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Question Type ID Origin origin
1 T/F M x 6/e: 7-7 Authors
2 T/F E x 3/e: 7-11 Authors
3 T/F M x 5/e: 7-11 Authors
4 T/F E x 6/e: 7-15 Authors
5 T/F M x New,10/09/2000,E.N. E.N.
6 T/F M x 7/e: 8-12 Authors
7 T/F M x 6/e: 7-5 Authors
8 T/F M x 2/e: 6-1 Authors
9 T/F H x 4/e: 7-376 Authors
10 T/F M x 4/e: 7-383 Authors
11 T/F M x 4/e: 7-384 Authors
12 T/F E x 5/e: 7-4 Authors
13 T/F M x 5/e: 7-6 Authors
14 T/F E x 5/e: 7-7 Authors
15 T/F M x 5/e: 11-3 Authors
16 T/F M x New, 1/31/95,B E.N.
17 T/F E x New, 1/31/95,C E.N.
David
18 T/F M x 8/e:ATB12-01 Keyes
19 T/F E x 2/e: 6-8 Authors
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Conceptual
20 M/C H x x 6/e: 7-48 Authors
Conceptual David
21 M/C M x 8/e: ATB, 8-18 Keyes
Conceptual
22 M/C E x 5/e: 7-62 Authors
Conceptual Larry
23 M/C E x 9eLD:CH07Q6 Deppe
Conceptual Larry
24 M/C E x 9eLD:CH07Q5 Deppe
Conceptual
25 M/C E x 2/e: 6-16 Authors
Conceptual
26 M/C E x 7/e: 8-27 Authors
Conceptual
27 M/C H x 7/e: 8-30 Authors
Conceptual
28 M/C M x 7/e: 8-20 Authors
Conceptual David
29 M/C H x 8/e: ATB, 8-55 Keyes
Conceptual
30 M/C M x 3/e: 7-14 CMA
Conceptual
31 M/C M x 6/e: 7-39 Authors
Conceptual
32 M/C H x 7/e: 8-19 Authors
Conceptual David
33 M/C M x 8/e:ATB12-12 Keyes
Conceptual
34 M/C E x 3/e: 7-4 Authors
Conceptual
35 M/C M x 5/e: 7-22 Authors
Conceptual
36 M/C M x 6/e: 7-46 Authors
Conceptual David
37 M/C E x 8/e:ATB12-07 Keyes
38 M/C M x x x 7/e: 8-59 Authors
39 M/C E x 9/5/2004 Single MC A4 E.N.
40 M/C E x 9/5/2004 Single MC C4 E.N.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
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New,6/1/2003,Single MC
72 M/C E x D4 E.N.
New,6/1/2003,Single MC
73 M/C M x A4 E.N.
Larry
6-1 74-76 Multipart M/C E-M x x x 9eLD:CH07Q7-9 Deppe
Larry
6-2 77-79 Multipart M/C M x x x 9eLD:CH07Q10-13 Deppe
6-3 80-83 Multipart M/C E-M x x New,10/13/97,F7 E.N.
6-4 84-87 Multipart M/C E-H x x New,10/13/97,H7 E.N.
6-5 88-95 Multipart M/C E-H x x New,10/13/97,A7 E.N.
6-6 96-97 Multipart M/C E-M x x New,10/13/97,I7 E.N.
6-7 98-101 Multipart M/C M x x New,10/13/97,J7 E.N.
6-8 102-103 Multipart M/C H x x 6/e: 7-22 to 23 Authors
6-9 104-105 Multipart M/C E-M x x 5/e: 7-41 to 43 Authors
6-10 106-109 Multipart M/C M-H x x New,10/13/97,G7 E.N.
6-11 110-112 Multipart M/C M-H x x 6/e: 7-54 to 57 Authors
David
6-12 113-115 Multipart M/C M-H x x 8/e: ATB, 8-39 thru 41 Keyes
6-13 116-118 Multipart M/C E x x 2/e: 6-13 to 15 Authors
6-14 119-121 Multipart M/C E-M x x 3/e: 7-9 to 11 Authors
6-15 122-123 Multipart M/C E x 9/5/2004 Multi MC A4 E.N.
6-16 124-125 Multipart M/C E x New,10/13/97,B7 E.N.
Larry
6-17 126-127 Multipart M/C M x 9eLD:CH07Q3-4 Deppe
6-18 128-129 Multipart M/C H x New,10/13/97,D7 E.N.
David
6-19 130-131 Multipart M/C E x 8/e: ATB, 8-28 thru 29 Keyes
6-20 132-133 Multipart M/C E x 9/5/2004 Multi MC B4 E.N.
6-21 134-135 Multipart M/C M x New,10/13/97,E7 E.N.
6-22 136-137 Multipart M/C M x 4/e: 7-442 to 443 Authors
6-23 138-139 Multipart M/C M x New,10/13/97,C7 E.N.
6-24 140-141 Multipart M/C M x New,10/13/97,K7 E.N.
6-25 142-143 Multipart M/C M x 9/5/2004 Multi MC E4 E.N.
6-26 144-145 Multipart M/C E x 9/5/2004 Multi MC C4 E.N.
6-27 146-147 Multipart M/C E x 9/5/2004 Multi MC D4 E.N.
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Deppe
202 Problem E x 9/27/2004 Problem C4 E.N.
203 Problem E x 9/27/2004 Problem A4 E.N.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Chapter 06
Variable Costing and Segment Reporting: Tools for Management
1. Under variable costing, all variable costs are treated as product costs.
True False
2. Under variable costing, fixed manufacturing overhead cost is treated as a product cost.
True False
3. The unit product cost under absorption costing does not include fixed manufacturing
overhead cost.
True False
4. Variable manufacturing overhead costs are treated as period costs under both absorption and
variable costing.
True False
5. When reconciling variable costing and absorption costing net operating income, fixed
manufacturing overhead costs deferred in inventory under absorption costing should be added
to variable costing net operating income to arrive at the absorption costing net operating
income.
True False
6. When production is less than sales for the period, absorption costing net operating income
will generally be less than variable costing net operating income.
True False
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
9. Assuming that a segment has both variable expenses and traceable fixed expenses, an
increase in sales should increase profits by an amount equal to the sales times the segment
margin ratio.
True False
10. The salary of the treasurer of a corporation is an example of a common cost which normally
cannot be traced to product segments.
True False
11. The salary paid to a store manager is a traceable fixed expense of the store.
True False
12. Segmented statements for internal use should be prepared in the contribution format.
True False
13. Fixed costs that are traceable to a segment may become common if the segment is divided
into smaller units.
True False
14. The contribution margin is viewed as a better gauge of the long run profitability of a
segment than the segment margin.
True False
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
15. In responsibility accounting, each segment in an organization should be charged with the
costs for which it is responsible and over which it has control plus its share of common
organizational costs.
True False
16. The contribution margin tells us what happens to profits as volume changes if a segment's
capacity and fixed costs change as well.
True False
17. Only those costs that would disappear over time if a segment were eliminated should be
considered traceable costs of the segment.
True False
18. In segment reporting, sales dollars is usually an appropriate allocation base for selling,
general, and administrative expenses.
True False
19. A segment is any portion or activity of an organization about which a manager seeks
revenue, cost, or profit data.
True False
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
20. Routsong Company had the following sales and production data for the past four years:
Selling price per unit, variable cost per unit, and total fixed cost are the same in each year.
Which of the following statements is not correct?
A. Under variable costing, net operating income for Year 1 and Year 2 would be the same.
B. Because of the changes in production levels, under variable costing the unit product cost will
change each year.
C. The total net operating income for all four years combined would be the same under variable
and absorption costing.
D. Under absorption costing, net operating income in Year 4 would be less than the net
operating income in Year 2.
21. Would the following costs be classified as product or period costs under variable costing at
a retail clothing store?
A. Option A
B. Option B
C. Option C
D. Option D
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
A. Option A
B. Option B
C. Option C
D. Option D
23. Which of the following are considered to be product costs under variable costing?
24. Which of the following are considered to be product costs under absorption costing?
25. Under variable costing, costs that are treated as period costs include:
A. only fixed manufacturing costs.
B. both variable and fixed manufacturing costs.
C. all fixed costs.
D. only fixed selling and administrative costs.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
27. A portion of the total fixed manufacturing overhead cost incurred during a period may:
A. be excluded from cost of goods sold under absorption costing.
B. be charged as a period cost with the remainder deferred under variable costing.
C. never be excluded from cost of goods sold under absorption costing.
D. never be excluded from cost of goods sold under variable costing.
28. A company using lean production methods likely would show approximately the same net
operating income under both absorption and variable costing because:
A. ending inventory would be valued in the same manner for both methods under lean
production.
B. production is geared to sales under lean production and thus there would be little or no
ending inventory.
C. under lean production fixed manufacturing overhead costs are charged to the period incurred
rather than to the product produced.
D. there is no distinction made under lean production between fixed and variable costs.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
29. Dull Corporation has been producing and selling electric razors for the past ten years.
Shown below are the actual net operating incomes for the last three years of operations at Dull:
Dull Corporation's cost structure and selling price has not changed during its ten years of
operations. Based on the information presented above, which of the following statements is
true?
A. Dull Corporation operated above the breakeven point in each of the three years presented.
B. For the three years presented in total, Dull Corporation sold more units than it produced.
C. In Year 10, Dull Corporation produced fewer units than it sold.
D. In Year 9, Dull Corporation produced more units than it sold.
30. Net operating income reported under absorption costing will exceed net operating income
reported under variable costing for a given period if:
A. production equals sales for that period.
B. production exceeds sales for that period.
C. sales exceed production for that period.
D. the variable manufacturing overhead exceeds the fixed manufacturing overhead.
31. If the number of units produced exceeds the number of units sold, then net operating income
under absorption costing will:
A. be equal to the net operating income under variable costing.
B. be greater than net operating income under variable costing.
C. be equal to the net operating income under variable costing plus total fixed manufacturing
costs.
D. be equal to the net operating income under variable costing less total fixed manufacturing
costs.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
32. Over an extended period of time in which the final ending inventories are zero, the
accumulated net operating income figures reported under absorption costing will be:
A. greater than those reported under variable costing.
B. less than those reported under variable costing.
C. the same as those reported under variable costing.
D. higher or lower since no generalization can be made.
33. In an income statement segmented by product line, a fixed expense that cannot be allocated
among product lines on a cause-and-effect basis should be:
A. classified as a traceable fixed expense and not allocated.
B. allocated to the product lines on the basis of sales dollars.
C. allocated to the product lines on the basis of segment margin.
D. classified as a common fixed expense and not allocated.
34. A common cost that should not be assigned to a particular product on a segmented income
statement is:
A. the product's advertising costs.
B. the salary of the corporation president.
C. direct materials costs.
D. the product manager's salary.
35. All other things being equal, if a division's traceable fixed expenses increase:
A. the division's contribution margin ratio will decrease.
B. the division's segment margin ratio will remain the same.
C. the division's segment margin will decrease.
D. the overall company profit will remain the same.
36. All other things equal, if a division's traceable fixed expenses decrease:
A. the division's segment margin will increase.
B. the overall company net operating income will decrease.
C. the division's contribution margin will increase.
D. the division's sales volume will increase.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
38. Clayton Company produces a single product. Last year, the company's variable production
costs totaled $8,000 and its fixed manufacturing overhead costs totaled $4,800. The company
produced 4,000 units during the year and sold 3,600 units. Assuming no units in the beginning
inventory:
A. under variable costing, the units in ending inventory will be costed at $3.20 each.
B. the net operating income under absorption costing for the year will be $480 lower than net
operating income under variable costing.
C. the ending inventory under variable costing will be $480 lower than the ending inventory
under absorption costing.
D. the net operating income under absorption costing for the year will be $800 lower than net
operating income under variable costing.
