Chapter 4

Management Accounting, Cdn.
6e (Horngren/Sundem/Stratton/Beaulieu)
Chapter 4 Cost Management Systems
1) Cost accounting is that part of the accounting system that measures costs for the purposes of
management decision making and financial reporting.
Answer: TRUE
Diff: 1
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Objective: 1
2) Cost accounting system typically includes two processes, cost accumulation and cost determination.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 1
3) Direct costs can be identified specifically and exclusively with a given cost objective in an economically
feasible way.
Answer: TRUE
Diff: 1
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Objective: 1
4) Indirect costs can be identified specifically with a given cost objective in an uneconomical way.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 1
5) The three major categories of manufacturing costs are direct materials, direct labour and factory
overhead.
Answer: TRUE
Diff: 1
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Objective: 1
6) Prime costs include direct labour and factory overhead.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 1
7) Product costs are identified with goods produced or purchased for resale.
Answer: TRUE
Diff: 1
Type: TF
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Objective: 1
8) Period costs are inventoriable and are expensed when the inventory is sold.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 1
1
2012 Pearson Canada Inc.
9) A manufacturer has three inventories as compared to a merchandiser, which has only one.
Answer: TRUE
Diff: 1
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Objective: 5
10) The term expense is used to describe both an inventory expenditure and a cost.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 1
11) The contribution approach is a method of internal reporting that emphasizes the distinction between
variable and fixed costs for the purpose of better decision making.
Answer: TRUE
Diff: 1
Type: TF
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Objective: 1
12) In the contribution approach, all factory overhead is considered to be product costs that are expensed
as incurred.
Answer: FALSE
Diff: 1
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Objective: 1
13) Variable costing is also referred to as the contribution approach.
Answer: TRUE
Diff: 1
Type: TF
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14) Fixed manufacturing overhead is excluded from the cost of products under absorption costing.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 5
15) Absorption costing is more widely used than variable costing.
Answer: TRUE
Diff: 1
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Objective: 7
16) In variable costing, inventories are valued at standard variable costs.
Answer: TRUE
Diff: 1
Type: TF
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Objective: 7
17) A production-volume variance is calculated as the applied volume minus the actual volume
multiplied by the actual-overhead rate.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 7
2
18) Absorption costing separates costs into manufacturing and non-manufacturing categories.
Answer: TRUE
Diff: 1
Type: TF
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Objective: 7
19) There is no difference between variable-costing and absorption-costing income if the inventory level
does not change.
Answer: TRUE
Diff: 1
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Objective: 7
20) Absorption-costing income is not affected by production volume.
Answer: FALSE
Diff: 1
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Objective: 7
21) The part of the accounting system that measures costs for the purposes of management decision
making and financial reporting is referred to as
A) period costing.
B) cost accounting.
C) system accounting.
D) product costing.
Answer: B
Diff: 2
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Objective: 1
22) Which of the following statements is NOT true?
A) A cost may be defined as a sacrifice or giving up of resources for a particular purpose.
B) Costs are frequently measured by the monetary units that must be paid for goods and services.
C) Costs are shown on the income statement.
D) Costs are initially recorded in elementary form.
Answer: C
Diff: 1
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Objective: 1
23) An activity for which a separate measurement of costs is desired is called a
A) cost objective.
B) period cost.
C) product cost.
D) cost accumulation system.
Answer: A
Diff: 1
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Objective: 1
3
24) Which of the following would NOT be an example of a cost objective?

A) A department
B) A product
C) A territory
D) A parcel of land
Answer: D
Diff: 1
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Objective: 1
25) A cost accumulation system typically includes two processes:
A) cost accumulation and cost allocation.
B) cost objectives and cost accounting.
C) cost accumulation and cost accounting.
D) cost allocation and cost application.
Answer: A
Diff: 1
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Objective: 1
26) Which of the following statements is TRUE?
A) Indirect costs can be identified specifically with a given cost objective in an economically feasible way.
B) Managers prefer to classify costs as indirect rather than direct.
C) A cost may simultaneously be direct and indirect.
D) Direct costs cannot be identified specifically with a given cost objective in an economically feasible
way.
Answer: C
Diff: 1
Type: MC
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Objective: 1
27) Which of the following is NOT a factor in determining whether a cost is direct or indirect?
A) The cost can be identified specifically with a given cost objective.
B) The identification of the cost is economically feasible.
C) The cost objective used.
D) The manager's preference.
Answer: D
Diff: 1
Type: MC
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Objective: 1
28) The three major categories of manufacturing costs are
A) prime costs, direct materials and factory overhead.
B) direct labour, factory overhead and direct materials.
C) indirect labour, indirect materials and conversion costs.
D) prime costs, period costs, and product costs.
Answer: B
Diff: 1
Type: MC
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Objective: 1
4
29) All costs other than direct material and direct labour that are associated with the manufacturing
process are called
A) prime costs.
B) factory-overhead costs.
C) conversion costs.
D) product costs.
Answer: B
Diff: 1
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Objective: 1
30) Which of the following would probably NOT be considered a direct material?
A) Lumber
B) Steel
C) Glue
D) Subassemblies
Answer: C
Diff: 1
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Objective: 1
31) An example of direct labour would be
A) janitor's wages.
B) factory foreman's wages.
C) machine operator's wages.
D) plant guard's wages.
Answer: C
Diff: 1
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Objective: 1
32) Factory overhead includes
A) direct materials and direct labour.
B) prime costs.
C) indirect and direct labour.
D) indirect labour and indirect materials.
Answer: D
Diff: 1
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Objective: 1
33) Which of the following is NOT a factory overhead cost?
A) Wages of machine operators
B) Wages of supervisors
C) Amortization of the machinery
D) Factory utilities
Answer: A
Diff: 1
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Objective: 1
5
34) Prime costs include

A) direct labour and factory overhead.
B) direct materials and indirect labour.
C) factory overhead and indirect materials.
D) direct labour and direct materials.
Answer: D
Diff: 1
Type: MC
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Objective: 1
35) The sum of direct labour and factory overhead costs is equal to
A) conversion costs.
B) prime costs.
C) period costs.
D) indirect costs.
Answer: A
Diff: 1
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Objective: 1
36) Manufacturing costs are eventually reported on
A) the income statement only.
B) the balance sheet only.
C) the income statement as cost of goods sold.
D) the balance sheet as cost of goods sold.
Answer: C
Diff: 1
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37) A period cost
A) is identified with goods produced or purchased for resale.
B) is accumulated in work-in-process.
C) is shown on the balance sheet.
D) is expensed as incurred.
Answer: D
Diff: 1
Type: MC
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Objective: 1
38) Costs identified with goods produced or purchased for resale are called
A) product costs.
B) period costs.
C) prime costs.
D) conversion costs.
Answer: A
Diff: 1
Type: MC
Page Ref: 120
Objective: 1
6
39) Which of the following statements is FALSE?

