Question

Which of the following is true of absorption costing? It expenses marketing costs as cost of goods sold. It treats direct manufacturing costs as a period cost. It includes fixed manufacturing overhead as an inventoriable D) It treats indirect manufacturing costs as a period cost. Answer: 17. Which of the following is true of variable costing? A) It expenses administrative costs as cost of goods sold. B) It treats direct manufacturing costs as a product cost. It includes fixed manufacturing overhead as an inventoriable cost D) It is required for external reporting to shareholders. Answer: 18. AAA Manufacturing Inc, makes a product with the following cos th the following costs personit Direct materials $180 Direct labor $20 Manufacturing overhead (variable) 530 Manufacturing overhead (fixed) $130 Marketing costs $75 What would be the inventoriable cost per unit under variable costing and what absorption costing? A) $180 for variable costing and $305 under absorption costing B) $230 for variable costing and $305 under absorption costing C) $230 for variable costing and $360 under absorption costing D) $200 for variable costing and $305 under absorption costing Answer: ne and what would it be und 19. Swan Textiles Inc. produces and sells a decorative pillow for $98.00 per unit. In the first one operation, 2,200 units were produced and 1,800 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes Variable manufacturing costs Variable marketing costs Fixed manufacturing costs Administrative expenses, all fixed Ending inventories Direct materials WIP Finished goods $22.00 per unit $3.90 per unit $14 per unit $19.50 per unit -0- 400 units What is the operating income using variable costing? A) $129,780 B) $69,480 $104,580 D) $56,080 Answer:

Answer 1

Ans. 16	Option C
	In aditions to variable manufacturing costs, the fixed manufacturing overhead cost
	per unit is also included in absorption costing as an inventoriable cost.
Ans. 17	Option B
	Under the variable costing all direct manufacturing costs (direct labor and materials)
	are included in the calculation of unit product cost.
Ans. 18	Option   C
	In variable costing method, the unit product cost is the sum of only variable
	manufacturing costs per unit
	In absorption costing method, the unit product cost is the sum of all manufacturing costs per unit
	whether it is fixed or variable.
	*Calculations:
		Variable	Fixed
	Direct materials	$180	$180
	Direct labor	$20	$20
	Variable Overhead per unit	$30	$30
	Fixed overhead per unit		$130
	Inventoriable Cost per unit	$230	$360
	*Fixed overhead per unit = Fixed overhead / Units produced
Ans. 19	Option   D    $56,080
	In variable costing method, the unit product cost is the sum of only variable
	manufacturing costs per unit
	SWAN   TEXTILES
	Variable Costing Income Statement
	Particulars		Amount
	Sales   (1,800 * $98)		$176,400
	Less: Variable cost of goods sold:
	Opening inventory	$0
	Add: Variable cost of goods manufactured (2,200 * $22)	$48,400
	Variable cost of goods available for sale	$48,400
	Less: Ending inventory [400 * $22]	-$8,800
	Variable cost of goods sold		$39,600
	Gross Contribution Margin		$136,800
	Less: Variable marketing cost    ($3.90 * 1,800)		$7,020
	Contribution Margin		$129,780
	Less: Fixed expenses:
	Fixed manufacturing cost (2,200 * $14)	$30,800
	Fixed administrative cost (2,200 * $19.50)	$42,900	$73,700
	Net operating income		$56,080
	*Variable cost of goods manufactured = Units produced * Variable manufacturing cost per unit
	*Variable marketing cost = Units sold * Variable marketing cost per unit sold