39. Gangwer Corporation produces a single product and has the following cost structure:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
40. Olds Inc., which produces a single product, has provided the following data for its most
recent month of operations:
There were no beginning or ending inventories. The absorption costing unit product cost was:
A. $97
B. $130
C. $99
D. $207
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
41. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the absorption costing unit product cost for the month?
A. $102
B. $130
C. $97
D. $125
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
42. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the variable costing unit product cost for the month?
A. $103
B. $99
C. $94
D. $90
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
43. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the total period cost for the month under variable costing?
A. $185,000
B. $117,600
C. $273,200
D. $302,600
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
44. Swiatek Corporation produces a single product and has the following cost structure:
45. Cockriel Inc., which produces a single product, has provided the following data for its most
recent month of operations:
There were no beginning or ending inventories. The variable costing unit product cost was:
A. $42
B. $43
C. $37
D. $48
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
46. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the total period cost for the month under absorption costing?
A. $58,300
B. $37,100
C. $259,900
D. $201,600
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
47. Roy Corporation produces a single product. During July, Roy produced 10,000 units. Costs
incurred during the month were as follows:
Under absorption costing, any unsold units would be carried in the inventory account at a unit
product cost of:
A. $5.10
B. $4.40
C. $3.80
D. $3.50
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
48. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the net operating income for the month under variable costing?
A. $21,600
B. $(15,200)
C. $8,000
D. $13,600
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
49. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the net operating income for the month under absorption costing?
A. $5,300
B. $3,000
C. $(12,700)
D. $8,300
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
50. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
The total gross margin for the month under absorption costing is:
A. $42,000
B. $14,700
C. $69,000
D. $79,800
51. A company produces a single product. Last year, fixed manufacturing overhead was
$30,000, variable production costs were $48,000, fixed selling and administration costs were
$20,000, and variable selling administrative expenses were $9,600. There was no beginning
inventory. During the year, 3,000 units were produced and 2,400 units were sold at a price of
$40 per unit. Under variable costing, net operating income would be:
A. a profit of $6,000.
B. a profit of $4,000.
C. a loss of $2,000.
D. a loss of $4,400.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
52. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
The total contribution margin for the month under variable costing is:
A. $183,600
B. $90,000
C. $70,400
D. $169,200
53. Last year, Heidenescher Corporation's variable costing net operating income was $63,600
and its inventory decreased by 600 units. Fixed manufacturing overhead cost was $1 per unit.
What was the absorption costing net operating income last year?
A. $64,200
B. $63,000
C. $63,600
D. $600
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
54. Sproles Inc. manufactures a variety of products. Variable costing net operating income was
$90,500 last year and its inventory decreased by 3,500 units. Fixed manufacturing overhead
cost was $6 per unit. What was the absorption costing net operating income last year?
A. $90,500
B. $21,000
C. $69,500
D. $111,500
55. Roberts Company produces a single product. This year, the company's net operating
income under absorption costing was $2,000 lower than under variable costing. The company
sold 8,000 units during the year, and its variable costs were $8 per unit, of which $2 was
variable selling and administrative expense. If production cost was $10 per unit under
absorption costing, then how many units did the company produce during the year? (The
company produced the same number of units last year.)
A. 7,500 units
B. 7,000 units
C. 9,000 units
D. 8,500 units
56. Evans Company produces a single product. During the most recent year, the company had a
net operating income of $90,000 using absorption costing and $84,000 using variable costing.
The fixed overhead application rate was $6 per unit. There were no beginning inventories. If
22,000 units were produced last year, then sales for last year were:
A. 15,000 units
B. 21,000 units
C. 23,000 units
D. 28,000 units
57. Craft Company produces a single product. Last year, the company had a net operating
income of $80,000 using absorption costing and $74,500 using variable costing. The fixed
manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500
units were produced last year, then sales last year were:
A. 16,000 units
B. 20,400 units
C. 22,600 units
D. 27,000 units
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
58. Moore Company produces a single product. During last year, Moore's variable production
costs totaled $10,000 and its fixed manufacturing overhead costs totaled $6,800. The company
produced 5,000 units during the year and sold 4,600 units. There were no units in the beginning
inventory. Which of the following statements is true?
A. The net operating income under absorption costing for the year will be $800 higher than net
operating income under variable costing.
B. The net operating income under absorption costing for the year will be $544 higher than net
operating income under variable costing.
C. The net operating income under absorption costing for the year will be $544 lower than net
operating income under variable costing.
D. The net operating income under absorption costing for the year will be $800 lower than net
operating income under variable costing.
59. Last year, Salada Corporation's variable costing net operating income was $97,000. Fixed
manufacturing overhead costs released from inventory under absorption costing amounted to
$14,000. What was the absorption costing net operating income last year?
A. $14,000
B. $111,000
C. $97,000
D. $83,000
60. Tsuchiya Corporation manufactures a variety of products. Last year, the company's variable
costing net operating income was $57,500. Fixed manufacturing overhead costs deferred in
inventory under absorption costing amounted to $35,400. What was the absorption costing net
operating income last year?
A. $22,100
B. $35,400
C. $57,500
D. $92,900
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
61. Stephen Company produces a single product. Last year, the company had 20,000 units in its
ending inventory. During the year, Stephen's variable production costs were $12 per unit. The
fixed manufacturing overhead cost was $8 per unit in the beginning inventory. The company's
net operating income for the year was $9,600 higher under variable costing than it was under
absorption costing. The company uses a last-in-first-out (LIFO) inventory flow assumption.
Given these facts, the number of units of product in the beginning inventory last year must have
been:
A. 21,200
B. 19,200
C. 18,800
D. 19,520
62. Hansen Company produces a single product. During the last year, Hansen had net operating
income under absorption costing that was $5,500 lower than its income under variable costing.
The company sold 9,000 units during the year, and its variable costs were $10 per unit, of which
$6 was variable selling expense. If fixed production cost is $5 per unit under absorption costing
every year, then how many units did the company produce during the year?
A. 7,625 units
B. 8,450 units
C. 10,100 units
D. 7,900 units
63. Hatch Company has two divisions, O and E. During the year just ended, Division O had a
segment margin of $9,000 and variable expenses equal to 70% of sales. Traceable fixed
expenses for Division E were $19,000. Hatch Company as a whole had a contribution margin
ratio of 40%, a segment margin of $25,000, and sales of $200,000. Given this data, the sales for
Division E for last year were:
A. $50,000
B. $150,000
C. $87,500
D. $116,667
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
64. During April, Division D of Carney Company had a segment margin ratio of 15%, a
variable expense ratio of 60% of sales, and traceable fixed expenses of $15,000. Division D's
sales were closest to:
A. $100,000
B. $60,000
C. $33,333
D. $22,500
65. Colasuonno Corporation has two divisions: the West Division and the East Division. The
corporation's net operating income is $88,800. The West Division's divisional segment margin
is $39,500 and the East Division's divisional segment margin is $166,900. What is the amount
of the common fixed expense not traceable to the individual divisions?
A. $255,700
B. $206,400
C. $117,600
D. $128,300
66. Gore Corporation has two divisions: the Business Products Division and the Export
Products Division. The Business Products Division's divisional segment margin is $55,700 and
the Export Products Division's divisional segment margin is $70,600. The total amount of
common fixed expenses not traceable to the individual divisions is $107,400. What is the
company's net operating income?
A. $233,700
B. $(126,300)
C. $126,300
D. $18,900
67. More Company has two divisions, L and M. During July, the contribution margin in
Division L was $60,000. The contribution margin ratio in Division M was 40% and its sales
were $250,000. Division M's segment margin was $60,000. The common fixed expenses were
$50,000 and the company net operating income was $20,000. The segment margin for Division
L was:
A. $0
B. $10,000
C. $50,000
D. $60,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
68. Stephen Company has the following data for its three stores last year:
69. Johnson Company operates two plants, Plant A and Plant B. Last year, Johnson Company
reported a contribution margin of $40,000 for Plant A. Plant B had sales of $200,000 and a
contribution margin ratio of 40%. Net operating income for the company was $27,000 and
traceable fixed expenses for the two stores totaled $50,000. Johnson Company's common fixed
expenses were:
A. $43,000
B. $50,000
C. $93,000
D. $120,000
70. The ARB Company has two divisions: Electronics and DVD/Video Sales. Electronics has
traceable fixed expenses of $146,280 and the DVD/Video Sales has traceable fixed expenses of
$81,765. If ARB Company has a total of $322,490 in fixed expenses, what are its common
fixed expenses?
A. $94,445
B. $322,490
C. $228,045
D. $47,223
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
71. Leis Retail Company has two Stores, M and N. Store N had sales of $180,000 during March,
a segment margin of $54,000, and traceable fixed expenses of $26,000. The company as a
whole had a contribution margin ratio of 25% and $120,000 in total contribution margin. Based
on this information, total variable expenses in Store M for the month must have been:
A. $140,000
B. $260,000
C. $300,000
D. $360,000
72. Sugiki Corporation has two divisions: the Alpha Division and the Delta Division. The
Alpha Division has sales of $820,000, variable expenses of $369,000, and traceable fixed
expenses of $347,300. The Delta Division has sales of $460,000, variable expenses of $294,400,
and traceable fixed expenses of $134,100. The total amount of common fixed expenses not
traceable to the individual divisions is $97,300. What is the company's net operating income?
A. $135,200
B. $37,900
C. $616,600
D. $519,300
73. Phillipson Corporation has two divisions: the IEB Division and the PIH Division. The
corporation's net operating income is $83,900. The IEB Division's divisional segment margin is
$149,700 and the PIH Division's divisional segment margin is $60,100. What is the amount of
the common fixed expense not traceable to the individual divisions?
A. $233,600
B. $209,800
C. $144,000
D. $125,900
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
The Pacific Company manufactures a single product. The following data relate to the year just
completed:
During the last year, 5,000 units were produced and 4,800 units were sold. There were no
beginning inventories.
74. Under variable costing, the unit product cost would be:
A. $91.00
B. $72.00
C. $58.00
D. $43.00
75. The carrying value of finished goods inventory at the end of the year under variable costing
would be:
A. $8,800 greater than under absorption costing.
B. $8,800 less than under absorption costing.
C. $5,800 less than under absorption costing.
D. The same as absorption costing.
76. Under absorption costing, the cost of goods sold for the year would be:
A. $206,400
B. $345,600
C. $278,400
D. $360,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Carr Company produces a single product. During the past year, Carr manufactured 25,000
units and sold 20,000 units. Production costs for the year were as follows:
Sales totaled $850,000, variable selling expenses totaled $110,000, and fixed selling and
administrative expenses totaled $170,000. There were no units in beginning inventory. Assume
that direct labor is a variable cost.
