Multiple Choice

1. Which of the following is NOT a type of absorption costing?

a. Direct costing.
b. Actual costing.
c. Normal costing.
d. None of the above.

2. Variable costing is UNACCEPTABLE for

a. managerial accounting.
b. financial accounting.
c. transfer pricing.
d. reporting by product lines for internal purposes.

3. A criticism of variable costing for managerial accounting purposes is that it

a. is not acceptable for product line segmented reporting.
b. does not reflect cost-volume-profit relationships.
c. overstates inventories.
d. might encourage managers to emphasize the short term at the expense of the long term.

4. Normal costing and standard costing differ in that

a. the two systems can show different overhead budget variances.
b. only normal costing can be used with absorption costing.
c. the two systems show different volume variances if standard hours do not equal actual
hours.
d. normal costing is less appropriate for multiproduct firms.

5. Variable costing and absorption costing will show the same incomes when there are no
a. beginning inventories.
b. ending inventories.
c. variable costs.
d. beginning and ending inventories.

6. ABC had the same activity in 20X3 as in 20X2 except that production was higher in 20X3
than in 20X2. ABC will show
a. higher income in 20X3 than in 20X2.
b. the same income in both years.
c. the same income in both years under variable costing.
d. the same income in both years under absorption costing.

7. The use of variable costing requires knowing

 a. the contribution margin and break-even point for each product.
b. the variable and fixed components of production cost.
c. controllable and noncontrollable components of all costs.
d. the number of units of each product produced during the period.

8. Which measure of activity is likely to give the LOWEST standard fixed cost per unit?
a. Actual activity.
b. Normal capacity.
c. Budgeted activity.
d. Practical capacity.

9. Which item is NOT used to compute the fixed overhead volume variance?
a. Standard fixed cost per unit.
b. Budgeted fixed overhead.
c. Actual fixed overhead.
d. Actual quantity produced.

10. Which variance is LEAST relevant for control purposes?

a. Material use variance.
b. Fixed overhead volume variance.
c. Fixed overhead budget variance.
d. Labor efficiency variance.

11. A company that sets a standard fixed cost based on practical capacity
a. should expect unfavorable volume variances.
b. will set its selling prices too low.
c. has a higher cost per unit than a company using normal activity to set the standard.
d. usually overapplies its fixed costs.

12. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in that a
predetermined overhead rate is
a. based on an input factor like direct labor hours and a standard cost per unit is based on
a unit of output.
b. based on practical capacity and a standard fixed cost can be based on any level of
activity.
c. used with variable costing while a standard fixed cost is used with absorption costing.
d. likely to be higher than a standard fixed cost per unit.

13. ABC had $400,000 budgeted fixed overhead costs and based its standard on normal activity
of 40,000 units. Actual fixed overhead costs were $430,000, actual production was 36,000 units,
and sales were 30,000 units. The volume variance was
a. $30,000.
b. $40,000.
c. $70,000.
d. $77,777.
 14. Advocates of variable costing for internal reporting purposes do NOT rely on which of the
following points?
a. The matching concept.
b. Price-volume relationships.
c. Absorption costing does not include selling and administrative expenses as part of
inventoriable cost.
d. Production influences income under absorption costing.
15. Calculating income under variable costing does NOT require knowing
a. unit sales.
b. unit variable manufacturing costs.
c. selling price.
d. unit production.

16. Inventoriable costs under absorption costing include

a. both fixed and variable production costs.
b. only variable production costs.
c. all production costs plus variable selling and administrative costs.
d. all production costs plus all selling and administrative costs.

17. Inventoriable costs under variable costing include

a. fixed and variable production costs.
b. variable production costs.
c. all production costs plus variable selling and administrative costs.
d. all production costs plus all selling and administrative costs.

18. Absorption costing and variable costing differ in that

a. income is lower under variable costing.
b. variable costing treats selling costs as period costs.
c. variable costing treats all variable costs as product costs.
d. inventory cost is higher under absorption costing.

19. Absorption costing differs from variable costing in that

a. standards can be used with absorption costing, but not with variable costing.
b. absorption costing inventories are more correctly valued.
c. production influences income under absorption costing, but not under variable costing.
d. companies using absorption costing have lower fixed costs.

