( 9>>7>>>

-ommon fixed overhead is H=(97>>> and fixed selling and administrative expenses for ario -o. is H((17>>> per year. Re:(ired; A. -alculate the unit variable cost under variable costing. %. -alculate the unit variable product cost. -. Prepare a segmented variable)costing income statement for next year.

. Should ario -o. 1(> ;> 9

Total variable cost

H

8

H H H H

5MC 9> 01> 0 ;>

H H H H

>'C 8>> 0>  (

H

9

H

;1(

%. !MC

5MC

>'C

*nit direct materials *nit direct labor *nit variable overhead

H H H

0> 1(> ;>

H H H

9> 01> 0

H H H

8>> 0> 

Total unit variable product cost

H

9=>

H

;(

H

;>

-. Sales

!MC 87>7>>>

5MC 8979>>7>>>

>'C 89787>>>

Total 1>9707>>>

Variable cost of goods sold Variable selling expense

817(>7>>> 07=07>>>

079(>7>>> 079>>7>>>

8>7(>>7>>> 871=>7>>>

=>718>7>>> (717>>>

-ontribution margin 'ess: direct fixed overhead

=7>>> 09>7>>>

970>7>>> 907>>>

8(7>>> 9>>7>>>

7((>7>>> 17>;7>>>

Segment margin 'ess: common fixed expenses: -ommon fixed overhead

87>>>

97>=7>>>

F17>>>G

97(17>>> =(97>>>

-ommon selling and administrative

((17>>>

$perating income

07=>7>>>

. The company should consider dropping the 3P- product line because it has a negative segment margin. PTS: 1 !": ifficulty: oderate $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)+eporting / !A: -ost anagement / A-%SP: AP-)0) anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 0> min. ;. #llie anufacturing -ompany produces three products: A7 %7 and -. The income statement for most recent year is as follo6s: Sales 'ess: Variable cost -ontribution margin 'ess fixed cost: anufacturing Selling and administrative

H0>>7>>> 107>>> H 87>>> H0>7>>> 197>>>

897>>>

$perating income

H 8=7>>>

The sales7 contribution margin ratios7 and direct fixed expenses for the three types of products are as follo6s:

Sales -ontribution margin ratio irect fixed expenses of products

A H;>7>>> 8 H (7>>>

 H9>7>>> 8> H 7>>>

C H1>>7>>> 9> H97>>>

Re:(ired; Prepare income statements segmented by products. !nclude a column for the entire firm in the statement.

ANS:

Sales 'ess: Variable expenses -ontribution margin 'ess: irect fixed exp. Product margin 'ess: -ommon expenses

Ellie Man(?a2t(ring Company In2ome "tatement or the Most Re2ent 7ear A  H;>7>>> H9>7>>> 8=7>>> 0(7>>> H017>>> H107>>> (7>>> 7>>> H187>>> H 7>>>

C H1>>7>>> ;>7>>> H 9>7>>> 97>>> H 8;7>>>

Total H0>>7>>> 107>>> H 87>>> 17>>> H ;7>>> 17>>> H 8=7>>>

PTS: 1 !": ifficulty: oderate $%&: '$: ()0  NAT: %*SP+$,: Analytic STA: A!-PA: "N)+eporting / !A: ecision Analysis / A-%SP: AP-)>=)"inancial Statements / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 1 min. . 'aird -ompany uses 9> units of a part each year. The cost of placing one order is HK the cost of carrying one unit in inventory for a year is H0. 'aird currently orders (1 units at a time. A. %. -. . #.

The annual ordering cost of 'aird5s current policy is H @@@@@@@@@@@@@@@@@@ . The annual carrying cost of 'aird5s current policy is H @@@@@@@@@@@@@@@@@@ . The total cost of 'aird5s current policy is H @@@@@@@@@@@@@@@@@@ . Chat is the #$R for 'airdE Chat is the total inventory)related cost at the #$RE

ANS: 'aird -ompany uses 9> units of a part each year. The cost of placing one order is HK the cost of carrying one unit in inventory for a year is H0. 'aird currently orders (1 units at a time. A. %. -. . #.