78. Under absorption costing, the ending inventory for the year would be valued at:
A. $179,500
B. $213,500
C. $222,000
D. $152,000
79. The net operating income for the year under variable costing would be:
A. $28,000 lower than under absorption costing
B. $28,000 higher than under absorption costing
C. $50,000 lower than under absorption costing
D. $50,000 higher than under absorption costing
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Favini Company, which has only one product, has provided the following data concerning its
most recent month of operations:
80. What is the unit product cost for the month under variable costing?
A. $98
B. $125
C. $118
D. $91
81. What is the unit product cost for the month under absorption costing?
A. $91
B. $125
C. $118
D. $98
82. What is the net operating income for the month under variable costing?
A. $11,800
B. $3,700
C. $8,100
D. $(23,600)
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
83. What is the net operating income for the month under absorption costing?
A. $11,800
B. $3,700
C. $8,100
D. $(23,600)
Hadlock Company, which has only one product, has provided the following data concerning its
most recent month of operations:
84. What is the unit product cost for the month under variable costing?
A. $61
B. $71
C. $69
D. $79
85. The total contribution margin for the month under the variable costing approach is:
A. $192,000
B. $128,000
C. $72,800
D. $140,800
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
86. What is the total period cost for the month under the variable costing approach?
A. $125,600
B. $108,800
C. $176,800
D. $68,000
87. What is the net operating income for the month under variable costing?
A. $15,200
B. $4,000
C. $(9,200)
D. $19,200
Abe Company, which has only one product, has provided the following data concerning its
most recent month of operations:
88. What is the unit product cost for the month under variable costing?
A. $99
B. $81
C. $106
D. $88
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
89. What is the unit product cost for the month under absorption costing?
A. $88
B. $99
C. $81
D. $106
90. The total contribution margin for the month under the variable costing approach is:
A. $162,600
B. $378,000
C. $226,800
D. $319,200
91. The total gross margin for the month under the absorption costing approach is:
A. $319,200
B. $16,800
C. $226,800
D. $256,500
92. What is the total period cost for the month under the variable costing approach?
A. $156,600
B. $210,000
C. $366,600
D. $307,800
93. What is the total period cost for the month under the absorption costing approach?
A. $156,600
B. $210,000
C. $151,200
D. $366,600
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
94. What is the net operating income for the month under variable costing?
A. $11,400
B. $16,800
C. $5,400
D. $(12,900)
95. What is the net operating income for the month under absorption costing?
A. $11,400
B. $(12,900)
C. $16,800
D. $5,400
Ingerson Company, which has only one product, has provided the following data concerning
its most recent month of operations:
96. What is the unit product cost for the month under variable costing?
A. $109
B. $79
C. $99
D. $89
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
97. What is the net operating income for the month under variable costing?
A. $12,000
B. $8,000
C. $(27,600)
D. $4,000
Jarvinen Company, which has only one product, has provided the following data concerning its
most recent month of operations:
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.
98. What is the unit product cost for the month under variable costing?
A. $62
B. $58
C. $91
D. $87
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
99. What is the unit product cost for the month under absorption costing?
A. $91
B. $87
C. $62
D. $58
100. What is the net operating income for the month under variable costing?
A. $11,600
B. $2,900
C. $8,700
D. $0
101. What is the net operating income for the month under absorption costing?
A. $2,900
B. $0
C. $8,700
D. $11,600
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
DeAnne Company produces a single product. The company's variable costing income
statement for August appears below:
The company produced 35,000 units in August and the beginning inventory consisted of 8,000
units. Variable production costs per unit and total fixed costs have remained constant over the
past several months.
102. The value of the company's inventory on August 31 under the absorption costing method
is:
A. $27,000
B. $42,000
C. $36,000
D. $47,000
103. Under absorption costing, for the month ended August 31, the company would report a:
A. $20,000 profit
B. $5,000 loss
C. $35,000 profit
D. $5,000 profit
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Fahey Company manufactures a single product that it sells for $25 per unit. The company has
the following cost structure:
There were no units in beginning inventory. During the year, 18,000 units were produced and
15,000 units were sold.
105. The company's net operating income for the year under variable costing is:
A. $60,000
B. $81,000
C. $57,000
D. $69,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Galino Company, which has only one product, has provided the following data concerning its
most recent month of operations:
106. The total contribution margin for the month under the variable costing approach is:
A. $124,800
B. $49,400
C. $20,400
D. $143,000
107. The total gross margin for the month under the absorption costing approach is:
A. $49,400
B. $18,200
C. $73,400
D. $124,800
108. What is the total period cost for the month under the variable costing approach?
A. $31,200
B. $104,400
C. $117,400
D. $135,600
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
109. What is the total period cost for the month under the absorption costing approach?
A. $104,400
B. $31,200
C. $13,000
D. $135,600
Kilihea Corporation produces a single product. The company's absorption costing income
statement for July follows:
The company's variable production costs are $20 per unit and its fixed manufacturing overhead
totals $80,000 per month.
110. Net operating income under the variable costing method for July would be:
A. $53,000
B. $49,800
C. $61,000
D. $57,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
112. The break-even point in units for the month under variable costing is:
A. 6,850 units
B. 4,000 units
C. 3,200 units
D. 5,100 units
Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure:
In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for $120
each.
113. If Eagle had sold only 9,000 tables in its first year, what total amount of cost would have
been assigned to the 1,000 tables in finished goods inventory under the absorption costing
method?
A. $37,100
B. $45,800
C. $58,000
D. $74,200
114. How would Eagle's variable costing net operating income have been affected in its first
year if only 9,000 tables were sold instead of 10,000?
A. net operating income would have been $37,100 lower
B. net operating income would have been $45,800 lower
C. net operating income would have been $56,000 lower
D. net operating income would have been $62,000 lower
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
115. How would Eagle's absorption costing net operating income have been affected in its first
year if 12,000 tables were produced instead of 10,000 and Eagle still sold 10,000 tables?
A. net operating income would not have been affected
B. net operating income would have been $27,000 higher
C. net operating income would have been $31,500 higher
D. net operating income would have been $116,000 lower
Green Enterprises produces a single product. The following data were provided by the
company for the most recent period:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
118. For the period above, one would expect the net operating income under absorption costing
to be:
A. higher than the net operating income under variable costing.
B. lower than the net operating income under variable costing.
C. the same as the net operating income under variable costing.
D. The relation between absorption costing net operating income and variable costing net
operating income cannot be determined.
Whitney, Inc., produces a single product. The following data pertain to one month's operations:
119. The carrying value on the balance sheet of the ending finished goods inventory under
variable costing would be:
A. $16,000
B. $10,000
C. $19,000
D. $12,000
120. The carrying value on the balance sheet of the ending finished goods inventory under
absorption costing would be:
A. $16,000
B. $10,000
C. $12,000
D. $21,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
121. For the month referred to above, net operating income under variable costing will be:
A. higher than net operating income under absorption costing.
B. lower than net operating income under absorption costing.
C. the same as net operating income under absorption costing.
D. The relation between variable costing and absorption costing net operating income cannot be
determined.
Mennig Corporation produces a single product and has the following cost structure:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Byron Company, which has only one product, has provided the following data concerning its
most recent month of operations:
124. What is the unit product cost for the month under variable costing?
A. $86
B. $77
C. $83
D. $92
125. What is the unit product cost for the month under absorption costing?
A. $83
B. $92
C. $86
D. $77
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
During the last year, Snyder Co. produced 10,000 units of its only product. Costs incurred by
Snyder during the year were as follows:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Deboer Company, which has only one product, has provided the following data concerning its
most recent month of operations:
128. What is the total period cost for the month under the variable costing approach?
A. $8,400
B. $17,600
C. $26,000
D. $22,000
129. What is the total period cost for the month under the absorption costing approach?
A. $8,400
B. $17,600
C. $26,000
D. $13,600
The following cost formula relates to last year's operations at Lemine Manufacturing
Corporation:
Y = $84,000 + $60.00X
In the formula above, 75% of the fixed cost and 90% of the variable cost are manufacturing
costs. Y is the total cost and X is the number of units produced and sold.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
130. If Lemine produces and sells 7,000 units, what is the unit product cost under each of the
following methods?
A. Option A
B. Option B
C. Option C
D. Option D
131. If Lemine produces and sells only 6,000 units, what is the unit product cost under each of
the following methods?
A. Option A
B. Option B
C. Option C
D. Option D
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Pellman Inc., which produces a single product, has provided the following data for its most
recent month of operations:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Elbon Company, which has only one product, has provided the following data concerning its
most recent month of operations:
134. What is the net operating income for the month under variable costing?
A. $10,200
B. $(19,000)
C. $8,800
D. $1,400
135. What is the net operating income for the month under absorption costing?
A. $1,400
B. $(19,000)
C. $8,800
D. $10,200
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Gordon Company produces a single product that sells for $10 per unit. Last year there were no
beginning inventories, 100,000 units were produced, and 80,000 units were sold. The company
has the following cost structure:
137. The carrying value on the balance sheet of the ending finished goods inventory under
absorption costing would be:
A. $80,000
B. $104,000
C. $110,000
D. $124,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Clements Company, which has only one product, has provided the following data concerning
its most recent month of operations:
138. The total contribution margin for the month under the variable costing approach is:
A. $61,500
B. $51,000
C. $55,500
D. $43,600
139. The total gross margin for the month under the absorption costing approach is:
A. $19,500
B. $51,000
C. $74,000
D. $55,500
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Kierst Company, which has only one product, has provided the following data concerning its
most recent month of operations:
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.
140. What is the net operating income for the month under variable costing?
A. $10,600
B. $16,200
C. $6,200
D. $7,500
141. What is the net operating income for the month under absorption costing?
A. $7,500
B. $16,200
C. $6,200
D. $10,600
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Krug Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
142. What was the absorption costing net operating income last year?
A. $86,200
B. $89,100
C. $88,800
D. $91,400
143. What was the absorption costing net operating income this year?
A. $91,300
B. $93,300
C. $95,900
D. $88,500
Enz Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
144. What was the absorption costing net operating income last year?
A. $56,000
B. $37,000
C. $57,000
D. $75,000
145. What was the absorption costing net operating income this year?
A. $92,000
B. $56,000
C. $73,000
D. $75,000
146. What was the absorption costing net operating income last year?
A. $60,000
B. $23,000
C. $97,000
D. $89,000
147. What was the absorption costing net operating income this year?
A. $38,000
B. $96,000
C. $75,000
D. $59,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Condit Corporation manufactures a variety of products. Variable costing net operating income
was $75,600 last year and was $80,100 this year. Last year, inventory decreased by 3,400 units.
This year, inventory increased by 3,000 units. Fixed manufacturing overhead cost is $5 per unit.
148. What was the absorption costing net operating income last year?
A. $77,600
B. $75,600
C. $92,600
D. $58,600
149. What was the absorption costing net operating income this year?
A. $78,100
B. $95,100
C. $65,100
D. $73,600
150. If sales for Division F increase $40,000 with a $10,000 increase in the Division's traceable
fixed costs, the overall company net operating income should:
A. increase by $30,000
B. increase by $6,000
C. increase by $2,889
D. decrease by $4,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
151. During June, the sales clerks in Division F received salaries totaling $35,000. Assume that
during July the salaries of these sales clerks are discontinued and instead they are paid a
commission of 18% of sales. If sales in Division F increase by $65,000 as a result of this change,
the July segment margin for Division F should be:
A. $42,700
B. $19,400
C. $54,400
D. $94,000
152. If the sales in Division L increase by 30% while common fixed expenses in the company
decrease by $10,000, the segment margin for Division L should:
A. increase by $32,400
B. increase by $10,800
C. decrease by $22,400
D. decrease by $65,600
153. A proposal has been made that will lower variable expenses in Division L to 35% of sales.
However, this reduction can only be accomplished by a $15,000 increase in Division L's
traceable fixed expenses. If this proposal is implemented and if sales remain constant, overall
company net operating income should:
A. increase by $15,000
B. increase by $24,000
C. decrease by $15,000
D. decrease by $6,000
Pong Incorporated's income statement for the most recent month is given below.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
154. If Store G sales increase by $40,000 with no change in fixed costs, the overall company net
operating income should:
A. increase by $4,000
B. increase by $8,000
C. increase by $24,000
D. increase by $20,000
155. The marketing department believes that a promotional campaign for Store H costing
$8,000 will increase the store's sales by $15,000. If the campaign is adopted, overall company
net operating income should:
A. decrease by $5,000
B. decrease by $5,500
C. increase by $2,000
D. increase by $7,000
Ring, Incorporated's income statement for the most recent month is given below.
For each of the following questions, refer back to the original data.
