Test bank managerial accounting by garrison 13e chapter 07

Chapter Variable Costing: A Tool for Management True/False Questions Under variable costing, only variable production costs are treated as product costs Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Under variable costing, variable selling and administrative costs are included in product costs Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Absorption costing treats all manufacturing costs as product costs Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy In the preparation of financial statements using variable costing, fixed manufacturing overhead is treated as a period cost Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Absorption costing treats fixed manufacturing overhead as a period cost Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy When the number of units in work in process and finished goods inventories increase, absorption costing net operating income will typically be greater than variable costing net operating income Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Easy Net operating income computed using absorption costing will always be greater than net operating income computed using variable costing Ans: False AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-5 Chapter Variable Costing: A Tool for Management When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs released from inventory under absorption costing should be added to variable costing net operating income to arrive at the absorption costing net operating income Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium When production exceeds sales for the period, absorption costing net operating income will exceed variable costing net operating income Ans: True AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Medium 10 Under variable costing it may be possible to report a profit even if the company sells less than the break-even volume of sales Ans: False AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Medium 11 Absorption costing net operating income is closer to the net cash flow of a period than is variable costing net operating income Ans: False AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Medium 12 Variable costing is not permitted for income tax purposes, but it is widely accepted for external financial reports Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 13 A basic concept of the contribution approach and variable costing is that fixed costs are not important in an organization Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 14 Variable costing is better suited to cost-volume-profit calculations than absorption costing Ans: True AACSB: Analytic AICPA FN: Reporting LO: 7-6 AICPA BB: Critical Thinking Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 15 When lean production is introduced, the difference in net operating income computed under the absorption and variable costing methods is reduced Ans: True AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Easy Multiple Choice Questions 16 How would the following costs be classified (product or period) under variable costing at a retail clothing store? A) B) C) D) Cost of purchasing clothing Sales commissions Product Product Product Period Period Product Period Period Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 17 The principal difference between variable costing and absorption costing centers on: A) whether variable manufacturing costs should be included as product costs B) whether fixed manufacturing costs should be included as product costs C) whether fixed manufacturing costs and fixed selling and administrative costs should be included as product costs D) none of these Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy 18 Which of the following costs at a manufacturing company would be treated as a product cost under the variable costing method? A) direct material cost B) property taxes on the factory building C) sales manager's salary D) all of the above Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-7 Chapter Variable Costing: A Tool for Management 19 Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that: A) variable costing treats only direct materials and direct labor as product cost while absorption costing treats direct materials, direct labor, and the variable portion of manufacturing overhead as product costs B) variable costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs while absorption costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs C) variable costing treats only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs D) variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 20 The costing method that treats all fixed costs as period costs is: A) absorption costing B) job-order costing C) variable costing D) process costing Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy 7-8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 21 In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.) Variable costing Absorption costing A) Increase Increase B) Decrease Increase C) Decrease Decrease D) No effect Decrease Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 22 When sales are constant, but the production level fluctuates, net operating income determined by the variable costing method will: A) fluctuate in direct proportion to changes in production B) remain constant C) fluctuate inversely with changes in production D) be greater than net operating income under absorption costing Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 23 Under the variable costing method, which of the following is always expensed in its entirety in the period in which it is incurred? A) fixed manufacturing overhead cost B) fixed selling and administrative expense C) variable selling and administrative expense D) all of the above Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Hard Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-9 Chapter Variable Costing: A Tool for Management 24 Which of the following will usually be found on an income statement prepared using the absorption costing method? A) B) C) D) Contribution Margin Gross Margin Yes Yes Yes No No Yes No No Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy 25 Net operating income under variable and absorption costing will generally: A) always be equal B) never be equal C) be equal only when production and sales are equal D) be equal only when production exceeds sales Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 26 When production exceeds sales, net operating income reported under variable costing generally will be: A) greater than net