A) Product costs are inventoriable costs.
B) Product costs are automatically deducted as expenses during the current period.
C) Product costs become expenses when the inventory is sold.
D) Product costs show up on the income statement in cost of goods sold.
Answer: B
Diff: 1
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Objective: 1
40) Selling and general administrative costs are
A) period costs.
B) product costs.
C) prime costs.
Answer: A
Diff: 1
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Objective: 1
41) An example of a product cost is
A) advertising expense.
B) amortization on office equipment.
C) indirect materials.
D) store supplies expense.
Answer: C
Diff: 1
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Objective: 1
42) Which of the following is NOT a period cost?
A) Wages of clerical staff
B) Advertising expense
C) Factory supplies used
D) Amortization on salesperson's car
Answer: C
Diff: 1
Type: MC
Page Ref: 120
Objective: 1
43) Which of the following is NOT a product cost?
A) Indirect labour
B) Raw materials used
C) Insurance on the plant
D) Advertising expense
Answer: D
Diff: 1
Type: MC
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Objective: 1
7
44) Which of the following is NOT an inventory account?

A) Direct labour
B) Direct materials
C) Work in process
D) Finished goods
Answer: A
Diff: 1
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Objective: 1
45) How many inventory accounts does a manufacturer usually have?
A) Three
B) Two
C) One
D) None
Answer: A
Diff: 1
Type: MC
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Objective: 5
46) How many inventory accounts does a merchandiser usually have?
A) One
B) Two
C) Three
D) Four
Answer: A
Diff: 1
Type: MC
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Objective: 5
47) Which of the following accounts would NOT be included in the current asset section of a
manufacturer's balance sheet?
A) Work in process inventory
B) Merchandise inventory
C) Finished goods inventory
D) Direct materials inventory
Answer: B
Diff: 1
Type: MC
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Objective: 5
48) Which of the following accounts would appear in the current asset section of a merchandiser's balance
sheet?
A) Direct materials inventory
B) Finished goods inventory
C) Merchandise inventory
D) Work in process inventory
Answer: C
Diff: 1
Type: MC
Page Ref: 124
Objective: 5
8
49) The cost of goods purchased line on the income statement of a retailer is the equivalent to which line
on a manufacturer's income statement?
A) Cost of raw materials purchased
B) Cost of goods sold
C) Cost of goods available for sale
D) Cost of goods manufactured
Answer: D
Diff: 1
Type: MC
Page Ref: 128
50) Which of the following would appear on an income statement of both a retailer and a manufacturer?
A) Direct labour
B) Selling expenses
C) Beginning finished goods inventory
D) Factory overhead
Answer: B
Diff: 1
Type: MC
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Objective: 5
51) Which of the following methods is required for external financial reporting?
A) Contribution approach
B) Variable costing
C) Direct costing
D) Absorption approach
Answer: D
Diff: 1
Type: MC
Page Ref: 131
Objective: 7
52) When using the absorption approach to costing,
A) all variable costs are inventoriable.
B) all indirect manufacturing costs are inventoriable.
C) all fixed costs are treated as period costs.
D) all direct manufacturing costs are treated as period costs.
Answer: B
Diff: 1
Type: MC
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Objective: 7
53) Absorption costing classifies costs as either product costs or
A) period costs.
B) fixed costs.
C) prime costs.
Answer: A
Diff: 1
Type: MC
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Objective: 7
9
54) Which of the following terms appears on an income statement prepared using the contribution
approach but NOT on an income statement using absorption costing?
A) Operating income
B) Gross profit
C) Contribution margin
D) Sales
Answer: C
Diff: 1
Type: MC
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Objective: 7
55) When using the contribution approach to costing,
A) all factory overhead is inventoriable.
B) all indirect manufacturing costs are inventoriable.
C) all selling expenses are deducted from the contribution margin.
D) all fixed costs are treated as period costs.
Answer: D
Diff: 1
Type: MC
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Objective: 7
56) Absorption costing is also known as all of the following EXCEPT
A) direct costing.
B) full costing.
C) traditional approach.
D) functional approach.
Answer: A
Diff: 1
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Objective: 7
57) Variable costing regards fixed manufacturing overhead as
A) an unexpired cost.
B) an inventoriable cost.
C) a charge against sales.
D) a product cost.
Answer: C
Diff: 1
Type: MC
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Objective: 7
58) Variable costing is commonly called
A) full costing.
B) direct costing.
C) traditional costing.
D) absorption costing.
Answer: B
Diff: 1
Type: MC
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Objective: 7
10
59) All of the following are inventoriable costs under variable costing EXCEPT
A) direct materials.
B) direct labour.
C) variable manufacturing overhead.
D) fixed manufacturing overhead.
Answer: D
Diff: 1
Type: MC
Page Ref: 131
Objective: 7
60) The only difference between variable and absorption costing is the accounting for
A) direct labour.
B) fixed manufacturing overhead.
C) direct materials.
D) variable manufacturing overhead.
Answer: B
Diff: 1
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Objective: 7
61) Which format does the CICA Handbook advocate for reporting income?
A) Direct costing
B) Variable costing
C) Indirect costing
D) Full costing
Answer: D
Diff: 1
Type: MC
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Objective: 7
62) All manufacturing costs are assigned to the product under which method of product costing?
A) Direct costing
B) Variable costing
C) Absorption costing
D) Fixed costing
Answer: C
Diff: 1
Type: MC
Page Ref: 131
Objective: 7
11
DeJager Company reported the following information about the production and sales of its only product:
Direct materials used
Direct labour
Variable factory overhead
Fixed factory overhead
Variable selling and administrative expenses
Fixed selling and administrative expenses
Beginning inventories
Ending inventories:
Direct materials
WIP
Finished goods
Sales ($45 per unit)
$32,000
$20,000
$12,000
$16,000
$ 4,000
$ 6,000
none
-0-0600 units
$63,000
63) The cost of producing one unit of product using variable costing would be
A) $32.
B) $40.
C) $45.
D) $26.
Answer: A
Diff: 2
Type: MC
Page Ref: 131
Objective: 7
64) The cost of producing one unit of product using absorption costing would be
A) $32.
B) $26.
C) $45.
D) $40.
Answer: D
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
65) The ending inventory under variable costing would be
A) $24,000.
B) $27,000.
C) $19,200.
D) $15,600.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
12
66) The ending inventory under absorption costing would be