156. If Store Q sales increase by $30,000 with no change in fixed expenses, the overall
company net operating income should:
A. increase by $3,750
B. increase by $7,500
C. increase by $12,000
D. increase by $18,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
157. The marketing department believes that a promotional campaign at Store P costing $5,000
will increase sales by $15,000. If the campaign is adopted, overall company net operating
income should:
A. decrease by $800
B. decrease by $5,800
C. increase by $5,800
D. increase by $10,000
158. A proposal has been made that will lower variable costs in Store P to 65% of sales.
However, this reduction can only be accomplished by a $16,000 increase in Store P's traceable
fixed costs. If this proposal is implemented and sales remain constant, overall company net
operating income should:
A. remain the same
B. decrease by $2,000
C. increase by $2,000
D. increase by $14,000
159. If sales in Store Q increase by $30,000 as a result of a $7,000 increase in traceable fixed
costs:
A. Store Q's contribution margin should increase by $18,000
B. Store Q's segment margin should increase by $12,000
C. Store Q's contribution margin should increase by $11,000
D. Store Q's segment margin should increase by $5,000
160. Currently the sales clerks receive a salary of $17,000 per month in Store Q. A proposal has
been made to change from a fixed salary to a sales commission of 5%. Assume that this
proposal is adopted, and that as a result sales in Store Q increase by $40,000. The new segment
margin for Store Q should be:
A. $47,000
B. $61,000
C. $85,000
D. $44,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
The Gasson Company sells three products, Product A, Product B and Product C, and had sales
of $1,000,000 during the month of June. The company's overall contribution margin ratio was
37% and fixed expenses totaled $350,000. Sales were: Product A, $500,000; Product B,
$300,000; and Product C, $200,000. Traceable fixed costs were: Product A, $120,000; Product
B, $100,000; and Product C, $60,000. The variable expenses of Product A were $300,000 and
the variable expenses of Product B were $180,000.
161. The net operating income for the company as a whole for June was:
A. $20,000
B. $90,000
C. $170,000
D. $300,000
163. The common fixed expense for Gasson Company for the month of June was:
A. $350,000
B. $280,000
C. $70,000
D. $20,000
164. The product line segment margin for Product A for June was:
A. $200,000
B. $80,000
C. $65,000
D. $10,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
165. The contribution margin in dollars for Product B for June was:
A. $20,000
B. $111,000
C. $120,000
D. $200,000
Tennison Corporation has two major business segments-Consumer and Commercial. Data for
the segment and for the company for May appear below:
In addition, common fixed expenses totaled $371,000 and were allocated as follows: $186,000
to the Consumer business segment and $185,000 to the Commercial business segment.
167. A properly constructed segmented income statement in a contribution format would show
that the segment margin of the Consumer business segment is:
A. $272,000
B. $270,000
C. $86,000
D. $514,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
168. A properly constructed segmented income statement in a contribution format would show
that the net operating income of the company as a whole is:
A. $769,000
B. $104,000
C. $475,000
D. -$267,000
Stryker Corporation has two major business segments-East and West. In April, the East
business segment had sales revenues of $500,000, variable expenses of $280,000, and traceable
fixed expenses of $80,000. During the same month, the West business segment had sales
revenues of $970,000, variable expenses of $514,000, and traceable fixed expenses of $184,000.
The common fixed expenses totaled $280,000 and were allocated as follows: $112,000 to the
East business segment and $168,000 to the West business segment.
170. A properly constructed segmented income statement in a contribution format would show
that the segment margin of the East business segment is:
A. $108,000
B. $28,000
C. $140,000
D. $280,000
171. A properly constructed segmented income statement in a contribution format would show
that the net operating income of the company as a whole is:
A. $412,000
B. $676,000
C. -$148,000
D. $132,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Canon Company has two sales areas: North and South. During last year, the contribution
margin in the North Area was $50,000, or 20% of sales. The segment margin in the South was
$15,000, or 8% of sales. Traceable fixed expenses are $15,000 in the North and $10,000 in the
South. During last year, the company reported total net operating income of $26,000.
172. The total fixed expenses (traceable and common) for Canon Company for the year were:
A. $49,000
B. $25,000
C. $24,000
D. $50,000
173. The variable expenses for the South Area for the year were:
A. $230,000
B. $185,000
C. $162,500
D. $65,000
Data for June for Ozaki Corporation and its two major business segments, North and South,
appear below:
In addition, common fixed expenses totaled $145,000 and were allocated as follows: $73,000 to
the North business segment and $72,000 to the South business segment.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
175. A properly constructed segmented income statement in a contribution format would show
that the segment margin of the North business segment is:
A. $270,000
B. $119,000
C. $207,000
D. $192,000
176. A properly constructed segmented income statement in a contribution format would show
that the net operating income of the company as a whole is:
A. $(56,000)
B. $89,000
C. $343,000
D. $234,000
Falquez Company sells three products: R, S, and T. Data for activity of Falquez Company
during July are as follows:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Essay Questions
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
180. The EG Company produces and sells one product. The following data refer to the year just
completed:
Required:
a. Compute the cost of a single unit of product under both the absorption costing and variable
costing approaches.
b. Prepare an income statement for the year using absorption costing.
c. Prepare a contribution format income statement for the year using variable costing.
d. Reconcile the absorption costing and variable costing net operating income figures in (b) and
(c) above.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
181. Maga Company, which has only one product, has provided the following data concerning
its most recent month of operations:
Required:
a. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare a contribution format income statement for the month using variable costing.
d. Prepare an income statement for the month using absorption costing.
e. Reconcile the variable costing and absorption costing net operating incomes for the month.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
182. Leigh Company, which has only one product, has provided the following data concerning
its most recent month of operations:
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. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare a contribution format income statement for the month using variable costing.
d. Prepare an income statement for the month using absorption costing.
e. Reconcile the variable costing and absorption costing net operating incomes for the month.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
183. Qu Company, which has only one product, has provided the following data concerning its
most recent month of operations:
Required:
a. What is the unit product cost for the month under variable costing?
b. Prepare a contribution format income statement for the month using variable costing.
c. Without preparing an income statement, determine the absorption costing net operating
income for the month. (Hint: Use the reconciliation method.)
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
184. Packer Company, which has only one product, has provided the following data concerning
its most recent month of operations:
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. What is the unit product cost for the month under variable costing?
b. Prepare a contribution format income statement for the month using variable costing.
c. Without preparing an income statement, determine the absorption costing net operating
income for the month. (Hint: Use the reconciliation method.)
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
185. Hubiak Corporation produces a single product and has the following cost structure:
Required:
Compute the unit product cost under absorption costing. Show your work!
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
186. Hudalla Corporation produces a single product and has the following cost structure:
Required:
Compute the unit product cost under variable costing. Show your work!
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
187. Fellner Corporation produces a single product and has the following cost structure:
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!
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
188. Bertone Inc., which produces a single product, has provided the following data for its most
recent month of operation:
Required:
Compute the unit product cost under variable costing. Show your work!
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
189. Krasnow Inc., which produces a single product, has provided the following data for its
most recent month of operation:
Required:
Compute the unit product cost under absorption costing. Show your work!
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
190. Cuffee Inc., which produces a single product, has provided the following data for its most
recent month of operation:
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!
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
191. UHF Antennas, Inc., produces and sells a unique television antenna. The company has just
opened a new plant to manufacture the antenna, and the following cost and revenue data have
been reported for the first month of the new plant's operation:
Management is anxious to see how profitable the new antenna will be and has asked that an
income statement be prepared for the month. Assume that direct labor is a variable cost.
Required:
a. Assuming that the company uses absorption costing, compute the unit product cost and
prepare an income statement.
b. Assuming that the company uses variable costing, compute the unit product cost and prepare
an income statement.
c. Explain the reason for any difference in the ending inventories under the two costing methods
and the impact of this difference on reported net operating income.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
192. O'Keefe Company, which has only one product, has provided the following data
concerning its most recent month of operations:
Required:
a. Prepare a contribution format income statement for the month using variable costing.
b. Prepare an income statement for the month using absorption costing.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
193. Nesman Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in units vary
from month to month. The company's variable costs per unit and total fixed costs have been
constant from month to month.
Required:
a. Prepare a contribution format income statement for the month using variable costing.
b. Prepare an income statement for the month using absorption costing.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
194. Carvey Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
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!
195. Last year, Holroyd Corporation's variable costing net operating income was $95,000. 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!
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
196. Last year, Teneyck Corporation's variable costing net operating income was $63,500 and
ending inventory decreased by 200 units. Fixed manufacturing overhead cost per unit was $5.
Required:
Determine the absorption costing net operating income for last year. Show your work!
197. Salonia Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
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!
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
198. Cassin Corporation manufactures a variety of products. Last year, the company's variable
costing net operating income was $86,300 and ending inventory decreased by 1,700 units.
Fixed manufacturing overhead cost per unit was $8.
Required:
Determine the absorption costing net operating income for last year. Show your work!
199. Gordy Corporation manufactures a variety of products. Last year, variable costing net
operating income was $81,000. The fixed manufacturing overhead costs released from
inventory under absorption costing amounted to $39,000.
Required:
Determine the absorption costing net operating income last year. Show your work!
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
200. Camren Corporation has two major business segments-Apparel and Accessories. Data
concerning those segments for December appear below:
Common fixed expenses totaled $357,000 and were allocated as follows: $161,000 to the
Apparel business segment and $196,000 to the Accessories business segment.
Required:
Prepare a segmented income statement in the contribution format for the company. Omit
percentages; show only dollar amounts.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
201. The IT Corporation produces and markets two types of electronic calculators: Model 11
and Model 12. The following data were gathered on activities last month:
Required:
Prepare a segmented income statement in the contribution format for last month.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
202. Data for May concerning Dorow Corporation's two major business segments-Fibers and
Feedstocks-appear below:
Common fixed expenses totaled $345,000 and were allocated as follows: $186,000 to the
Fibers business segment and $159,000 to the Feedstocks business segment.
Required:
Prepare a segmented income statement in the contribution format for the company. Omit
percentages; show only dollar amounts.
203. Mossor Corporation has two major business segments-Retail and Wholesale. In December,
the Retail business segment had sales revenues of $510,000, variable expenses of $296,000,
and traceable fixed expenses of $61,000. During the same month, the Wholesale business
segment had sales revenues of $510,000, variable expenses of $240,000, and traceable fixed
expenses of $82,000. Common fixed expenses totaled $191,000 and were allocated as follows:
$113,000 to the Retail business segment and $78,000 to the Wholesale business segment.
Required:
Prepare a segmented income statement in the contribution format for the company. Omit
percentages; show only dollar amounts.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
1. Under variable costing, all variable costs are treated as product costs.
FALSE
2. Under variable costing, fixed manufacturing overhead cost is treated as a product cost.
FALSE
3. The unit product cost under absorption costing does not include fixed manufacturing
overhead cost.
FALSE
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
4. Variable manufacturing overhead costs are treated as period costs under both absorption and
variable costing.
FALSE
5. When reconciling variable costing and absorption costing net operating income, fixed
manufacturing overhead costs deferred in inventory under absorption costing should be added
to variable costing net operating income to arrive at the absorption costing net operating
income.
TRUE
6. When production is less than sales for the period, absorption costing net operating income
will generally be less than variable costing net operating income.
TRUE
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
9. Assuming that a segment has both variable expenses and traceable fixed expenses, an
increase in sales should increase profits by an amount equal to the sales times the segment
margin ratio.
FALSE
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
10. The salary of the treasurer of a corporation is an example of a common cost which normally
cannot be traced to product segments.
TRUE
11. The salary paid to a store manager is a traceable fixed expense of the store.
TRUE
12. Segmented statements for internal use should be prepared in the contribution format.
TRUE
13. Fixed costs that are traceable to a segment may become common if the segment is divided
into smaller units.
TRUE
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
14. The contribution margin is viewed as a better gauge of the long run profitability of a
segment than the segment margin.
FALSE
15. In responsibility accounting, each segment in an organization should be charged with the
costs for which it is responsible and over which it has control plus its share of common
organizational costs.
FALSE
16. The contribution margin tells us what happens to profits as volume changes if a segment's
capacity and fixed costs change as well.
FALSE
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
17. Only those costs that would disappear over time if a segment were eliminated should be
considered traceable costs of the segment.