20. Which method gives the lowest inventory cost per unit?
a. Variable costing.
b. Absorption costing using normal activity to set the standard fixed cost.
c. Absorption costing using practical capacity to set the standard fixed cost.
d. Actual absorption costing.

21. Which costs are treated differently under absorption costing and variable costing?
 a. Variable manufacturing costs.
b. Fixed manufacturing costs.
c. Variable selling and administrative expenses.
d. Fixed selling and administrative expenses.

22. ABC Company had 15,000 units in ending inventory. The total cost of those units under
variable costing is
a. less than it is under absorption costing.
b. the same as it is under absorption costing.
c. more than it is under absorption costing.
d. any of the above.

23. York Company had $200,000 income using absorption costing. York has no variable
manufacturing costs. Beginning inventory was $15,000 and ending inventory was $22,000.
Income under variable costing would have been
a. $178,000.
b. $193,000.
c. $200,000.
d. $207,000.

24. An unfavorable volume variance means that

a. cost control was probably poor.
b. absorption costing income is lower than variable costing income.
c. actual output was less than the level used to set the standard fixed cost.
d. actual output was more than the level used to set the standard fixed cost.

25. Which variance CANNOT arise under variable costing?

a. variable overhead budget variance.
b. variable overhead efficiency variance.
c. fixed overhead budget variance.
d. fixed overhead volume variance.

26. Standard costing differs from normal costing in the treatment of

a. materials, direct labor, and overhead.
b. materials and direct labor.
c. direct labor and overhead.
d. overhead.

27. Normal costing differs from actual costing in treating

a. materials, direct labor, and overhead.
b. materials and direct labor.
c. direct labor and overhead.
d. overhead.

28. As compared to normal costing, standard costing can yield

 a. different volume variances and budget variances.
b. different budget variances.
c. different volume variances.
d. none of the above.

29. Under variable costing there can be no

a. fixed overhead variances.
b. fixed overhead budget variance.
c. fixed overhead volume variance.
d. no fixed overhead.

30. ABC had the same activity in 20X4 as in 20X3 except that production was lower in 20X4
than in 20X3. ABC will show
a. lower income in 20X4 than in 20X3.
b. the same income in both years.
c. the same income in both years under variable costing.
d. the same income in both years under absorption costing.

31. Rounder Industries manufactures a single product. Variable production costs are $20 and
fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its
standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. Ending inventory under variable costing would be
a. $20,000.
b. $30,000.
c. $35,000.
d. cannot be determined without further information.

32. Rounder Industries manufactures a single product. Variable production costs are $20 and
fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its
standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. Ending inventory under absorption costing would be
a. $20,000.
b. $30,000.
c. $35,000.
d. cannot be determined without further information.

33. Rounder Industries manufactures a single product. Variable production costs are $20 and
fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its
standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. The volume variance under variable costing would be
a. $0.
b. $20,000.
c. $30,000.
d. some other number.
 34. Rounder Industries manufactures a single product. Variable production costs are $20 and
fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its
standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. The volume variance under absorption costing would be
a. $0.
b. $20,000.
c. $30,000.
d. some other number.

35. Rounder Industries manufactures a single product. Variable production costs are $20 and
fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its
standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. The standard cost of goods sold under variable costing would be
a. $400,000.
b. $420,000.
c. $735,000.
d. some other number.

36. Rounder Industries manufactures a single product. Variable production costs are $20 and
fixed production costs are $300,000. Rounder uses a normal activity of 20,000 units to set its
standard costs. Rounder began the year with no inventory, produced 22,000 units, and sold
21,000 units. The standard cost of goods sold under absorption costing would be
a. $400,000.
b. $420,000.
c. $735,000.
d. some other number.

37. Alpha Company has a standard fixed cost of $10 per unit. At an actual production of 16,000
units an unfavorable volume variance of $20,000 resulted. What were total budgeted fixed costs?
a. $140,000
b. $160,000
c. $180,000
d. Cannot be determined without further information.

38. Beta Company has a standard fixed cost of $10 per unit using a normal capacity of
11,000 units. An unfavorable volume variance of $12,000 resulted. What was the volume
produced?
a. 9,800
b. 11,000
c. 12,200
d. Cannot be determined without further information.