A) $27,000.
B) $24,000.
C) $15,600.
D) $19,200.
Answer: B
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
Schultz Company reported the following information about the production and sales of its only product:
Direct labour
Ending inventories:
Direct materials
WIP
Finished goods
$64,000
$40,000
$24,000
$32,000
$ 8,000
$12,000
none
-0-0600 units
$126,000
67) The cost of producing one unit of product using variable costing would be
A) $64.
B) $80.
C) $90.
D) $52.
Answer: A
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
68) The cost of producing one unit of product using absorption costing would be
A) $64.
B) $52.
C) $90.
D) $80.
Answer: D
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
13

A) $48,000.
B) $54,000.
C) $38,400.
D) $31,200.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
A) $54,000.
B) $48,000.
C) $31,200.
D) $38,400.
Answer: B
Diff: 1
Type: MC
Page Ref: 133
Objective: 9
Direct labour
Ending inventories:
Direct materials
WIP
Finished goods
$32,000
$20,000
$12,000
$16,000
$ 4,000
$ 6,000
none
-0-0600 units
$63,000
71) The cost of goods sold under variable costing would be

A) $56,000.
B) $63,000.
C) $44,800.
D) $36,400.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
14
72) The contribution margin under variable costing would be

A) $18,200.
B) $14,200.
C) $ 3,000.
D) $22,600.
Answer: B
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
73) The operating income (loss) under variable costing would be
A) $14,200.
B) $ 8,200.
C) $(3,000).
D) $(7,800).
Answer: D
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
Direct labour
Ending inventories:
Direct materials
WIP
Finished goods
$64,000
$40,000
$24,000
$32,000
$ 8,000
$12,000
none
-0-0600 units
$126,000

A) $112,000.
B) $126,000.
C) $ 89,600.
D) $ 72,800.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
15
75) The contribution margin under variable costing would be

A) $36,400.
B) $28,400.
C) $ 6,000.
D) $45,200.
Answer: B
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
76) The operating income (loss) under variable costing would be
A) $ 28,400.
B) $ 16,400.
C) $( 6,000).
D) $(15,600).
Answer: D
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
A company has the following information:
Raw materials used
Direct labour
Variable selling and administrative
Fixed selling and administrative
Gross profit
Contribution margin
Ending inventories
Raw materials
WIP
Finished goods
none
$ 50,000
$156,000
$ 84,000
$ 34,000
unknown
$ 6,000
$ 10,000
$ 60,000
unknown
$ 14,000
none
1,200 units
77) Raw materials purchased during the current period were

A) $50,000.
B) $64,000.
C) $36,000.
D) not determinable.
Answer: B
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
16

A) $96,000.
B) $168,000.
C) $84,000.
D) $192,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
A) $84,000.
B) $192,000.
C) $96,000.
D) $168,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
80) The total contribution margin under variable costing would be
A) $42,000.
B) $14,000.
C) $66,000.
D) $72,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
81) The net income under variable costing would be
A) $32,000.
B) $44,000.
C) $50,000.
D) $66,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
82) Under variable costing, which manufacturing cost is expensed as a period cost?
A) Fixed manufacturing overhead.
B) Direct materials.
C) Variable manufacturing overhead.
D) Direct labour.
Answer: A
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
17
83) In variable costing, costs are separated into the major categories of
A) manufacturing and non-manufacturing.
B) manufacturing and fixed.
C) fixed and variable.
D) variable and non-manufacturing.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
84) In variable costing, revenue less all variable costs is
A) gross margin.
B) operating income.
C) contribution margin.
D) net income.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
Raw materials used
Direct labour
Gross profit
Contribution margin
Ending inventories
Raw materials
WIP
Finished goods
none
$ 50,000
$156,000
$ 84,000
$ 34,000
unknown
$ 6,000
$ 10,000
$ 60,000
unknown
$ 14,000
none
1,200 units
85) How much factory overhead is included in the ending inventory under absorption costing?
A) $24,000
B) $12,000
C) $16,800
D) $-0Answer: B
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
18
Direct labour
Ending inventories:
Direct materials
WIP
Finished goods
$32,000
$20,000
$12,000
$16,000
$ 4,000
$ 6,000
none
-0-0600 units
$63,000
86) The cost of goods sold under absorption costing would be

A) $56,000.
B) $63,000.
C) $44,800.
D) $36,400.
Answer: A
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
87) The gross profit under absorption costing would be
A) $26,600.
B) $18,200.
C) $ -0-.
D) $ 7,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
88) The operating income (loss) under absorption costing would be
A) $ 16,600.
B) $ 8,200.
C) $( 3,000).
D) $(10,000).
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
19
Direct labour
Ending inventories:
Direct materials
WIP
Finished goods
$64,000
$40,000
$24,000
$32,000
$ 8,000
$12,000
none
-0-0600 units
$126,000

A) $112,000.
B) $126,000.
C) $ 89,600.
D) $ 72,800.
Answer: A
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
90) The gross profit under absorption costing would be
A) $53,200.
B) $36,400.
C) $ -0-.
D) $14,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
91) The operating income (loss) under absorption costing would be
A) $ 33,200.
B) $ 16,400.
C) $( 6,000).
D) $(20,000).
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
20

Raw materials used
Direct labour
Gross profit
Contribution margin
Ending inventories
Raw materials
WIP
Finished goods
none
$ 50,000
$156,000
$ 84,000
$ 34,000
unknown
$ 6,000
$ 10,000
$ 60,000
unknown
$ 14,000
none
1,200 units
92) The fixed factory overhead incurred was