TRUE
18. In segment reporting, sales dollars is usually an appropriate allocation base for selling,
general, and administrative expenses.
FALSE
19. A segment is any portion or activity of an organization about which a manager seeks
revenue, cost, or profit data.
TRUE
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
20. Routsong Company had the following sales and production data for the past four years:
Selling price per unit, variable cost per unit, and total fixed cost are the same in each year.
Which of the following statements is not correct?
A. Under variable costing, net operating income for Year 1 and Year 2 would be the same.
B. Because of the changes in production levels, under variable costing the unit product cost will
change each year.
C. The total net operating income for all four years combined would be the same under variable
and absorption costing.
D. Under absorption costing, net operating income in Year 4 would be less than the net
operating income in Year 2.
21. Would the following costs be classified as product or period costs under variable costing at
a retail clothing store?
A. Option A
B. Option B
C. Option C
D. Option D
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A. Option A
B. Option B
C. Option C
D. Option D
23. Which of the following are considered to be product costs under variable costing?
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24. Which of the following are considered to be product costs under absorption costing?
25. Under variable costing, costs that are treated as period costs include:
A. only fixed manufacturing costs.
B. both variable and fixed manufacturing costs.
C. all fixed costs.
D. only fixed selling and administrative costs.
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27. A portion of the total fixed manufacturing overhead cost incurred during a period may:
A. be excluded from cost of goods sold under absorption costing.
B. be charged as a period cost with the remainder deferred under variable costing.
C. never be excluded from cost of goods sold under absorption costing.
D. never be excluded from cost of goods sold under variable costing.
28. A company using lean production methods likely would show approximately the same net
operating income under both absorption and variable costing because:
A. ending inventory would be valued in the same manner for both methods under lean
production.
B. production is geared to sales under lean production and thus there would be little or no
ending inventory.
C. under lean production fixed manufacturing overhead costs are charged to the period incurred
rather than to the product produced.
D. there is no distinction made under lean production between fixed and variable costs.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
29. Dull Corporation has been producing and selling electric razors for the past ten years.
Shown below are the actual net operating incomes for the last three years of operations at Dull:
Dull Corporation's cost structure and selling price has not changed during its ten years of
operations. Based on the information presented above, which of the following statements is
true?
A. Dull Corporation operated above the breakeven point in each of the three years presented.
B. For the three years presented in total, Dull Corporation sold more units than it produced.
C. In Year 10, Dull Corporation produced fewer units than it sold.
D. In Year 9, Dull Corporation produced more units than it sold.
30. Net operating income reported under absorption costing will exceed net operating income
reported under variable costing for a given period if:
A. production equals sales for that period.
B. production exceeds sales for that period.
C. sales exceed production for that period.
D. the variable manufacturing overhead exceeds the fixed manufacturing overhead.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
31. If the number of units produced exceeds the number of units sold, then net operating income
under absorption costing will:
A. be equal to the net operating income under variable costing.
B. be greater than net operating income under variable costing.
C. be equal to the net operating income under variable costing plus total fixed manufacturing
costs.
D. be equal to the net operating income under variable costing less total fixed manufacturing
costs.
32. Over an extended period of time in which the final ending inventories are zero, the
accumulated net operating income figures reported under absorption costing will be:
A. greater than those reported under variable costing.
B. less than those reported under variable costing.
C. the same as those reported under variable costing.
D. higher or lower since no generalization can be made.
33. In an income statement segmented by product line, a fixed expense that cannot be allocated
among product lines on a cause-and-effect basis should be:
A. classified as a traceable fixed expense and not allocated.
B. allocated to the product lines on the basis of sales dollars.
C. allocated to the product lines on the basis of segment margin.
D. classified as a common fixed expense and not allocated.
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34. A common cost that should not be assigned to a particular product on a segmented income
statement is:
A. the product's advertising costs.
B. the salary of the corporation president.
C. direct materials costs.
D. the product manager's salary.
35. All other things being equal, if a division's traceable fixed expenses increase:
A. the division's contribution margin ratio will decrease.
B. the division's segment margin ratio will remain the same.
C. the division's segment margin will decrease.
D. the overall company profit will remain the same.
36. All other things equal, if a division's traceable fixed expenses decrease:
A. the division's segment margin will increase.
B. the overall company net operating income will decrease.
C. the division's contribution margin will increase.
D. the division's sales volume will increase.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
38. Clayton Company produces a single product. Last year, the company's variable production
costs totaled $8,000 and its fixed manufacturing overhead costs totaled $4,800. The company
produced 4,000 units during the year and sold 3,600 units. Assuming no units in the beginning
inventory:
A. under variable costing, the units in ending inventory will be costed at $3.20 each.
B. the net operating income under absorption costing for the year will be $480 lower than net
operating income under variable costing.
C. the ending inventory under variable costing will be $480 lower than the ending inventory
under absorption costing.
D. the net operating income under absorption costing for the year will be $800 lower than net
operating income under variable costing.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
39. Gangwer Corporation produces a single product and has the following cost structure:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
40. Olds Inc., which produces a single product, has provided the following data for its most
recent month of operations:
There were no beginning or ending inventories. The absorption costing unit product cost was:
A. $97
B. $130
C. $99
D. $207
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
41. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the absorption costing unit product cost for the month?
A. $102
B. $130
C. $97
D. $125
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
42. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the variable costing unit product cost for the month?
A. $103
B. $99
C. $94
D. $90
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
43. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the total period cost for the month under variable costing?
A. $185,000
B. $117,600
C. $273,200
D. $302,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
44. Swiatek Corporation produces a single product and has the following cost structure:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
45. Cockriel Inc., which produces a single product, has provided the following data for its most
recent month of operations:
There were no beginning or ending inventories. The variable costing unit product cost was:
A. $42
B. $43
C. $37
D. $48
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
46. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the total period cost for the month under absorption costing?
A. $58,300
B. $37,100
C. $259,900
D. $201,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
47. Roy Corporation produces a single product. During July, Roy produced 10,000 units. Costs
incurred during the month were as follows:
Under absorption costing, any unsold units would be carried in the inventory account at a unit
product cost of:
A. $5.10
B. $4.40
C. $3.80
D. $3.50
Absorption costing unit product cost = $44,000 10,000 units = $4.40 per unit
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
48. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the net operating income for the month under variable costing?
A. $21,600
B. $(15,200)
C. $8,000
D. $13,600
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AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
49. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
What is the net operating income for the month under absorption costing?
A. $5,300
B. $3,000
C. $(12,700)
D. $8,300
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AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
50. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
The total gross margin for the month under absorption costing is:
A. $42,000
B. $14,700
C. $69,000
D. $79,800
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AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Easy
51. A company produces a single product. Last year, fixed manufacturing overhead was
$30,000, variable production costs were $48,000, fixed selling and administration costs were
$20,000, and variable selling administrative expenses were $9,600. There was no beginning
inventory. During the year, 3,000 units were produced and 2,400 units were sold at a price of
$40 per unit. Under variable costing, net operating income would be:
A. a profit of $6,000.
B. a profit of $4,000.
C. a loss of $2,000.
D. a loss of $4,400.
Variable costing unit product cost = $48,000 3,000 units produced = $16 per unit
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
52. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
The total contribution margin for the month under variable costing is:
A. $183,600
B. $90,000
C. $70,400
D. $169,200
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Easy
53. Last year, Heidenescher Corporation's variable costing net operating income was $63,600
and its inventory decreased by 600 units. Fixed manufacturing overhead cost was $1 per unit.
What was the absorption costing net operating income last year?
A. $64,200
B. $63,000
C. $63,600
D. $600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
54. Sproles Inc. manufactures a variety of products. Variable costing net operating income was
$90,500 last year and its inventory decreased by 3,500 units. Fixed manufacturing overhead
cost was $6 per unit. What was the absorption costing net operating income last year?
A. $90,500
B. $21,000
C. $69,500
D. $111,500
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
55. Roberts Company produces a single product. This year, the company's net operating
income under absorption costing was $2,000 lower than under variable costing. The company
sold 8,000 units during the year, and its variable costs were $8 per unit, of which $2 was
variable selling and administrative expense. If production cost was $10 per unit under
absorption costing, then how many units did the company produce during the year? (The
company produced the same number of units last year.)
A. 7,500 units
B. 7,000 units
C. 9,000 units
D. 8,500 units
Variable production cost per unit = $8 per unit - $2 per unit = $6 per unit
Absorption unit product cost = Variable production cost per unit + Fixed production cost per
unit
$10 per unit = $6 per unit + Fixed manufacturing overhead cost per unit
Fixed manufacturing overhead cost per unit = $10 per unit - $6 per unit = $4 per unit
Since absorption costing net operating income was $2,000 lower than its variable costing net
operating income, $2,000 of fixed manufacturing overhead cost was released from inventory
under absorption costing.
Fixed manufacturing overhead cost released from inventory under absorption costing = Fixed
manufacturing overhead cost per unit Decrease in units in inventory
$2,000 = $4 per unit Decrease in units in inventory
Decrease in units in inventory = $2,000 $4 per unit = 500 units
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
56. Evans Company produces a single product. During the most recent year, the company had a
net operating income of $90,000 using absorption costing and $84,000 using variable costing.
The fixed overhead application rate was $6 per unit. There were no beginning inventories. If
22,000 units were produced last year, then sales for last year were:
A. 15,000 units
B. 21,000 units
C. 23,000 units
D. 28,000 units
Since absorption costing net operating income was greater than its variable costing net
operating income by $6,000, it must have deferred $6,000 of fixed manufacturing overhead
costs in inventory under absorption costing.
Fixed manufacturing overhead costs deferred in inventory under absorption costing = Fixed
manufacturing overhead cost per unit Increase in units in inventory
$6,000 = $6 per unit Increase in units in inventory
Increase in units in inventory = $6,000 $6 per unit = 1,000 units
Therefore, since there were no beginning inventories and 1,000 units of the 22,000 units that
were produced were in ending inventories, sales must have been 21,000 units.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Hard
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57. Craft Company produces a single product. Last year, the company had a net operating
income of $80,000 using absorption costing and $74,500 using variable costing. The fixed
manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500
units were produced last year, then sales last year were:
A. 16,000 units
B. 20,400 units
C. 22,600 units
D. 27,000 units
Since absorption costing net operating income was greater than its variable costing net
operating income by $5,500, it must have deferred $5,500 of fixed manufacturing overhead
costs in inventory under absorption costing.
Fixed manufacturing overhead costs deferred in inventory under absorption costing = Fixed
manufacturing overhead cost per unit Increase in units in inventory
$5,500 = $5 per unit Increase in units in inventory
Increase in units in inventory = $5,500 $5 per unit = 1,100 units
Therefore, since there were no beginning inventories and 1,100 units of the 21,500 units that
were produced were in ending inventories, sales must have been 20,400 units.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Hard
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58. Moore Company produces a single product. During last year, Moore's variable production
costs totaled $10,000 and its fixed manufacturing overhead costs totaled $6,800. The company
produced 5,000 units during the year and sold 4,600 units. There were no units in the beginning
inventory. Which of the following statements is true?
A. The net operating income under absorption costing for the year will be $800 higher than net
operating income under variable costing.
B. The net operating income under absorption costing for the year will be $544 higher than net
operating income under variable costing.
C. The net operating income under absorption costing for the year will be $544 lower than net
operating income under variable costing.
D. The net operating income under absorption costing for the year will be $800 lower than net
operating income under variable costing.
Therefore, net operating income under absorption costing would be $544 higher than net
operating income under variable costing.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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59. Last year, Salada Corporation's variable costing net operating income was $97,000. Fixed
manufacturing overhead costs released from inventory under absorption costing amounted to
$14,000. What was the absorption costing net operating income last year?