operating income reported under absorption costing B) less than net operating income reported under absorption costing C) equal to net operating income reported under absorption costing D) higher or lower because no generalization can be made Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 7-10 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 27 Net operating income under absorption costing may differ from net operating income determined under variable costing How is this difference calculated? A) change in the quantity of units in inventory times the fixed manufacturing overhead rate per unit B) number of units produced during the period times the fixed manufacturing overhead rate per unit C) change in the quantity of units in inventory times the variable manufacturing cost per unit D) number of units produced during the period times the variable manufacturing cost per unit Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Hard Source: CMA, adapted 28 When sales are constant, but the production level fluctuates, net operating income determined by the absorption costing method will: A) tend to fluctuate in the same direction as fluctuations in the level of production B) tend to remain constant C) tend to fluctuate inversely with fluctuations in the level of production D) none of these Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 29 A reason why absorption costing income statements are sometimes difficult for the manager to interpret is that: A) they omit variable expenses entirely in computing net operating income B) they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories C) they include all fixed manufacturing overhead on the income statement each year as a period cost D) they ignore inventory levels in computing income charges Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-11 Chapter Variable Costing: A Tool for Management 30 Under the theory of constraints (TOC), which of the following is treated as a period cost? A) B) C) D) Direct labor Direct material Yes Yes Yes No No Yes No No Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 31 Fleet Corporation produces a single product The company manufactured 700 units last year The ending inventory consisted of 100 units There was no beginning inventory Variable manufacturing costs were $6.00 per unit and fixed manufacturing costs were $2.00 per unit What would be the change in the dollar amount of ending inventory if variable costing was used instead of absorption costing? A) $800 decrease B) $200 decrease C) $0 D) $200 increase Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Source: CMA, adapted Solution: Change in inventory × Fixed manufacturing costs per unit = 100 × $2 = $200 decrease 7-12 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 32 Shun Corporation manufactures and sells a hand held calculator The following information relates to Shun's operations for last year: Unit product cost under variable costing Fixed manufacturing overhead cost for the year Fixed selling and administrative cost for the year Units (calculators) produced and sold $5.20 per unit $260,000 $180,000 400,000 What is Shun's unit product cost under absorption costing for last year? A) $4.10 B) $4.55 C) $5.85 D) $6.30 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Solution: Unit fixed manufacturing overhead = Fixed manufacturing overhead ÷ Units produced = $260,000 ÷ 400,000 units = $0.65 per unit Unit product cost = $5.20 + $0.65 = $5.85 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-13 Chapter Variable Costing: A Tool for Management 33 A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Units in beginning inventory Units produced Units sold Units in ending inventory 7,100 7,000 100 Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $33 $53 $1 $7 Fixed costs: Fixed manufacturing overhead $170,400 Fixed selling and administrative $7,000 What is the unit product cost for the month under variable costing? A) $118 B) $94 C) $111 D) $87 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Solution: Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $33 + $53 + $1 = $87 7-14 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 150 Davitt Corporation produces a single product and has the following cost structure: Number of units produced each year 1,000 Variable costs per unit: Direct materials $57 Direct labor $20 Variable manufacturing overhead $2 Variable selling and administrative expenses $3 Fixed costs per year: Fixed manufacturing overhead $88,000 Fixed selling and administrative expenses $24,000 Required: Compute the unit product cost under variable costing Show your work! Ans: Direct materials $57 Direct labor 20 Variable manufacturing overhead Unit product cost $79 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy 7-108 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 151 Murphy Inc., which produces a single product, has provided the following data for its most recent month of operation: Number of units produced 7,000 Variable costs per unit: Direct materials $37 Direct labor $43 Variable manufacturing overhead $5 Variable selling and administrative expenses $1 Fixed costs: Fixed manufacturing overhead $84,000 Fixed selling and administrative expenses $119,000 The company had no beginning or ending inventories Required: a Compute the unit product cost under absorption costing Show your work! b Compute the unit product cost under variable costing Show your work! Ans: a Absorption costing: Direct materials Direct labor Variable manufacturing overhead Total variable production cost Fixed manufacturing overhead ($84,000/7,000 units of product) Unit product cost b Variable costing: Direct materials Direct labor Variable manufacturing overhead Unit product cost AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition $37 43 85 12 $97 $37 43 $85 AICPA FN: Reporting 7-109 Chapter Variable Costing: A Tool for Management 152 Vancott Inc., which produces a single product, has provided the following data for its most recent month of operation: Number of units produced 6,000 Variable costs per unit: Direct materials $93 Direct labor $58 Variable manufacturing overhead $1 Variable selling and administrative expenses $1 Fixed costs: Fixed manufacturing overhead $192,000 Fixed selling and administrative expenses $348,000 The company had no beginning or ending inventories Required: Compute the unit product cost under absorption costing Show your work! Ans: Direct materials $ 93 Direct labor 58 Variable manufacturing overhead Total variable production cost 152 Fixed manufacturing overhead ($192,000/6,000 units of product) 32 Unit