A) $66,000.
B) $32,000.
C) $ -0-.
D) $24,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
A) $ 96,000.
B) $ 84,000.
C) $168,000.
D) $ 60,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
A) $168,000.
B) $192,000.
C) $ 84,000.
D) $ 96,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
21
95) The net income under absorption costing would be

A) $50,000.
B) $32,000.
C) $60,000.
D) $44,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
96) The fixed-overhead rate is determined by dividing the budgeted fixed manufacturing overhead by
A) expected volume of the cost driver.
B) actual volume of production.
C) budgeted variable manufacturing overhead.
D) the number of units sold.
Answer: A
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
22
The following information refers to the Cowan Company's past year of operations.
Production (units)
Sales (units)
Selling price
Direct Labour hours
Product A
Product B
160,000
300,000
100,000
250,000
$6.00
$5.00
60,000
90,000
Manufacturing costs:
Direct materials
Direct labour
Variable overhead
Fixed overhead: Direct
Fixed overhead: Common*
$ 80,000
240,000
24,000
80,000
25,000
$270,000
540,000
30,000
50,000
25,000
Nonmanufacturing costs:
Variable selling
Direct fixed selling
Common fixed selling**
$ 40,000
50,000
30,000
$ 75,000
65,000
30,000
*Common overhead totals $50,000 and is divided equally between the two products.
**Common fixed selling totals $60,000 and is divided equally between the two products.
Budgeted fixed overhead for the year of $180,000 equalled actual fixed overhead. Fixed overhead is
assigned to products using a plant-wide rate based on expected direct labour hours, which were 150,000.
The company had 5,000 of Product B in inventory at the beginning of the year. These units had the same
unit cost as the units produced during the year.
97) The unit product cost for Product A using variable costing is
A) $2.00.
B) $2.15.
C) $2.45.
D) $2.60.
Answer: B
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
98) The unit product cost for Product A using absorption costing is
A) $2.15.
B) $2.45.
C) $2.60.
D) $2.80.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
23
99) The unit product cost for Product B using variable costing is
A) $2.15.
B) $2.45.
C) $2.80.
D) $3.04.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
100) The unit product cost for Product B using absorption costing is
A) $3.16.
B) $2.80.
C) $2.60.
D) $2.45.
Answer: A
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
101) Variable cost of goods sold for the year is
A) $700,000.
B) $915,000.
C) $1,025,000.
D) $1,072,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
102) Variable costing net income for the year is
A) $938,000.
B) $763,000.
C) $648,000.
D) $465,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 133
Objective: 8
103) Using absorption costing, cost of goods sold for the year is
A) $1,050,000.
B) $912,000.
C) $797,000.
D) $760,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
24
104) Absorption costing net income for the year is

A) $840,000.
B) $648,000.
C) $510,000.
D) $488,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 133
Objective: 9
105) Which of the following is NOT considered a payroll fringe cost?
A) Idle time
B) Pension plan contributions
C) Social security payment
D) Health insurance coverage
Answer: A
Diff: 1
Type: MC
Page Ref: 133
Objective: 8
106) Any activity for which a separate measurement of costs is desired.
Answer: Cost objective
Diff: 1
Type: SA Page Ref: 133
Objective: 1
107) A sacrifice or giving up of resources for a particular purpose.
Answer: Cost
Diff: 1
Objective: 1
108) Costs that can be identified specifically and exclusively with a given cost objective in an economically
feasible way.
Answer: Direct cost
Diff: 1
Objective: 1
109) All costs other than direct material or direct labour that are associated with the manufacturing
process.
Answer: Factory-overhead costs
Diff: 1
Objective: 1
110) A product-costing method that assigns only variable manufacturing costs to a product.
Answer: Variable costing
Diff: 1
Objective: 1
25
111) A product-costing method that assigns all manufacturing costs to a product.

Answer: Absorption costing
Diff: 1
Objective: 1
112) Expenses that are directly traceable to a given segment and would be avoided if the segment is
eliminated.
Answer: Direct fixed costs
Diff: 1
Objective: 1
113) Expenses that are not directly traceable to a particular segment and are unaffected by the elimination
of any one segment.
Answer: Common fixed expenses
Diff: 1
Objective: 1
114) Fixed manufacturing overhead assigned to production using a predetermined fixed overhead rate.
Answer: Applied fixed overhead
Diff: 1
Objective: 1
115) Direct labour costs plus direct materials costs.
Answer: Prime costs
Diff: 1
Objective: 1
116) Direct labour costs plus factory overhead costs.
Answer: Conversion costs
Diff: 1
Objective: 1
117) Costs identified with goods produced or purchased for resale.
Answer: Product costs
Diff: 1
Objective: 1
118) The costing method, which excludes fixed manufacturing overhead from the cost of products.
Answer: Variable costing
Diff: 1
Objective: 7
119) The costing method, which capitalizes fixed manufacturing overhead as product cost.
Answer: Absorption costing
Diff: 1
Objective: 7
26
120) Sales revenue less cost of goods sold.

Answer: Gross margin
Diff: 1
Objective: 7
121) The Majors Company has gathered the following information for the year ended December 31, 20X3.
Sales
Direct labour
Factory overhead:
Fixed
Variable
Selling expenses:
Fixed
Variable
General and administrative expenses:
Fixed
Variable
$520,000
129,000
76,000
62,000
33,000
21,000
44,000
43,000
23,000
There were no beginning or ending inventories.

Required:
Calculate the following:
a. Prime cost
b. Conversion cost
c. Total product cost
d. Total period cost
Answer:
a. $129,000 + $76,000 = $205,000
b. $76,000 + $62,000 + $33,000 = $171,000
c. $129,000 + $76,000 + $62,000 + $33,000 = $330,000
d. $21,000 + $44,000 + $43,000 + $23,000 = $131,000
Diff: 3
Type: ES
Page Ref: 120
Objective: 1
27
122) Lentz Manufacturers, a manufacturer of wood doors, has prepared the following list of accounts:
Advertising
Assemblers' wages
Amortization of machinery
Factory utilities
Lathe operators' wages
Machinery repairs
Office salaries
Purchases of glue
Purchases of nails
Purchases of oak
Purchases of pine
Supervisors' salaries
$ 36,000
84,200
9,200
55,600
66,400
22,600
113,800
1,600
800
250,000
99,000
21,400
There were no beginning or ending inventories.