A. $14,000
B. $111,000
C. $97,000
D. $83,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Easy
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60. Tsuchiya Corporation manufactures a variety of products. Last year, the company's variable
costing net operating income was $57,500. Fixed manufacturing overhead costs deferred in
inventory under absorption costing amounted to $35,400. What was the absorption costing net
operating income last year?
A. $22,100
B. $35,400
C. $57,500
D. $92,900
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Easy
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61. Stephen Company produces a single product. Last year, the company had 20,000 units in its
ending inventory. During the year, Stephen's variable production costs were $12 per unit. The
fixed manufacturing overhead cost was $8 per unit in the beginning inventory. The company's
net operating income for the year was $9,600 higher under variable costing than it was under
absorption costing. The company uses a last-in-first-out (LIFO) inventory flow assumption.
Given these facts, the number of units of product in the beginning inventory last year must have
been:
A. 21,200
B. 19,200
C. 18,800
D. 19,520
Since the variable costing operating net income was $9,600 higher under variable costing than
under absorption costing, fixed manufacturing overhead costs must have been released from
inventory under absorption costing. In other words, the ending inventory must have been lower
than the beginning inventory. Under the LIFO inventory flow assumption, all of the units in
ending inventory were also in beginning inventory. Therefore, the reduction in inventory must
have been 1,200 units (= $9,600 $8 per unit).
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Hard
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62. Hansen Company produces a single product. During the last year, Hansen had net operating
income under absorption costing that was $5,500 lower than its income under variable costing.
The company sold 9,000 units during the year, and its variable costs were $10 per unit, of which
$6 was variable selling expense. If fixed production cost is $5 per unit under absorption costing
every year, then how many units did the company produce during the year?
A. 7,625 units
B. 8,450 units
C. 10,100 units
D. 7,900 units
Since net operating income under absorption costing was $5,500 lower than under variable
costing, inventories must have decreased. A reduction in inventories results in releasing fixed
manufacturing overhead from inventories.
Fixed manufacturing overhead costs released from inventory under absorption costing = Fixed
manufacturing overhead per unit Reduction in the units in inventory
$5,500 = $5 per unit Reduction in the units in inventory
Reduction in the units in inventory = $5,500 $5 per unit = 1,100 units
Units in beginning inventory + Units produced = Units sold + Units in ending inventory
Units in beginning inventory - Units in ending inventory = Units sold - Units produced
Reduction in the units in inventory = Units sold - Units produced
1,100 units = 9,000 units - Units produced
Units produced = 9,000 units - 1,100 units = 7,900 units
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Hard
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63. Hatch Company has two divisions, O and E. During the year just ended, Division O had a
segment margin of $9,000 and variable expenses equal to 70% of sales. Traceable fixed
expenses for Division E were $19,000. Hatch Company as a whole had a contribution margin
ratio of 40%, a segment margin of $25,000, and sales of $200,000. Given this data, the sales for
Division E for last year were:
A. $50,000
B. $150,000
C. $87,500
D. $116,667
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E segment margin = Total segment margin - O segment margin = $25,000 - $9,000 = $16,000
Total contribution margin = Total sales Total contribution margin ratio = $200,000 0.40 =
$80,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
64. During April, Division D of Carney Company had a segment margin ratio of 15%, a
variable expense ratio of 60% of sales, and traceable fixed expenses of $15,000. Division D's
sales were closest to:
A. $100,000
B. $60,000
C. $33,333
D. $22,500
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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65. Colasuonno Corporation has two divisions: the West Division and the East Division. The
corporation's net operating income is $88,800. The West Division's divisional segment margin
is $39,500 and the East Division's divisional segment margin is $166,900. What is the amount
of the common fixed expense not traceable to the individual divisions?
A. $255,700
B. $206,400
C. $117,600
D. $128,300
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Medium
66. Gore Corporation has two divisions: the Business Products Division and the Export
Products Division. The Business Products Division's divisional segment margin is $55,700 and
the Export Products Division's divisional segment margin is $70,600. The total amount of
common fixed expenses not traceable to the individual divisions is $107,400. What is the
company's net operating income?
A. $233,700
B. $(126,300)
C. $126,300
D. $18,900
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
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67. More Company has two divisions, L and M. During July, the contribution margin in
Division L was $60,000. The contribution margin ratio in Division M was 40% and its sales
were $250,000. Division M's segment margin was $60,000. The common fixed expenses were
$50,000 and the company net operating income was $20,000. The segment margin for Division
L was:
A. $0
B. $10,000
C. $50,000
D. $60,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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68. Stephen Company has the following data for its three stores last year:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
69. Johnson Company operates two plants, Plant A and Plant B. Last year, Johnson Company
reported a contribution margin of $40,000 for Plant A. Plant B had sales of $200,000 and a
contribution margin ratio of 40%. Net operating income for the company was $27,000 and
traceable fixed expenses for the two stores totaled $50,000. Johnson Company's common fixed
expenses were:
A. $43,000
B. $50,000
C. $93,000
D. $120,000
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Plant B Contribution margin = Plant B CM ratio Plant B Sales = 0.40 $200,000 = $80,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
70. The ARB Company has two divisions: Electronics and DVD/Video Sales. Electronics has
traceable fixed expenses of $146,280 and the DVD/Video Sales has traceable fixed expenses of
$81,765. If ARB Company has a total of $322,490 in fixed expenses, what are its common
fixed expenses?
A. $94,445
B. $322,490
C. $228,045
D. $47,223
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
71. Leis Retail Company has two Stores, M and N. Store N had sales of $180,000 during March,
a segment margin of $54,000, and traceable fixed expenses of $26,000. The company as a
whole had a contribution margin ratio of 25% and $120,000 in total contribution margin. Based
on this information, total variable expenses in Store M for the month must have been:
A. $140,000
B. $260,000
C. $300,000
D. $360,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Store N Segment margin = Store N Contribution margin - Segment N Traceable fixed expenses
$54,000 = Store N Contribution margin - $26,000
Store N Contribution margin = $54,000 + $26,000 = $80,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
72. Sugiki Corporation has two divisions: the Alpha Division and the Delta Division. The
Alpha Division has sales of $820,000, variable expenses of $369,000, and traceable fixed
expenses of $347,300. The Delta Division has sales of $460,000, variable expenses of $294,400,
and traceable fixed expenses of $134,100. The total amount of common fixed expenses not
traceable to the individual divisions is $97,300. What is the company's net operating income?
A. $135,200
B. $37,900
C. $616,600
D. $519,300
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
73. Phillipson Corporation has two divisions: the IEB Division and the PIH Division. The
corporation's net operating income is $83,900. The IEB Division's divisional segment margin is
$149,700 and the PIH Division's divisional segment margin is $60,100. What is the amount of
the common fixed expense not traceable to the individual divisions?
A. $233,600
B. $209,800
C. $144,000
D. $125,900
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Medium
The Pacific Company manufactures a single product. The following data relate to the year just
completed:
During the last year, 5,000 units were produced and 4,800 units were sold. There were no
beginning inventories.
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74. Under variable costing, the unit product cost would be:
A. $91.00
B. $72.00
C. $58.00
D. $43.00
Under variable costing, the unit product cost is the variable production cost of $43 per unit.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
75. The carrying value of finished goods inventory at the end of the year under variable costing
would be:
A. $8,800 greater than under absorption costing.
B. $8,800 less than under absorption costing.
C. $5,800 less than under absorption costing.
D. The same as absorption costing.
Fixed manufacturing overhead per unit = Fixed manufacturing overhead Units produced
= $145,000 5,000 units = $29 per unit
Change in units in inventory = Units produced - Units sold = 5,000 units - 4,800 units = 200
units
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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76. Under absorption costing, the cost of goods sold for the year would be:
A. $206,400
B. $345,600
C. $278,400
D. $360,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
Carr Company produces a single product. During the past year, Carr manufactured 25,000
units and sold 20,000 units. Production costs for the year were as follows:
Sales totaled $850,000, variable selling expenses totaled $110,000, and fixed selling and
administrative expenses totaled $170,000. There were no units in beginning inventory. Assume
that direct labor is a variable cost.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Selling price per unit = $850,000 20,000 units = $42.50 per unit
Unit CM = Selling price per unit - Variable expenses per unit
= $42.50 per unit - $25.90 per unit = $16.60 per unit
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
78. Under absorption costing, the ending inventory for the year would be valued at:
A. $179,500
B. $213,500
C. $222,000
D. $152,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
79. The net operating income for the year under variable costing would be:
A. $28,000 lower than under absorption costing
B. $28,000 higher than under absorption costing
C. $50,000 lower than under absorption costing
D. $50,000 higher than under absorption costing
Fixed manufacturing overhead per unit = Fixed manufacturing overhead Units produced
= $250,000 25,000 units = $10.00 per unit
Since the units produced exceeds the units sold, fixed manufacturing overhead costs will be
deferred in inventory and absorption costing net operating income will exceed variable costing
net operating income.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Favini Company, which has only one product, has provided the following data concerning its
most recent month of operations:
80. What is the unit product cost for the month under variable costing?
A. $98
B. $125
C. $118
D. $91
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
81. What is the unit product cost for the month under absorption costing?
A. $91
B. $125
C. $118
D. $98
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
6-155
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
82. What is the net operating income for the month under variable costing?
A. $11,800
B. $3,700
C. $8,100
D. $(23,600)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
83. What is the net operating income for the month under absorption costing?
A. $11,800
B. $3,700
C. $8,100
D. $(23,600)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Hadlock Company, which has only one product, has provided the following data concerning its
most recent month of operations:
84. What is the unit product cost for the month under variable costing?
A. $61
B. $71
C. $69
D. $79
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
85. The total contribution margin for the month under the variable costing approach is:
A. $192,000
B. $128,000
C. $72,800
D. $140,800
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
86. What is the total period cost for the month under the variable costing approach?
A. $125,600
B. $108,800
C. $176,800
D. $68,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Hard
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87. What is the net operating income for the month under variable costing?
A. $15,200
B. $4,000
C. $(9,200)
D. $19,200
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Abe Company, which has only one product, has provided the following data concerning its
most recent month of operations:
88. What is the unit product cost for the month under variable costing?
A. $99
B. $81
C. $106
D. $88
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
89. What is the unit product cost for the month under absorption costing?
A. $88
B. $99
C. $81
D. $106
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
90. The total contribution margin for the month under the variable costing approach is:
A. $162,600
B. $378,000
C. $226,800
D. $319,200
Contribution margin = Unit CM Unit sales = $38 per unit 8,400 units = $319,200
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
91. The total gross margin for the month under the absorption costing approach is:
A. $319,200
B. $16,800
C. $226,800
D. $256,500
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
92. What is the total period cost for the month under the variable costing approach?
A. $156,600
B. $210,000
C. $366,600
D. $307,800
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Hard
93. What is the total period cost for the month under the absorption costing approach?
A. $156,600
B. $210,000
C. $151,200
D. $366,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
94. What is the net operating income for the month under variable costing?
A. $11,400
B. $16,800
C. $5,400
D. $(12,900)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
95. What is the net operating income for the month under absorption costing?
A. $11,400
B. $(12,900)
C. $16,800
D. $5,400
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Ingerson Company, which has only one product, has provided the following data concerning
its most recent month of operations:
96. What is the unit product cost for the month under variable costing?
A. $109
B. $79
C. $99
D. $89
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
97. What is the net operating income for the month under variable costing?
A. $12,000
B. $8,000
C. $(27,600)
D. $4,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Jarvinen Company, which has only one product, has provided the following data concerning its
most recent month of operations:
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.
98. What is the unit product cost for the month under variable costing?
A. $62
B. $58
C. $91
D. $87
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Medium
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99. What is the unit product cost for the month under absorption costing?
A. $91
B. $87
C. $62
D. $58
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
100. What is the net operating income for the month under variable costing?
A. $11,600
B. $2,900
C. $8,700
D. $0
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
101. What is the net operating income for the month under absorption costing?
A. $2,900
B. $0
C. $8,700
D. $11,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
DeAnne Company produces a single product. The company's variable costing income
statement for August appears below:
The company produced 35,000 units in August and the beginning inventory consisted of 8,000
units. Variable production costs per unit and total fixed costs have remained constant over the
past several months.
