1. ) Nesman Company, which has only one product, has provided the following data
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1. ) Nesman Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 92 Units in beginning inventory 300 Units produced 5,900 Units sold 6,000 Units in ending inventory 200 Variable cost per unit: Direct materials $ 39 Direct labor $ 19 Variable manufacturing overhead $ 2 Variable selling and administrative $ 11 Fixed costs: Fixed manufacturing overhead $ 88,500 Fixed selling and administrative $ 36,000 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a. Prepare a contribution format income statement for the month using variable costing. 2.) Packer Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 81 Units in beginning inventory 300 Units produced 1,800 Units sold 1,600 Units in ending inventory 500 Variable cost per unit: Direct materials $ 19 Direct labor $ 16 Variable manufacturing overhead $ 1 Variable selling and administrative $ 11 Fixed costs: Fixed manufacturing overhead $ 34,200 Fixed selling and administrative $ 3,200 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. 3.)The EG Company produces and sells one product. The following data refer to the year just completed: Beginning inventory 0 Units produced 25,000 Units sold 20,000 Sales price per unit $ 400 Selling and administrative expenses: Variable per unit $ 15 Fixed (total) $ 275,000 Manufacturing costs: Direct materials cost per unit $ 200 Direct labor cost per unit $ 50 Variable manufacturing overhead cost per unit $ 30 Fixed manufacturing overhead $ 300,000 Assume that direct labor is a variable cost. Required: a. Compute the cost of a single unit of product under both the absorption costing and variable costing approaches. b.)Prepare an income statement for the year using absorption costing c.) Prepare a contribution format income statement for the year using variable costing d.) . Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.Explanation / Answer
Create the income statement heading. The heading of the income statement includes three lines. The first line indicates the name of the company. The second line states the specific financial statement. The third line indicates the time frame being reported.
List the revenues earned during the period in total and per unit. Revenue arises from the sale of products or services to customers. The company reports the revenue in total for the period. The company also reports the selling price per unit in the next column.
List the variable costs incurred during the period in total and per unit. These costs include variable manufacturing costs, such as direct materials or direct labor or variable selling costs, such as commissions. The company reports these expenses in total for the period below the revenues. The company reports the variable expense per unit in the next column.
Calculate the contribution margin in total and per unit. The company uses the revenues and variable costs to calculate the contribution margin. The company subtracts the total variable costs from the total revenue to determine the total contribution margin and enters this on the third line. The company calculates the unit contribution margin by subtracting the variable cost per unit from the selling price per unit and enters this in the next column.
List fixed costs in total. Fixed costs include depreciation and corporate salaries. The fixed costs are entered on the income statement below the total contribution margin. The company reports no fixed cost per unit.
Calculate net income. The company subtracts the fixed costs from the total contribution margin to determine the net income.
Chapter 7Variable Costing: A Tool for Management
.TEasyIn the preparation of financial statements using variable costing, fixed manufacturing overhead is treated as aperiod cost.
2.FHardDirect labor is always considered to be a product cost under variable costing.
3.FMediumUnder variable costing, the unit product cost contains some fixed manufacturing overhead cost.
4.FMediumUnder variable costing it may be possible to report a profit even if the company sells less than the break-evenvolume of sales.
5.TEasyUnder variable costing, the impact of fixed cost is emphasized because the total amount of such cost for theperiod appears in the income statement.
6.FEasyAbsorption costing treats fixed manufacturing overhead as a period cost, rather than as a product cost.
7.FMediumThe unit product cost under absorption costing contains no element of fixed manufacturing overhead cost
.8.TEasyAbsorption costing treats all manufacturing costs as product costs.
9.TEasyWhen the number of units in work in process and finished goods inventories increase, absorption costing netincome will typically be greater than variable costing net income.
10.FEasyWhen sales exceeds production for a period, absorption costing net income will generally be greater thanvariable costing net income.
11.FMediumAbsorption costing net income is closer to the net cash flow of a period than is variable costing net income.
12.FMediumVariable costing is not permitted for income tax purposes, but it is widely accepted for external financialreports.
13.FMediumNet income is not affected by changes in production when absorption costing is used.
14.TEasyWhen JIT methods are introduced, the difference in net income computed under the absorption and variablecosting methods is reduced.
15.TEasySince variable costing emphasizes costs by behavior, it works well with cost-volume-profit analysis.
MultipleChoice
16.CEasyA cost that would be included in product costs under both absorption costing and variable costing wouldbe:a. supervisory salaries.b. equipment depreciation.c. variable manufacturing costs.d. variable selling expenses.
17.CEasyCPA adapted
An allocated portion of fixed manufacturing overhead is included in product costs under:Absorption Variablecosting costinga. No Nob. No Yesc. Yes Nod. Yes Yes
18.BMediumCPA adapted
The variable costing method ordinarily includes in product costs the following:a. Direct materials cost, direct labor cost, but no manufacturing overhead cost.b. Direct materials cost, direct labor cost, and variable manufacturing overhead cost.c. Prime cost but not conversion cost.d. Prime cost and all conversion cost.
19.DEasy
Cay Company's fixed manufacturing overhead costs totaled $100,000, and variable selling costs totaled$80,000. Under variable costing, how should these costs be classified?Period costs Product costsa. $0 $180,000b. $80,000 $100,000c. $100,000 $80,000d. $180,000 $0
20.AEasy
Which of the following are considered to be product costs under variable costing?I. Variable manufacturing overhead.II. Fixed manufacturing overhead.III. Selling and administrative expenses.a. I.b. I and II.c. I and III.d. I, II, and III.
21.BMediumCPA adaptedWhat factor is the cause of the difference between net income as computed under absorption costing andnet income as computed under variable costing?a. Absorption costing considers all manufacturing costs in the determination of net income,whereas variable costing considers only prime costs.b. Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories,and variable costing considers all fixed manufacturing costs as period costs.c. Absorption costing includes all variable manufacturing costs in product costs, but variable costingconsiders variable manufacturing costs to be period costs.d. Absorption costing includes all fixed manufacturing costs in product costs, but variable costingexpenses all fixed manufacturing costs.
22.CEasyUnder variable costing, costs which are treated as period costs include:a. only fixed manufacturing costs.b. both variable and fixed manufacturing costs.c. all fixed costs.d. only fixed selling and administrative costs.
Variable Costing
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