Required:
Calculate the following:
a. Direct materials used
b. Direct labour
c. Factory overhead
d. Prime costs
e. Conversion costs
Answer:
a. $250,000 + $99,000 = $349,000
b. $84,200 + $66,400 = $150,600
c. $9,200 + $55,600 + $22,600 + $1,600 + $800 + $21,600 = $111,200
d. $349,000 + $150,600 = $499,600
e. $150,600 + $111,200 = $261,800
Diff: 3
Type: ES
Page Ref: 120
Objective: 1
28
123) Indicate whether each of the following costs is an Inventoriable cost (I) or a Period cost (P):
________ 1.
advertising expense
________ 2.
amortization of machinery
________ 3.
amortization on office equipment
________ 4.
amortization of store equipment
________ 5.
direct labour
________ 6.
direct materials
________ 7.
factory supervisor's salary
________ 8.
factory supplies
________ 9.
factory utilities
________10.
indirect labour
________11.
indirect materials
________12.
machinery repairs and maintenance
________13.
office salaries
________14.
office supplies
________15.
sales commissions
Answer:
P
1.
I
2.
P
3.
P
4.
I
5.
I
6.
I
7.
I
8.
I
9.
I 10.
I 11.
I 12.
P 13.
P 14.
P 15.
Diff: 3
Type: ES
Page Ref: 120
Objective: 1
29
124) Indicate whether each of the following costs is an Inventoriable cost (I) or a Period cost (P):
________ 1.
amortization on plant and equipment
________ 2.
direct materials
________ 3.
store supplies
________ 4.
foreman's salary
________ 5.
controller's salary
________ 6.
indirect materials
________ 7.
property taxes on the plant
________ 8.
sales salaries
________ 9.
office rent
________ 10.
direct labour
________ 11.
office telephone
________ 12.
advertising
________ 13.
indirect labour
________ 14.
plant insurance
________ 15.
amortization on office equipment
Answer:
I 1.
I 2.
P 3.
I 4.
P 5.
I 6.
I 7.
P 8.
P 9.
I 10.
P 11.
P 12.
I 13.
I 14.
P 15.
Diff: 3
Type: ES
Page Ref: 124
Objective: 4
30
125) Farmers Corporation purchased $170,000 of direct materials and incurred $48,000 of direct labour
costs during the year. Indirect labour amounted to $5,000, while indirect materials totalled $6,000. Other
operating expenses pertaining to the factory included utilities of $6,400, maintenance of $9,200, supplies
of $3,600, amortization of $30,200, and property taxes of $5,800. The only inventory was $13,600 of
finished goods at year-end.
Required:
a. Compute the cost of goods manufactured.
b. Compute the cost of goods sold.
Answer:
a. $5,000 + $6,000 + $6,400 + $9,200 + $3,600 + $30,200 + $5,800 = $66,200 factory overhead
$170,000 + $48,000 + $66,200 = $284,200 cost of goods manufactured
b. $284,200 - $13,600 = $270,600 cost of goods sold
Diff: 3
Type: ES
Page Ref: 120
Objective: 1
126) Elder, Inc. has supplied the following information:
Amortization-factory
Direct labour
Direct material purchases
Factory insurance
Factory maintenance
Factory utilities
General & administrative expenses
Indirect labour
Indirect materials
Sales
Selling expenses
Beginning direct materials inventory
Beginning work-in-process inventory
Beginning finished-goods inventory
Ending direct materials inventory
Ending work-in-process inventory
Ending finished-goods inventory
$ 29,900
82,400
96,300
8,600
23,500
16,800
71,200
18,400
7,200
475,000
67,600
12,300
25,900
62,700
14,500
33,300
55,500
Required:
a. Compute the cost of goods manufactured.
b. Compute the cost of goods sold.
c. Compute the net income.
Answer:
a. $29,900 + 8,600 + 23,500 + 16,800 + 18,400 + 7,200 = $104,400 total factory overhead
$12,300 + 96,300 - 14,500 = $94,100 direct materials used
$94,100 + 82,400 + 104,400 = $280,900 + 25,900 - 33,300 = $273,500 cost of goods manufactured
b. $273,500 + 62,700 - 55,500 = $280,700 cost of goods sold
c. $475,000 - 280,700 - 67,600 - 71,200 = $55,500 net income
Diff: 3
Type: ES
Page Ref: 120
Objective: 1
31
127) The following information was taken from the records of the Gallon Company for the year ended
December 31, 20X4. There were no beginning or ending inventories.
Sales
Selling expenses:
Fixed
Variable
Factory overhead:
Fixed
Variable
Direct materials
Administrative expenses:
Fixed
Variable
Direct labour
$580,000
26,600
55,200
74,800
42,400
87,600
78,200
35,800
133,000
Prepare an income statement for the year ended December 31, 20X4 using both the absorption approach
and the contribution approach.
Answer:
Gallon Company
Income Statement-Absorption Approach
For the Year Ended December 31, 20X4
Sales
Cost of goods sold
Direct materials
Direct labour
Factory overhead
Gross profit
Selling expenses
Administrative expenses
Net income
$580,000
$ 87,600
133,000
117,200
$ 81,800
114,000
337,800
$242,200
195,800
$ 46,400
32
Gallon Company
Income Statement-Contribution Approach
Sales
Less: variable expenses
Direct materials
Direct labour
Variable selling expenses
Variable administrative expenses
Contribution margin
Less: fixed expenses
Factory overhead
Selling expenses
Net income
Diff: 3
Type: ES
Page Ref: 133
Objective: 9
$580,000
$ 87,600
133,000
42,400
55,200
35,800
$ 74,800
26,600
78,200
354,000
$226,000
179,600
$ 46,400
33
128) The following information was taken from the records of the Greiner Company for the year ended
December 31, 20X3. There were no beginning or ending inventories.
Sales
Selling expenses:
Fixed
Variable
Direct labour
Factory overhead:
Fixed
Variable
Administrative expenses:
Fixed
Variable
Direct materials
$270,000
10,800
27,400
39,000
29,600
25,800
44,600
72,200
34,400
Prepare an income statement for the year ended December 31, 20X3 for the Greiner Company using both
the absorption approach and the contribution approach.
Answer:
Greiner Company
Income Statement-Absorption Approach
Sales
Cost of goods sold
Direct materials
Direct labour
Factory overhead
Gross profit
Selling expenses
Net loss
$270,000
$ 34,400
39,000
55,400
$ 38,200
116,800
128,800
$141,200
155,000
$(13,800)
34
Greiner Company
Income Statement-Contribution Approach
Sales
Less: variable expenses
Direct materials
Direct labour
Variable selling expenses
Variable administrative expenses
Contribution margin
Less: fixed expenses
Factory overhead
Selling expenses
Net loss
Diff: 3
Type: ES
Page Ref: 133
Objective: 9
$270,000
$ 34,400
39,000
25,800
27,400
72,200
$ 29,600
10,800
44,600
129) Units produced