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102. The value of the company's inventory on August 31 under the absorption costing method
is:
A. $27,000
B. $42,000
C. $36,000
D. $47,000
Units in beginning inventory + Units produced = Units sold + Units in ending inventory
8,000 units + 35,000 units = 40,000 units + Units in ending inventory
Units in ending inventory = 8,000 units + 35,000 units - 40,000 units = 3,000 units
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Hard
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103. Under absorption costing, for the month ended August 31, the company would report a:
A. $20,000 profit
B. $5,000 loss
C. $35,000 profit
D. $5,000 profit
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Hard
Fahey Company manufactures a single product that it sells for $25 per unit. The company has
the following cost structure:
There were no units in beginning inventory. During the year, 18,000 units were produced and
15,000 units were sold.
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AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
105. The company's net operating income for the year under variable costing is:
A. $60,000
B. $81,000
C. $57,000
D. $69,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Galino Company, which has only one product, has provided the following data concerning its
most recent month of operations:
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106. The total contribution margin for the month under the variable costing approach is:
A. $124,800
B. $49,400
C. $20,400
D. $143,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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107. The total gross margin for the month under the absorption costing approach is:
A. $49,400
B. $18,200
C. $73,400
D. $124,800
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
108. What is the total period cost for the month under the variable costing approach?
A. $31,200
B. $104,400
C. $117,400
D. $135,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Hard
109. What is the total period cost for the month under the absorption costing approach?
A. $104,400
B. $31,200
C. $13,000
D. $135,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Hard
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Kilihea Corporation produces a single product. The company's absorption costing income
statement for July follows:
The company's variable production costs are $20 per unit and its fixed manufacturing overhead
totals $80,000 per month.
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110. Net operating income under the variable costing method for July would be:
A. $53,000
B. $49,800
C. $61,000
D. $57,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Hard
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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112. The break-even point in units for the month under variable costing is:
A. 6,850 units
B. 4,000 units
C. 3,200 units
D. 5,100 units
Fixed expenses = Fixed selling and administrative expense + Fixed manufacturing overhead
= $57,000 + $80,000 = $137,000
Unit sales to break even = Fixed expenses Unit CM
= $137,000 $20
= 6,850 units
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure:
In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for $120
each.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
113. If Eagle had sold only 9,000 tables in its first year, what total amount of cost would have
been assigned to the 1,000 tables in finished goods inventory under the absorption costing
method?
A. $37,100
B. $45,800
C. $58,000
D. $74,200
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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114. How would Eagle's variable costing net operating income have been affected in its first
year if only 9,000 tables were sold instead of 10,000?
A. net operating income would have been $37,100 lower
B. net operating income would have been $45,800 lower
C. net operating income would have been $56,000 lower
D. net operating income would have been $62,000 lower
Since fixed expenses would not be affected by this change in unit sales, the change in
contribution margin would drop directly to the bottom line, decreasing net operating income by
$56,000.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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115. How would Eagle's absorption costing net operating income have been affected in its first
year if 12,000 tables were produced instead of 10,000 and Eagle still sold 10,000 tables?
A. net operating income would not have been affected
B. net operating income would have been $27,000 higher
C. net operating income would have been $31,500 higher
D. net operating income would have been $116,000 lower
Absorption costing income statement with production and sales of 10,000 units:
Absorption costing income statement with production of 12,000 units and sales of 10,000 units:
Therefore, net operating income would have been $27,000 higher (= $398,000 - $371,000)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Hard
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Green Enterprises produces a single product. The following data were provided by the
company for the most recent period:
Under variable costing, the unit product cost is the variable manufacturing cost.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
6-187
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
118. For the period above, one would expect the net operating income under absorption costing
to be:
A. higher than the net operating income under variable costing.
B. lower than the net operating income under variable costing.
C. the same as the net operating income under variable costing.
D. The relation between absorption costing net operating income and variable costing net
operating income cannot be determined.
When production exceeds sales, net operating income under absorption costing will always be
higher than under variable costing. A portion of fixed manufacturing cost will be deferred in
ending inventory rather than being included in the income statement.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Easy
6-188
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Whitney, Inc., produces a single product. The following data pertain to one month's operations:
119. The carrying value on the balance sheet of the ending finished goods inventory under
variable costing would be:
A. $16,000
B. $10,000
C. $19,000
D. $12,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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120. The carrying value on the balance sheet of the ending finished goods inventory under
absorption costing would be:
A. $16,000
B. $10,000
C. $12,000
D. $21,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
121. For the month referred to above, net operating income under variable costing will be:
A. higher than net operating income under absorption costing.
B. lower than net operating income under absorption costing.
C. the same as net operating income under absorption costing.
D. The relation between variable costing and absorption costing net operating income cannot be
determined.
Since production exceeds sales, the net operating income for variable costing will be lower than
for absorption costing. This occurs because under absorption costing, some of the fixed
manufacturing overhead cost is deferred in ending inventories.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
6-190
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Mennig Corporation produces a single product and has the following cost structure:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
Byron Company, which has only one product, has provided the following data concerning its
most recent month of operations:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
124. What is the unit product cost for the month under variable costing?
A. $86
B. $77
C. $83
D. $92
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
125. What is the unit product cost for the month under absorption costing?
A. $83
B. $92
C. $86
D. $77
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
6-193
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
During the last year, Snyder Co. produced 10,000 units of its only product. Costs incurred by
Snyder during the year were as follows:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Medium
6-194
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Medium
Deboer Company, which has only one product, has provided the following data concerning its
most recent month of operations:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
128. What is the total period cost for the month under the variable costing approach?
A. $8,400
B. $17,600
C. $26,000
D. $22,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Hard
129. What is the total period cost for the month under the absorption costing approach?
A. $8,400
B. $17,600
C. $26,000
D. $13,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Hard
6-196
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
The following cost formula relates to last year's operations at Lemine Manufacturing
Corporation:
Y = $84,000 + $60.00X
In the formula above, 75% of the fixed cost and 90% of the variable cost are manufacturing
costs. Y is the total cost and X is the number of units produced and sold.
130. If Lemine produces and sells 7,000 units, what is the unit product cost under each of the
following methods?
A. Option A
B. Option B
C. Option C
D. Option D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
6-197
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
131. If Lemine produces and sells only 6,000 units, what is the unit product cost under each of
the following methods?
A. Option A
B. Option B
C. Option C
D. Option D
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
6-198
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Pellman Inc., which produces a single product, has provided the following data for its most
recent month of operations:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
6-199
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
Elbon Company, which has only one product, has provided the following data concerning its
most recent month of operations:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
134. What is the net operating income for the month under variable costing?
A. $10,200
B. $(19,000)
C. $8,800
D. $1,400
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
135. What is the net operating income for the month under absorption costing?
A. $1,400
B. $(19,000)
C. $8,800
D. $10,200
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
Gordon Company produces a single product that sells for $10 per unit. Last year there were no
beginning inventories, 100,000 units were produced, and 80,000 units were sold. The company
has the following cost structure:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
6-203
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
137. The carrying value on the balance sheet of the ending finished goods inventory under
absorption costing would be:
A. $80,000
B. $104,000
C. $110,000
D. $124,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
Clements Company, which has only one product, has provided the following data concerning
its most recent month of operations:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
138. The total contribution margin for the month under the variable costing approach is:
A. $61,500
B. $51,000
C. $55,500
D. $43,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
6-205
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
139. The total gross margin for the month under the absorption costing approach is:
A. $19,500
B. $51,000
C. $74,000
D. $55,500
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
6-206
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Kierst Company, which has only one product, has provided the following data concerning its
most recent month of operations:
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.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
140. What is the net operating income for the month under variable costing?
A. $10,600
B. $16,200
C. $6,200
D. $7,500
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
6-208
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
141. What is the net operating income for the month under absorption costing?
A. $7,500
B. $16,200
C. $6,200
D. $10,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
Krug Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
142. What was the absorption costing net operating income last year?
A. $86,200
B. $89,100
C. $88,800
D. $91,400
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
6-210
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
143. What was the absorption costing net operating income this year?
A. $91,300
B. $93,300
C. $95,900
D. $88,500
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
Enz Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
144. What was the absorption costing net operating income last year?
A. $56,000
B. $37,000
C. $57,000
D. $75,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Easy
145. What was the absorption costing net operating income this year?
A. $92,000
B. $56,000
C. $73,000
D. $75,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Easy
6-212
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
146. What was the absorption costing net operating income last year?
A. $60,000
B. $23,000
C. $97,000
D. $89,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Easy
6-213
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
147. What was the absorption costing net operating income this year?
A. $38,000
B. $96,000
C. $75,000
D. $59,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Easy
Condit Corporation manufactures a variety of products. Variable costing net operating income
was $75,600 last year and was $80,100 this year. Last year, inventory decreased by 3,400 units.
This year, inventory increased by 3,000 units. Fixed manufacturing overhead cost is $5 per unit.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
148. What was the absorption costing net operating income last year?
A. $77,600
B. $75,600
C. $92,600
D. $58,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
6-215
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
149. What was the absorption costing net operating income this year?
A. $78,100
B. $95,100
C. $65,100
D. $73,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
6-216
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
150. If sales for Division F increase $40,000 with a $10,000 increase in the Division's traceable
fixed costs, the overall company net operating income should:
A. increase by $30,000
B. increase by $6,000
C. increase by $2,889
D. decrease by $4,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
151. During June, the sales clerks in Division F received salaries totaling $35,000. Assume that
during July the salaries of these sales clerks are discontinued and instead they are paid a
commission of 18% of sales. If sales in Division F increase by $65,000 as a result of this change,
the July segment margin for Division F should be:
A. $42,700
B. $19,400
C. $54,400
D. $94,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
152. If the sales in Division L increase by 30% while common fixed expenses in the company
decrease by $10,000, the segment margin for Division L should:
A. increase by $32,400
B. increase by $10,800
C. decrease by $22,400
D. decrease by $65,600
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
153. A proposal has been made that will lower variable expenses in Division L to 35% of sales.
However, this reduction can only be accomplished by a $15,000 increase in Division L's
traceable fixed expenses. If this proposal is implemented and if sales remain constant, overall
company net operating income should:
A. increase by $15,000
B. increase by $24,000
C. decrease by $15,000
D. decrease by $6,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Pong Incorporated's income statement for the most recent month is given below.
154. If Store G sales increase by $40,000 with no change in fixed costs, the overall company net
operating income should:
A. increase by $4,000
B. increase by $8,000
C. increase by $24,000
D. increase by $20,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
155. The marketing department believes that a promotional campaign for Store H costing
$8,000 will increase the store's sales by $15,000. If the campaign is adopted, overall company
net operating income should:
A. decrease by $5,000
B. decrease by $5,500
C. increase by $2,000
D. increase by $7,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Medium
Ring, Incorporated's income statement for the most recent month is given below.
For each of the following questions, refer back to the original data.