product cost $184 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy 7-110 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 153 Schlenz Inc., which produces a single product, has provided the following data for its most recent month of operation: Number of units produced 6,000 Variable costs per unit: Direct materials $12 Direct labor $34 Variable manufacturing overhead $4 Variable selling and administrative expenses $2 Fixed costs: Fixed manufacturing overhead $486,000 Fixed selling and administrative expenses $522,000 The company had no beginning or ending inventories Required: Compute the unit product cost under variable costing Show your work! Ans: Direct materials $12 Direct labor 34 Variable manufacturing overhead Unit product cost $50 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 7-111 Chapter Variable Costing: A Tool for Management 154 Miller Company produces a single product The company had the following results for its first two years of operation: Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Year Year $1,200,000 $1,200,000 800,000 680,000 400,000 520,000 300,000 300,000 $ 100,000 $ 220,000 In Year 1, the company produced and sold 40,000 units of its only product; in Year 2, the company again sold 40,000 units, but increased production to 50,000 units The company's variable production cost is $5 per unit and its fixed manufacturing overhead cost is $600,000 a year Fixed manufacturing overhead costs are applied to the product on the basis of each year's unit production (i.e., a new fixed overhead rate is computed each year) Variable selling and administrative expenses are $2 per unit sold Required: a Compute the unit product cost for each year under absorption costing and under variable costing b Prepare an income statement for each year, using the contribution approach with variable costing c Reconcile the variable costing and absorption costing income figures for each year d Explain why the net operating income for Year under absorption costing was higher than the net operating income for Year 1, although the same number of units were sold in each year 7-112 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management Ans: a Cost per unit under absorption costing: Variable production cost per unit Fixed manufacturing overhead cost: ($600,000/40,000) ($600,000/50,000) Unit product cost Year $5 Year $5 15 $20 12 $17 Year Variable production cost per unit $5 Year $5 Cost per unit under variable costing: b Income statements for each year under variable costing: Year Year Sales $1,200,000 $1,200,000 Cost of goods sold ($5 × 40,000) 200,000 200,000 Variable selling and administrative expense ($2 × 40,000) 80,000 80,000 Contribution margin 920,000 920,000 Fixed expenses: Fixed manufacturing overhead 600,000 600,000 Fixed selling and administrative expense 220,000 220,000 Net operating income $ 100,000 $ 100,000 c Reconciliation of absorption costing and variable costing net operating incomes: Year Year Net operating income under variable costing $100,000 $100,000 Fixed manufacturing overhead deferred in (released from) inventory: Year (10,000 units × $12 per unit) 120,000 Net operating income under absorption costing $100,000 $220,000 d The increase in production in Year 2, in the face of level sales, caused a buildup of inventory and a deferral of a portion of the overhead costs of Year to the next year This deferral of cost relieved Year of $120,000 of fixed manufacturing overhead Income for Year was $120,000 higher than income of Year 1, even though the same number of units was sold each year By increasing production and building up inventory, the company was able to increase profits without increasing sales This is major criticism of the absorption costing approach AACSB: Analytic AICPA BB: Critical Thinking LO: 2,3,4 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 7-113 Chapter Variable Costing: A Tool for Management 155 Neukirchen Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $140 Units in beginning inventory Units produced Units sold Units in ending inventory 300 4,300 4,500 100 Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $25 $51 $7 $6 Fixed costs: Fixed manufacturing overhead $150,500 Fixed selling and administrative $72,000 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 an income statement for the month using the contribution format and the variable costing method b Prepare an income statement for the month using the absorption costing method 7-114 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management Ans: a Variable costing income statement Sales Less variable expenses: Variable cost of goods sold: Beginning inventory Add variable manufacturing costs Goods available for sale Less ending inventory Variable cost of goods sold Variable selling and administrative Contribution margin Less fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Net operating income b Absorption costing income statement Sales Cost of goods sold: Beginning inventory Add cost of goods manufactured Goods available for sale Less ending inventory Gross margin Selling and administrative expenses expenses: Variable selling and administrative Fixed selling and administrative Net operating income AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Hard Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition $630,000 $ 24,900 356,900 381,800 8,300 373,500 27,000 150,500 72,000 400,500 229,500 222,500 $ 7,000 $630,000 $ 35,400 507,400 542,800 11,800 531,000 99,000 27,000 72,000 $ 99,000 AICPA FN: Reporting 7-115 Chapter Variable Costing: A Tool for Management 156 Oates Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $120 Units in beginning inventory Units produced Units sold Units in ending inventory 7,600 7,400 200 Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $15 $48 $7 $10 Fixed costs: Fixed manufacturing overhead $228,000 Fixed selling and administrative $66,600 Required: a Prepare an income statement for the month using the contribution format and the variable costing method b Prepare an income statement for the month using the absorption costing method 7-116 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management Ans: a Variable costing income statement Sales Less variable expenses: Variable cost of goods sold: Beginning inventory Add variable manufacturing costs Goods available for sale Less ending inventory Variable cost of goods sold Variable selling and administrative Contribution margin Less fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Net operating income $888,000 $ 532,000 532,000 14,000 518,000 74,000 228,000 66,600 b Absorption