Units sold
Direct labour
Fixed manufacturing overhead
Variable manufacturing overhead
Gross margin
Direct-materials inventory, December 31
WIP, December 31
198,800
$ 71,200
85,000
$(13,800)
17,000 units
15,600 units
$27,350
$63,200
$25,500
$29,000
$31,450
$36,950
none
$85,600
$ 6,400
none
Required:
a. What is the ending finished-goods inventory cost under absorption costing?
b. What is the ending finished-goods inventory cost under variable costing?
Answer:
a. ($63,200 + $27,350 + $36,950 + $31,450)/17,000 units = $9.35 per unit $9.35 per unit (17,000 15,600) = $13,090
b. ($63,200 + $27,350 + $36,950)/17,000 units = $7.50 per unit $7.50 per unit 1,400 units = $10,500
Diff: 3
Type: ES
Page Ref: 133
Objective: 8
35
130) Ginsberg Limited has provided the following information for the year ended April 30, 20X1.
Units sold
Units produced
Direct labour
Selling and administrative expenses (all fixed)
Contribution margin
Direct-materials inventory, 6/30
WIP, 6/30
4,200 units
5,600 units
$49,800
$77,500
$26,320
$35,100
$32,400
none
$35,600
$ 9,960
none
Required:
a. What is the ending finished-goods inventory cost under variable costing?
b. What is the ending finished-goods inventory cost under absorption costing?
Answer:
a. ($77,500 + $49,800 + $35,100)/11,200 units = $29.00 per unit $29.00 per unit (5,600 - 4,200) =
$40,600
b. ($77,500 + $49,800 + $35,100 + $26,320)/11,200 = $33.70 per unit $33.70 per unit 1,400 units =
$47,180
Diff: 3
Type: ES
Page Ref: 133
Objective: 8
36
131) Johnson Corp. prepared the following absorption-costing income statement for the year ended May
31, 20X1.
Sales, 16,000 units
Cost of goods sold
Gross margin
Selling and administrative expenses
Operating income
$640,000
432,000
$208,000
92,000
$116,000
Additional information follows:

Selling and administrative expenses include $3 of variable cost per unit sold. There was no beginning
inventory, and 17,500 units were produced. Variable manufacturing costs were $22 per unit. Actual fixed
costs were equal to budgeted fixed costs.
Required: Prepare a variable costing income statement for the same period.
Answer:
Sales
$640,000
Variable expenses:
Manufacturing cost of goods sold (1)
$352,000
Selling and administrative (2)
48,000
400,000
Contribution margin
$240,000
Fixed expenses:
Fixed factory overhead (3)
$ 87,500
Fixed selling and administrative (4)
44,000
131,500
Operating income
$108,500
1 16,000 units $22 = $352,000
2 16,000 units $3 = $48,000
3 [($432,000/16,000 units) - $22] 17,500 units = $87,500
4 $92,000 - $48,000 = $44,000
Diff: 3
Type: ES
Page Ref: 133
Objective: 8
37
132) Bowzer Industries began operations on January 1, 2006. The company sells a single product for $10
per unit. During 2006, 60,000 units were produced and 50,000 units were sold. There was no work in
process inventory at December 31, 2006.
Bowzer uses an actual cost system for product costing and actual costs for 1998 were as follows:
Direct materials
Direct labour
Manufacturing overhead
Selling and administrative
expense
FIXED COSTS
VARIABLE COSTS
-0-0$60,000
$2.00 per unit produced

$40,000
$0.80 per unit sold
a. What is the product cost per unit under:

(i)
(ii)
variable costing
absorption costing
b. What is the finished goods inventory cost at December 31, 2006 under:
(i)
(ii)
variable costing
absorption costing
c. Prepare income statements for 2006 under:

(i)
(ii)
variable costing
absorption costing
d. Reconcile the difference between variable costing income and absorption costing income.
Answer:
a. Cost per unit using variable costing:
Direct materials
Direct labour
$2.00
1.00
.50
Cost per unit
$3.50
Cost per unit using absorption costing:

Direct materials
Direct labour
Fixed manufacturing overhead ($60,000/60,000 units)
$2.00
1.00
.50
1.00
Cost per unit
$4.50
38
b. Finished Goods Inventory cost at December 31, 2006, under variable costing:
10,000 Units $3.50 = $35,000
Finished Goods Inventory cost at December 31, 2006 under absorption costing:
10,000 Units $4.50 = $45,000
c.
BOWZER INDUSTRIES
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2006
Sales (50,000 $10)
Less: Variable Expenses:
Variable Cost of Goods Sold
(50,000 $3.50)
Variable Selling Expenses
(50,000 $0.80)
$500,000
$175,000
40,000
Contribution Margin
Fixed Costs:
Fixed Overhead
Fixed Selling and Administrative
215,000
285,000
$ 60,000
40,000
Income
100,000
$185,000
ABSORPTION COSTING
Sales (50,000 $10)
Cost of Goods Sold*
$500,000
225,000
Gross Profit
Selling and Administrative Expenses:
Fixed
Variable (50,000 $0.80)
$275,000
$ 40,000
40,000
Income
80,000
$195,000
*Beginning Inventory
$- 0 Cost of Goods Manufactured (60,000 $4.50) 270,000
Goods Available for Sale
Ending Inventory (10,000 $4.50)
$270,000
45,000
Cost of Goods Sold
$225,000
39
d. The difference in income figures results from the difference in the treatment of fixed manufacturing
overhead costs.
Difference in Income = Absorption Costing Income - Variable Costing Income
= $195,000 - $185,000
= $10,000
Difference in Income = Change in Inventory in Units x Fixed Overhead Rate Per Unit
= 10,000 $1.00
= $10,000
When absorption costing is used, $10,000 of fixed overhead costs are deferred in finished goods inventory
resulting in a $10,000 higher income.
Diff: 3
Type: ES
Page Ref: 133
Objective: 8
40
133) Hopson Manufacturing uses an actual cost system for product costing. The company's income
statement for 2006 is presented below:
HOPSON MANUFACTURING COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2006
Sales (10,000 units @ $20)
Cost of Goods Sold:
Finished Goods Inventory, January 1
Cost of Goods Manufactured
(12,000 units @ $15)
$200,000
$- 0 180,000