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156. If Store Q sales increase by $30,000 with no change in fixed expenses, the overall
company net operating income should:
A. increase by $3,750
B. increase by $7,500
C. increase by $12,000
D. increase by $18,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Medium
157. The marketing department believes that a promotional campaign at Store P costing $5,000
will increase sales by $15,000. If the campaign is adopted, overall company net operating
income should:
A. decrease by $800
B. decrease by $5,800
C. increase by $5,800
D. increase by $10,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
158. A proposal has been made that will lower variable costs in Store P to 65% of sales.
However, this reduction can only be accomplished by a $16,000 increase in Store P's traceable
fixed costs. If this proposal is implemented and sales remain constant, overall company net
operating income should:
A. remain the same
B. decrease by $2,000
C. increase by $2,000
D. increase by $14,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
159. If sales in Store Q increase by $30,000 as a result of a $7,000 increase in traceable fixed
costs:
A. Store Q's contribution margin should increase by $18,000
B. Store Q's segment margin should increase by $12,000
C. Store Q's contribution margin should increase by $11,000
D. Store Q's segment margin should increase by $5,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
160. Currently the sales clerks receive a salary of $17,000 per month in Store Q. A proposal has
been made to change from a fixed salary to a sales commission of 5%. Assume that this
proposal is adopted, and that as a result sales in Store Q increase by $40,000. The new segment
margin for Store Q should be:
A. $47,000
B. $61,000
C. $85,000
D. $44,000
Current variable expense ratio = Variable expenses Sales = $240,000 $400,000 = 0.60
Projected variable expense ratio = 0.60 + 0.05 = 0.65
Projected sales = $400,000 + $40,000 = $440,000
Projected variable expenses = 0.65 $440,000 = $286,000
Projected traceable fixed expenses = $110,000 - $17,000 = $93,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
The Gasson Company sells three products, Product A, Product B and Product C, and had sales
of $1,000,000 during the month of June. The company's overall contribution margin ratio was
37% and fixed expenses totaled $350,000. Sales were: Product A, $500,000; Product B,
$300,000; and Product C, $200,000. Traceable fixed costs were: Product A, $120,000; Product
B, $100,000; and Product C, $60,000. The variable expenses of Product A were $300,000 and
the variable expenses of Product B were $180,000.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
161. The net operating income for the company as a whole for June was:
A. $20,000
B. $90,000
C. $170,000
D. $300,000
Total contribution margin = Overall CM ratio Total sales = 0.37 $1,000,000 = $370,000
Net operating income = Total contribution margin - Total fixed expenses = $370,000 -
$350,000 = $20,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Total contribution margin = Overall CM ratio Total sales = 0.37 $1,000,000 = $370,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
163. The common fixed expense for Gasson Company for the month of June was:
A. $350,000
B. $280,000
C. $70,000
D. $20,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
164. The product line segment margin for Product A for June was:
A. $200,000
B. $80,000
C. $65,000
D. $10,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
165. The contribution margin in dollars for Product B for June was:
A. $20,000
B. $111,000
C. $120,000
D. $200,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
Tennison Corporation has two major business segments-Consumer and Commercial. Data for
the segment and for the company for May appear below:
In addition, common fixed expenses totaled $371,000 and were allocated as follows: $186,000
to the Consumer business segment and $185,000 to the Commercial business segment.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
167. A properly constructed segmented income statement in a contribution format would show
that the segment margin of the Consumer business segment is:
A. $272,000
B. $270,000
C. $86,000
D. $514,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
168. A properly constructed segmented income statement in a contribution format would show
that the net operating income of the company as a whole is:
A. $769,000
B. $104,000
C. $475,000
D. -$267,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
Stryker Corporation has two major business segments-East and West. In April, the East
business segment had sales revenues of $500,000, variable expenses of $280,000, and traceable
fixed expenses of $80,000. During the same month, the West business segment had sales
revenues of $970,000, variable expenses of $514,000, and traceable fixed expenses of $184,000.
The common fixed expenses totaled $280,000 and were allocated as follows: $112,000 to the
East business segment and $168,000 to the West business segment.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
170. A properly constructed segmented income statement in a contribution format would show
that the segment margin of the East business segment is:
A. $108,000
B. $28,000
C. $140,000
D. $280,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
171. A properly constructed segmented income statement in a contribution format would show
that the net operating income of the company as a whole is:
A. $412,000
B. $676,000
C. -$148,000
D. $132,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
Canon Company has two sales areas: North and South. During last year, the contribution
margin in the North Area was $50,000, or 20% of sales. The segment margin in the South was
$15,000, or 8% of sales. Traceable fixed expenses are $15,000 in the North and $10,000 in the
South. During last year, the company reported total net operating income of $26,000.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
172. The total fixed expenses (traceable and common) for Canon Company for the year were:
A. $49,000
B. $25,000
C. $24,000
D. $50,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Total traceable fixed expenses = North Traceable fixed expenses + South Traceable fixed
expenses
= $15,000 + $10,000 = $25,000
North Segment margin = North Contribution margin - North Traceable fixed expenses
= $50,000 - $15,000 = $35,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
The total fixed expenses = Traceable fixed expenses + Common fixed expenses
= $25,000 + $24,000 = $49,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
173. The variable expenses for the South Area for the year were:
A. $230,000
B. $185,000
C. $162,500
D. $65,000
South segment margin = South contribution margin - South traceable fixed expenses
$15,000 = South contribution margin - $10,000
South contribution margin = $15,000 + $10,000 = $25,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
Data for June for Ozaki Corporation and its two major business segments, North and South,
appear below:
In addition, common fixed expenses totaled $145,000 and were allocated as follows: $73,000 to
the North business segment and $72,000 to the South business segment.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
175. A properly constructed segmented income statement in a contribution format would show
that the segment margin of the North business segment is:
A. $270,000
B. $119,000
C. $207,000
D. $192,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
176. A properly constructed segmented income statement in a contribution format would show
that the net operating income of the company as a whole is:
A. $(56,000)
B. $89,000
C. $343,000
D. $234,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
Falquez Company sells three products: R, S, and T. Data for activity of Falquez Company
during July are as follows:
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
Total Traceable fixed expenses = R Traceable fixed expenses + S Traceable fixed expenses + T
Traceable fixed expenses
$120,000 = $25,000 + $60,000 + T Traceable fixed expenses
T Traceable fixed expenses = $120,000 - ($25,000 + $60,000) = $35,000
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Hard
Essay Questions
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
180. The EG Company produces and sells one product. The following data refer to the year just
completed:
Required:
a. Compute the cost of a single unit of product under both the absorption costing and variable
costing approaches.
b. Prepare an income statement for the year using absorption costing.
c. Prepare a contribution format income statement for the year using variable costing.
d. Reconcile the absorption costing and variable costing net operating income figures in (b) and
(c) above.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
d.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
181. Maga Company, which has only one product, has provided the following data concerning
its most recent month of operations:
Required:
a. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare a contribution format income statement for the month using variable costing.
d. Prepare an income statement for the month using absorption costing.
e. Reconcile the variable costing and absorption costing net operating incomes for the month.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
e. Reconciliation
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
182. Leigh Company, which has only one product, has provided the following data concerning
its most recent month of operations:
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. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare a contribution format income statement for the month using variable costing.
d. Prepare an income statement for the month using absorption costing.
e. Reconcile the variable costing and absorption costing net operating incomes for the month.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
e. Reconciliation
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
183. Qu Company, which has only one product, has provided the following data concerning its
most recent month of operations:
Required:
a. What is the unit product cost for the month under variable costing?
b. Prepare a contribution format income statement for the month using variable costing.
c. Without preparing an income statement, determine the absorption costing net operating
income for the month. (Hint: Use the reconciliation method.)
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
184. Packer Company, which has only one product, has provided the following data concerning
its most recent month of operations:
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. What is the unit product cost for the month under variable costing?
b. Prepare a contribution format income statement for the month using variable costing.
c. Without preparing an income statement, determine the absorption costing net operating
income for the month. (Hint: Use the reconciliation method.)
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
185. Hubiak Corporation produces a single product and has the following cost structure:
Required:
Compute the unit product cost under absorption costing. Show your work!
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
186. Hudalla Corporation produces a single product and has the following cost structure:
Required:
Compute the unit product cost under variable costing. Show your work!
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
187. Fellner Corporation produces a single product and has the following cost structure:
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!
a. Absorption costing:
b. Variable costing:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
188. Bertone Inc., which produces a single product, has provided the following data for its most
recent month of operation:
Required:
Compute the unit product cost under variable costing. Show your work!
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
189. Krasnow Inc., which produces a single product, has provided the following data for its
most recent month of operation:
Required:
Compute the unit product cost under absorption costing. Show your work!
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
190. Cuffee Inc., which produces a single product, has provided the following data for its most
recent month of operation:
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!
a. Absorption costing:
b. Variable costing:
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
191. UHF Antennas, Inc., produces and sells a unique television antenna. The company has just
opened a new plant to manufacture the antenna, and the following cost and revenue data have
been reported for the first month of the new plant's operation:
Management is anxious to see how profitable the new antenna will be and has asked that an
income statement be prepared for the month. Assume that direct labor is a variable cost.
Required:
a. Assuming that the company uses absorption costing, compute the unit product cost and
prepare an income statement.
b. Assuming that the company uses variable costing, compute the unit product cost and prepare
an income statement.
c. Explain the reason for any difference in the ending inventories under the two costing methods
and the impact of this difference on reported net operating income.
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c.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
192. O'Keefe Company, which has only one product, has provided the following data
concerning its most recent month of operations:
Required:
a. Prepare a contribution format income statement for the month using variable costing.
b. Prepare an income statement for the month using absorption costing.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
193. Nesman Company, which has only one product, has provided the following data
concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in units vary
from month to month. The company's variable costs per unit and total fixed costs have been
constant from month to month.
Required:
a. Prepare a contribution format income statement for the month using variable costing.
b. Prepare an income statement for the month using absorption costing.
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-02 Prepare income statements using both variable and absorption costing
Level: Hard
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
194. Carvey Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
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!
a. and b.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
195. Last year, Holroyd Corporation's variable costing net operating income was $95,000. 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!
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
196. Last year, Teneyck Corporation's variable costing net operating income was $63,500 and
ending inventory decreased by 200 units. Fixed manufacturing overhead cost per unit was $5.
Required:
Determine the absorption costing net operating income for last year. Show your work!
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
197. Salonia Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
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!
a and b.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Easy
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Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
198. Cassin Corporation manufactures a variety of products. Last year, the company's variable
costing net operating income was $86,300 and ending inventory decreased by 1,700 units.
Fixed manufacturing overhead cost per unit was $8.
Required:
Determine the absorption costing net operating income for last year. Show your work!
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Medium
6-277
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
199. Gordy Corporation manufactures a variety of products. Last year, variable costing net
operating income was $81,000. The fixed manufacturing overhead costs released from
inventory under absorption costing amounted to $39,000.
Required:
Determine the absorption costing net operating income last year. Show your work!
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ
Level: Easy
6-278
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
200. Camren Corporation has two major business segments-Apparel and Accessories. Data
concerning those segments for December appear below:
Common fixed expenses totaled $357,000 and were allocated as follows: $161,000 to the
Apparel business segment and $196,000 to the Accessories business segment.
Required:
Prepare a segmented income statement in the contribution format for the company. Omit
percentages; show only dollar amounts.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
6-279
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
201. The IT Corporation produces and markets two types of electronic calculators: Model 11
and Model 12. The following data were gathered on activities last month:
Required:
Prepare a segmented income statement in the contribution format for last month.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Medium
6-280
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
202. Data for May concerning Dorow Corporation's two major business segments-Fibers and
Feedstocks-appear below:
Common fixed expenses totaled $345,000 and were allocated as follows: $186,000 to the
Fibers business segment and $159,000 to the Feedstocks business segment.
Required:
Prepare a segmented income statement in the contribution format for the company. Omit
percentages; show only dollar amounts.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
6-281
Chapter 06 - Variable Costing and Segment Reporting: Tools for Management
203. Mossor Corporation has two major business segments-Retail and Wholesale. In December,
the Retail business segment had sales revenues of $510,000, variable expenses of $296,000,
and traceable fixed expenses of $61,000. During the same month, the Wholesale business
segment had sales revenues of $510,000, variable expenses of $240,000, and traceable fixed
expenses of $82,000. Common fixed expenses totaled $191,000 and were allocated as follows:
$113,000 to the Retail business segment and $78,000 to the Wholesale business segment.
Required:
Prepare a segmented income statement in the contribution format for the company. Omit
percentages; show only dollar amounts.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it
to make decisions
Level: Easy
6-282