Question

A) Micro Co., which began business at the start of the current year, had the following data:

      Planned and actual production: 40,000 units
      Sales: 37,000 units at $15 per unit
      Production costs: Variable: $4 per unit, Fixed: $260,000
      Selling and administrative costs: Variable: $1 per unit, Fixed: $32,000

Contribution margin that Micro would disclose on an absorption-costing income statement is:

a. $147,000 b. $78,000 c. $166,500 d. $0 e. 370,000

B) The variable costing to the income statement offers several benefits to decision makers. Which of the following is not a benefit of this approach?

a. This approach stresses the role of fixed costs in operating income.

b. This approach is used with CVP analysis.

c. This approach is accepted by U.S. Generally Accepted Accounting Principles (GAAP)

d. This approach makes it easier to understand the impact of changes in sales volume on operating income

C) Operating income using variable costing as compared to absorption costing would be higher:

a. when the quantity of beginning inventory is less than the quantity of ending inventory

b. under no circumstances

c. when the quantity of beginning inventory is more than the quantity of ending inventory

d. when the quantity of beginning inventory equals the quantity of ending inventory

D) Cost-volume-profit analysis and break-even calculations account for fixed manufacturing overhead as a lump sum.

a. True b. False

E) All of the following are inventoried under absorption costing except:

a. raw materials used in production

b. direct labor

c. machine lubricant used in production

d. utilities cost consumed in manufacturing

e. sales commissions

F) Vega Enterprises has computed the following unit costs for the year just ended:

Direct material used                                          $12

      Direct labor                                                      18

      Variable manufacturing overhead                      25

      Fixed manufacturing overhead                          29

      Variable selling and administrative cost             10

      Fixed selling and administrative cost                 17

Under variable costing, each unit of the company's inventory would be carried at $_________.

G) Jensen Co. pays bonuses to its managers based on operating income. The company uses absorption costing, and overhead is applied on the basis of direct labor hours. To increase bonuses, Jensen’s managers may do all of the following except:

a. Defer expenses such as maintenance to a future period

b. Increase production schedules independent of customer demands

c. Produce those products requiring the most direct labor

d. Decrease production of those items requiring the most direct labor

H) Latinom Co. has no beginning and ending inventories, and reports the following data about its only product:

Direct materials used                                $200,000

Direct labor                                                $80,000

Fixed indirect manufacturing                     $180,000

Fixed selling and administrative                $150,000

Variable indirect manufacturing                 $130,000

Variable selling and administrative            $160,000

Selling price (per unit)                                     $150

Units produced and sold                                10,000

Latinom Co. uses the variable costing approach to prepare the income statement. What is the total contribution margin?

a. $1,090,000 b. $910,000 c. $930,000 d. $600,000

I) The following data relate to Liberty Corp. for the year just ended:

Sales revenue                                             $750,000

      Cost of goods sold:

      Variable portion 370,000

      Fixed portion 110,000

      Variable selling and administrative costs         50,000

      Fixed selling and administrative cost               75,000

Which of the following statements is correct?

a. Liberty’s absorption-costing income statement would show a gross margin of $330,000

b. Liberty’s absorption-costing income statement would show a gross margin of $145,000

c. Liberty’s absorption-costing income statement would show a contribution margin of $330,000

d. Liberty’s variable-costing income statement would show a contribution margin of $330,000

e. Liberty 's variable-costing income statement would show a gross margin of $270,000

J) Canyon Co. reported $106,000 of net income for the year by using variable costing. The company had no beginning inventory, planned and actual production of 50,000 units, and sales of 47,000 units. Variable manufacturing costs were $15 per unit, and total budgeted fixed manufacturing overhead was $150,000. Net income under absorption costing would be $_____.

a. $115,000 b. $97,000 c. $106,000 d. $160,000 e. $52,000

K) Which of the following statements pertain to both variable costing and absorption costing?

a. Variable selling costs are written-off as expenses of the accounting period.

b. Fixed manufacturing overhead is attached to each unit produced

c. The income statement discloses the amount of gross margin generated during the period

d. Fixed selling and admin. expenses are treated same as fixed manufacturing overhead

e. Both variable and absorption costing can be used for external financial reporting

Answer 1

Question 1:-

The contribution Margin that Micro would disclose on the Absorption costing income statement is calculated as below:-

No.of units sold	37000
Particulars	Per Unit	Amount
Sales	15	555,000
Variable cost	4	(148,000)
Fixed costs($260,000 * 37,000)/40,000		240,500
Contribution Margin		166,500

Based on the above calculation , the correct answer is Option C - $166,500.

Option A is incorrect because under Absorption costing the fixed manufacturing costs are based on the number of units sold and hence we use $240,500 calculated above to arrive at the contribution margin.

Option B and Option D are incorrect based on the above calculations.

Kindly post the remaining questions separately so that we can answer them as well. All the best and please let me know if you have any questions via comments :)