Finished Goods Inventory, December 31
(2,000 units @ $15)
180,000
30,000
Gross Margin
150,000
$ 50,000
Operating Expenses:
Selling
Administrative
$20,000
20,000
Income
40,000
$ 10,000
The following additional information is available:

Variable costs per unit:
Direct materials
Direct labour
Selling expense
$4
5
2
1
Fixed costs for the period:

Selling
Administrative
$48,000
10,000
20,000
a. When absorption costing was used, how much fixed manufacturing overhead was deferred in finished
goods inventory?
b. Recast the income statement for 2006 using variable costing.
c. Reconcile variable costing income and absorption costing income.
41
Answer:
a. Fixed Overhead Cost Per Unit = $48,000/12,000 units = $4.00 per unit
Fixed Overhead Deferred in Finished Goods Inventory = 2,000 units $4.00/unit = $8,000
b.
VARIABLE COSTING
Sales (10,000 $20)
Variable Cost of Goods Sold*
$110,000
Variable Selling Expenses (10,000 $1)
10,000
$200,000
Contribution Margin
Fixed costs:
Fixed Overhead
Fixed Selling
Fixed Administration
$ 80,000
120,000
$ 48,000
10,000
20,000
Income
$ 2,000
*Beginning Inventory
Cost of Production (12,000 $11)
c.
78,000
$ -0132,000

Ending Inventory (2,000 $11)
$132,000
22,000
Variable Cost of Goods Sold
$110,000
Difference in Income = Absorption Costing Income - Variable Costing Income

= $10,000 - $2,000
= $8,000
Difference in Income = Change in Inventory in Units x Fixed Overhead Rate Per Unit
= 2,000 $4.00
= $8,000
Diff: 3
Type: ES
Objective: 8
Page Ref: 133
42
134) The Minler Company began the year 2006 with no inventories of work in process or finished goods.
The company produces a single product, and cost data for the product are given below.
Variable costs:
Direct material
Direct labour
Selling expenses
Fixed costs:
Selling and administrative
$10 per unit

15 per unit
6 per unit
4 per unit
$50,000 per month
20,000 per month
During the first three months of 2006, production and sales in units were as follows:
PRODUCTION
January
February
March
Total
SALES
10,000
10,000
10,000
10,000
8,000
12,000
$ 30,000
30,000
The company uses an actual cost system. The selling price of the product is $50 per unit. There were no
work in process inventories at the end of each month.
a. Determine the unit cost of production for each month under:
(i)
(ii)
variable costing
absorption costing
b. Prepare income statements for the three months under:

(i)
(ii)
variable costing
absorption costing
c. If selling prices and costs do not change significantly, what can be said about the relationship of income
under absorption costing and variable costing when:
(i)
(ii)
(iii)
sales equal production

sales are less than production
sales are greater than production
43
Answer:
a. Unit cost of production under variable costing:
Direct materials
Direct labour
Total variable manufacturing
cost per unit
January
February
March
$10
15
6
$10
15
6
$10
15
6
$31
$31
$31
January
February
March
$10
15
6
$10
15
6
$10
15
6
$36
$36
$36
February
March
Total
Unit cost of production under absorption costing:
Direct materials
Direct labour
($50,000/10,000)
Total manufacturing cost per unit
Basic unit information:
January
Beginning inventory in units
-0Units produced
10,000
Units sold
10,000
Ending inventory in units
-0-
-010,000
8,000
2,000
2,000
10,000
12,000
-0-
44
-030,000
30,000
-0-
b.
VARIABLE COSTING INCOME STATEMENTS

January
February
$500,000
$400,000
-0-
-0-
310,000
310,000
310,000 $ 930,000

Ending Inventory
$310,000
-0-
$310,000
62,000
$372,000 $ 930,000
-0-0-
Cost of Goods Sold

Selling Expenses
($4 /unit)
$310,000
$248,000
$372,000 $ 930,000
40,000
32,000
Total Variable
Expenses
$350,000
$280,000
$420,000 $1,050,000
Contribution Margin
$150,000
$120,000
$180,000 $ 450,000
$ 50,000
$ 50,000
$ 50,000 $ 150,000
20,000
20,000
Total Fixed Expenses
$ 70,000
$ 70,000
$ 70,000 $ 210,000
Income
$ 80,000
$ 50,000
$110,000 $ 240,000
Sales
Beginning Inventory
Cost of Production
(10,000 $31)
Fixed Expenses:
Manufacturing
Selling and
Administrative
March
Total
$600,000 $1,500,000
62,000
48,000
20,000
45
-0-
120,000
60,000
ABSORPTION COSTING INCOME STATEMENTS

January
February
$500,000
$400,000
-0-
-0-
72,000
-0-
360,000
360,000
360,000
1,080,000