Annual ordering cost I F9>2(1G × H I H0 Annual carrying cost I F(120G × H0 I H(1 Total cost of 'aird5s current policy I H0 J H(1I H1>; #$R I √F0 × 9> × HG20O I 9 Total inventory)related cost I FH × =G J F920G × H0O I H=>

PTS: 1 !": ifficulty: oderate $%&: '$: ()8  NAT: %*SP+$,: Analytic STA: A!-PA: "N)ecision odeling /A!-PA: "N)easurement / !A: -ost anagement / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 1> min. (. Simon -ompany sells =>> units of its deluxe product each year. The cost of setting up for one  production run is H1>K the cost of carrying one unit in inventory for a year is H8. A. %. -. .

Chat is the economic order @uantityE Chat is the annual setup cost of the #$R policyE Chat is the annual carrying cost of the #$R policyE Chat is the total inventory)related cost of the #$R policyE

ANS: A. %. -. .

#$R I √F0 × =>> × H1>G28O I 8>> Annual setup cost I F=>>28>>G × H1> I H9> Annual carrying cost I F8>>20G × H8I H9> Total cost of the #$R policy I H9> J H9> I H=>>

PTS: 1 !": ifficulty: oderate $%&: '$: ()8  NAT: %*SP+$,: Analytic STA: A!-PA: "N)ecision odeling / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T:  min. =. Simon -ompany sells =>> units of its deluxe product each year. The cost of setting up for one  production run is H1>K the cost of carrying one unit in inventory for a year is H8. Simon currently  produces 1>> deluxe units in one production run. A. %. -. .

Chat is the annual setup cost of the current policyE Chat is the annual carrying cost of the current policyE Chat is the total inventory)related cost of the current policyE o you suppose that the current production run is smaller or larger than the #$RE ChyE

ANS: A. %. -. .

Annual setup cost I F=>>21>>G × H1> I H178> Annual carrying cost I F1>>20G × H8I H1> Total cost of the current policy I H178> J H1> I H17>> The #$R must be more than 1>> units because the set up cost for batches of 1>> units is higher than the carrying cost.

PTS: 1 !": ifficulty: oderate $%&: '$: ()8  NAT: %*SP+$,: Analytic STA: A!-PA: "N)ecision odeling /A!-PA: "N)easurement / !A: ecision Analysis / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Analysis  N$T:  min. 1>. +udd -ompany uses 9>7>>> micro)chips each year in its production of digital cameras. The cost of  placing an order is H. The cost of holding one unit of inventory for one year is H(. -urrently +udd  places 0> orders of 07>>> units per order.

Re:(ired; A. -ompute the annual ordering cost. %. -ompute the annual carrying cost. -. -ompute the total cost of +udd5s current inventory policy. . -ompute the economic order @uantity. #. -ompute the order cost and the carrying cost for the #$R. ". o6 much money does using the #$R policy save the company over the policy of purchasing 07>>> micro)chips per orderE

ANS: A. 0> orders x H per order I H17>> %. H( F07>>>20G I H(7>>> -. Total cost I carrying cost J ordering cost H17>> J H(7>>> I H=7>> .

√F0 × 9>7>>> × HG2H(O I (;;.>0

#. 9;.1= x H I H879;9 ordering cost H( F(;;20G I H879;9 carrying cost total cost I H879;9 J H8797;9 I H;7=0( ". H=7>> ) H;7=0( I H070 savings PTS: 1 !": ifficulty: oderate $%&: '$: ()8  NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)ecision odeling / !A: -ost anagement / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 1> min. 11. c3ay -ompany produces curling irons. The plastic handles used to produce the curling irons are  purchased from an outside supplier. #ach year7 97>>> handles are used at the rate of 1> handles per day. Some days as many as 1(> handles are used. $n average it ta ) 1> G x 9 I 10> -. +eorder point 6ith safety stoc< I reorder point 6ithout safety stoc< J safety stoc< ;>> J 10> I 0> PTS: 1

!":

ifficulty: oderate

$%&: '$: ()8

 NAT: %*SP+$,: Analytic STA: A!-PA: "N)easurement /A!-PA: "N)ecision odeling / !A: -ost anagement / A-%SP: AP-)0)anagerial Accounting "eatures2-osts 3#4: %loom5s: Application  N$T: 8 min. E""A7

1. Chat is the difference bet6een absorption)costing income and variable)costing incomeE ANS: The difference bet6een absorption)costing income and variable)costing income is the treatment of fixed factory overhead. Absorption costing attaches fixed factory overhead to each unit produced. !f the unit is sold7 that portion of fixed factory overhead becomes part of -ost of ,oods Sold. !f the unit goes into inventory7 it ta