costing income statement Sales Cost of goods sold: Beginning inventory Add cost of goods manufactured Goods available for sale Less ending inventory Gross margin Selling and administrative expenses expenses: Variable selling and administrative Fixed selling and administrative Net operating income AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 592,000 296,000 294,600 $ 1,400 $888,000 $ 760,000 760,000 20,000 74,000 66,600 740,000 148,000 140,600 $ 7,400 AICPA FN: Reporting 7-117 Chapter Variable Costing: A Tool for Management 157 Succulent Juice Company manufactures and sells premium tomato juice by the gallon Succulent just finished its first year of operations The following data relates to this first year: Number of gallons produced Number of gallons sold Sales price Unit product cost under variable costing Total contribution margin Total fixed manufacturing overhead cost Total fixed selling and administrative expense 75,000 70,000 $3.00 per gallon $1.45 per gallon $84,000 $63,000 $10,500 Required: Using the absorption costing method, prepare Succulent Juice Company's income statement for the year Ans: Sales (70,000 × $3.00) Cost of goods sold: Beginning inventory Add cost of goods manufactured (75,000 × $2.29*) Goods available for sale Less ending inventory (5,000 × $2.29) Gross margin Selling and administrative expenses** Net operating income $210,000 $ 171,750 171,750 11,450 160,300 49,700 35,000 $ 14,700 * $1.45 + ($63,000/75,000) ** Total variable cost = $210,000 - $84,000 = $126,000; Variable selling and administrative = $126,000 - ($1.45 × 70,000) = $24,500 Total selling and administrative = $24,500 + $10,500 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Hard 7-118 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 158 Worrel Corporation manufactures a variety of products The following data pertain to the company's operations over the last two years: Variable costing net operating income, last year $71,000 Variable costing net operating income, this year $92,000 Fixed manufacturing overhead costs deferred in inventory under absorption costing, last year $2,000 Fixed manufacturing overhead costs released from inventory under absorption costing, this year $11,000 Required: a Determine the absorption costing net operating income last year Show your work! b Determine the absorption costing net operating income this year Show your work! Ans: a and b Last Year Variable costing net operating income $71,000 Add fixed manufacturing overhead costs deferred in inventory under absorption costing 2,000 Deduct fixed manufacturing overhead costs released from inventory under absorption costing Absorption costing net operating income $73,000 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition This Year $92,000 (11,000) $81,000 AICPA FN: Reporting 7-119 Chapter Variable Costing: A Tool for Management 159 Corbett Corporation manufactures a variety of products Last year, variable costing net operating income was $72,000 The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $29,000 Required: Determine the absorption costing net operating income last year Show your work! Ans: Variable costing net operating income $72,000 Add fixed manufacturing overhead costs deferred in inventory under absorption costing 29,000 Deduct fixed manufacturing overhead costs released from inventory under absorption costing Absorption costing net operating income $101,000 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy AICPA FN: Reporting 160 Last year, Rasband Corporation's variable costing net operating income was $57,000 The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $30,000 Required: Determine the absorption costing net operating income last year Show your work! Ans: Variable costing net operating income $57,000 Add fixed manufacturing overhead costs deferred in inventory under absorption costing 30,000 Deduct fixed manufacturing overhead costs released from inventory under absorption costing Absorption costing net operating income $87,000 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy 7-120 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 161 Phinisee Corporation manufactures a variety of products The following data pertain to the company's operations over the last two years: Variable costing net operating income, last year $82,700 Variable costing net operating income, this year $87,800 Increase in ending inventory, last year 900 Decrease in ending inventory, this year 3,100 Fixed manufacturing overhead cost per unit $2 Required: a Determine the absorption costing net operating income for last year Show your work! b Determine the absorption costing net operating income for this year Show your work! Ans: a and b Change in units in ending inventory Fixed manufacturing overhead cost per unit Change in fixed manufacturing overhead in ending inventory Variable costing net operating income Add fixed manufacturing overhead costs deferred in inventory under absorption costing Deduct fixed manufacturing overhead costs released from inventory under absorption costing Absorption costing net operating income AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Last Year $900 $2 This Year ($3,100) $2 $1,800 ($6,200) $82,700 $87,800 1,800 0 $84,500 (6,200) $81,600 AICPA FN: Reporting 7-121 Chapter Variable Costing: A Tool for Management 162 Last year, Denogean Corporation's variable costing net operating income was $64,200 and ending inventory increased by 1,900 units Fixed manufacturing overhead cost per unit was $4 Required: Determine the absorption costing net operating income for last year Show your work! Ans: Change in units in ending inventory Fixed manufacturing overhead cost per unit Change in fixed manufacturing overhead in ending inventory $1,900 $4 Variable costing net operating income Add fixed manufacturing overhead costs deferred in inventory under absorption costing Deduct fixed manufacturing overhead costs released from inventory under absorption costing Absorption costing net operating income $64,200 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Medium 7-122 $7,600 7,600 $71,800 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition ... AICPA FN: Reporting LO: 7-6 AICPA BB: Critical Thinking Level: Easy Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 15 When lean production... AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition 7-7 Chapter Variable Costing: A Tool for Management 19 Assuming that... AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy 7-8 Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Variable Costing: A Tool for Management 21 In its first