Ending Inventory
$360,000
-0-
$360,000
72,000
$432,000 $1,080,000
-0-0-
Cost of Goods Sold
$360,000
$288,000
$432,000 $1,080,000
Gross Profit
Selling and Administrative
$140,000
$ 60,000
$112,000
$ 52,000
$168,000 $ 420,000
$ 68,000 $ 180,000
Income
$ 80,000
$ 60,000
$100,000 $ 240,000
Sales
Cost of Goods Sold:
Beginning Inventory
Cost of Production
(10,000 $36)
March
Total
$600,000 $1,500,000
c. If sales equal production, income under the two methods should be the same.
If sales are less than production, absorption costing income will be greater than variable costing income
because some fixed manufacturing overhead will be deferred in ending inventory.
If sales are greater than production, absorption costing income will be less than variable costing income
because some fixed manufacturing overhead deferred from a prior period will be expensed in the current
period when the units are sold.
Diff: 3
Type: ES
Page Ref: 133
Objective: 8
46
135) Radlin Inc. has just completed its first year of operations. The unit costs on a normal costing basis are
as follows:
__________________________________________________________________
Manufacturing costs:
Direct materials (3 lbs. @ $2)
Direct labour (2 hrs. @ $8)
Variable overhead (2 hrs. @ $1.75)
Fixed overhead
$ 6.00/unit
16.00/unit
3.50/unit
?
Total
$?
Selling and administrative costs:

Variable
$4.00/unit
Fixed
$100,000
__________________________________________________________________
During the year, the company had the following activity:
_________________________________________________________________
Units produced
Units sold
Direct labour hours worked
Unit selling price
20,000
16,000
40,000
$50
Actual fixed overhead was $170,000 for the year and actual variable overhead was $72,000. Budgeted
fixed overhead was $180,000 and the company used an expected activity level of 40,000 direct labour
hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods
Sold.
a. Compute the unit cost under:
(i)
(ii)
absorption costing
variable costing
b. Prepare an absorption-costing income statement.

c. Prepare a variable-costing income statement.
d. Reconcile the difference between the two income statements.
47
Answer:
a.
Absorption Unit Cost:
Fixed overhead (2 hrs. @ $4.50*)
$ 6.00
16.00
3.50
9.00
Total
$34.50
*Predetermined Fixed Overhead Rate = Budgeted Fixed Overhead/Budgeted Activity

= $180,000/40,000 DLH
= $4.50/DLH
Variable Unit Cost:
$ 6.00
16.00
3.50
Total
$25.50
48
b.
Both variable and fixed overhead were applied on the basis of direct labour hours. Since 40,000 hours
were worked, total applied fixed overhead amounts to $180,000. Actual fixed overhead was $170,000.
Fixed Overhead
________________________________________________________________________
Applied fixed overhead (40,000 hours worked x $4.50/DLH)
Actual fixed overhead
$180,000
(170,000)
Overapplied fixed overhead
$ 10,000
________________________________________________________________________
Variable Overhead
________________________________________________________________________
Applied fixed overhead (40,000 hours worked x $1.75/DLH)
Actual fixed overhead
$70,000
(72,000)
Underapplied variable overhead
$ 2,000
________________________________________________________________________
Radlin Inc.
Absorption Costing Income Statement
________________________________________________________________________
Sales (16,000 @ $50)
Cost of goods sold (16,000 @ $34.50)
$800,000
$552,000
Less: Overapplied overhead

($10,000 - $2,000)
(8,000)
544,000
Gross margin
$256,000
Less: Selling and administrative expenses

[$100,000 + (16,000 $4)]
(164,000)
Income
$ 92,000
________________________________________________________________________
49
c.
Radlin Inc.
Variable Costing Income Statement
________________________________________________________________________
Sales (16,000 @ $50)
$800,000
Variable cost of goods sold

(16,000 @ $25.50)
Add: Underapplied variable overhead
$408,000
2,000
(410,000)
Variable selling expense (16,000 @ $4)
(64,000)
Contribution margin
$326,000
Less:
Selling and administrative expenses
$170,000
100,000
(270,000)
Income
$ 56,000
________________________________________________________________________
Note that actual fixed factory overhead is expensed on the income statement, not applied fixed factory
overhead.
d. Absorption Income - Variable Income = Fixed Overhead Rate Per Unit (Production - Sales)
$92,000 - $56,000 = $9.00 (20,000 - 16,000)
$36,000 = $9,000 (4,000)
$36,000 = $36,000
Diff: 3
Type: ES
Objective: 8
Page Ref: 133
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Management Accounting, Cdn.

24) Which of the following would NOT be an example of a cost objective?

34) Prime costs include

39) Which of the following statements is FALSE?

44) Which of the following is NOT an inventory account?

66) The ending inventory under absorption costing would be

69) The ending inventory under variable costing would be

71) The cost of goods sold under variable costing would be

72) The contribution margin under variable costing would be

74) The cost of goods sold under variable costing would be

75) The contribution margin under variable costing would be

77) Raw materials purchased during the current period were

78) The ending inventory under variable costing would be

86) The cost of goods sold under absorption costing would be

89) The cost of goods sold under absorption costing would be

A company has the following information:

92) The fixed factory overhead incurred was

95) The net income under absorption costing would be

104) Absorption costing net income for the year is

111) A product-costing method that assigns all manufacturing costs to a product.

120) Sales revenue less cost of goods sold.

There were no beginning or ending inventories.

There were no beginning or ending inventories.

129) Units produced

Additional information follows:

$2.00 per unit produced

$0.80 per unit sold

a. What is the product cost per unit under:

c. Prepare income statements for 2006 under:

Cost per unit

Cost per unit using absorption costing:

Cost per unit

Cost of Goods Sold

Goods Available for Sale

The following additional information is available:

Fixed costs for the period:

Goods Available for Sale

Variable Cost of Goods Sold

Difference in Income = Absorption Costing Income - Variable Costing Income

Page Ref: 133

$10 per unit

b. Prepare income statements for the three months under:

sales equal production

Unit cost of production under absorption costing:

VARIABLE COSTING INCOME STATEMENTS

Goods Available for Sale

Cost of Goods Sold

Total Fixed Expenses

ABSORPTION COSTING INCOME STATEMENTS

Goods Available for Sale

Cost of Goods Sold

Selling and administrative costs:

b. Prepare an absorption-costing income statement.

*Predetermined Fixed Overhead Rate = Budgeted Fixed Overhead/Budgeted Activity

Overapplied fixed overhead

Underapplied variable overhead

Less: Overapplied overhead

Less: Selling and administrative expenses

Variable cost of goods sold

Variable selling expense (16,000 @ $4)

Page Ref: 133

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