39. Gamma Corporation has total budgeted fixed costs of $150,000. Actual production was
8,000 units; normal capacity is 7,500 units. What was the volume variance?
 a. $10,000 favorable
b. $15,000 favorable
c. $15,000 unfavorable
d. $10,000 unfavorable

40. Eastern Co. has total budgeted fixed costs of $150,000. Actual production of 39,000 units
resulted in a $6,000 favorable volume variance. What normal capacity was used to determine the
fixed overhead rate?
a. 33,000
b. 37,500
c. 40,560
d. Cannot be determined without further information.

41. Western Company has a standard fixed cost of $8 per unit. At an actual production of
8,000 units a favorable volume variance of $12,000 resulted. What were total budgeted fixed
costs?
a. $52,000
b. $64,000
c. $76,000
d. Cannot be determined without further information.

42. Monona Corporation has total budgeted fixed costs of $64,000. Actual production was
15,000 units; normal capacity is 16,000 units. What was the volume variance?
a. $4,000 favorable
b. $4,267 favorable
c. $4,267 unfavorable
d. $4,000 unfavorable

43. Madison Industries manufactures a single product using standard costing. Variable
production costs are $26 and fixed production costs are $250,000. Madison uses a normal
activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in
inventory, produced 11,000 units, and sold 11,500 units. Ending inventory under variable costing
would be
a. $10,000.
b. $13,000.
c. $23,000.
d. cannot be determined without further information.

44. Madison Industries manufactures a single product using standard costing. Variable
production costs are $26 and fixed production costs are $250,000. Madison uses a normal
activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in
inventory, produced 11,000 units, and sold 11,500 units. Ending inventory under absorption
costing would be
a. $10,000.
b. $13,000.
c. $23,000.
 d. cannot be determined without further information.

45. Madison Industries manufactures a single product using standard costing. Variable
production costs are $26 and fixed production costs are $250,000. Madison uses a normal
activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in
inventory, produced 11,000 units, and sold 11,500 units. The volume variance under variable
costing would be
a. $10,000.
b. $20,000.
c. $30,000.
d. some other number.

46. Madison Industries manufactures a single product using standard costing. Variable
production costs are $26 and fixed production costs are $250,000. Madison uses a normal
activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in
inventory, produced 11,000 units, and sold 11,500 units. The volume variance under absorption
costing would be
a. $10,000.
b. $20,000.
c. $30,000.
d. some other number.

47. Madison Industries manufactures a single product using standard costing. Variable
production costs are $26 and fixed production costs are $250,000. Madison uses a normal
activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in
inventory, produced 11,000 units, and sold 11,500 units. The standard cost of goods sold under
variable costing would be
a. $230,000.
b. $299,000.
c. $506,000.
d. $529,000.

48. Sigma Company has a standard fixed cost of $18 per unit using a normal capacity of
9,000 units. A favorable volume variance of $18,000 resulted. What was the volume produced?
a. 8,000
b. 9,000
c. 10,000
d. Cannot be determined without further information.

49. Western Co. has total budgeted fixed costs of $72,000. Actual production of 5,500 units
resulted in a $6,000 unfavorable volume variance. What normal capacity was used to determine
the fixed overhead rate?
a. 5,000
b. 5,500
c. 6,000
d. Cannot be determined without further information.
 50. Madison Industries manufactures a single product using standard costing. Variable
production costs are $26 and fixed production costs are $250,000. Madison uses a normal
activity of 12,500 units to set its standard costs. Madison began the year with 1,000 units in
inventory, produced 11,000 units, and sold 11,500 units. The standard cost of goods sold under
absorption costing would be
a. $230,000.
b. $299,000.
c. $506,000.
d. $529,000.

Problems

1. Whitehall Company sells a single product for $25. It had no beginning inventories. Operating
data follow.

Sales, 27,000 units $675,000

Normal capacity 30,000 units
Production costs:
Variable per unit $13
Fixed production $150,000
Selling and administrative expenses:
Variable per unit sold $2
Fixed selling $20,000
Number of units produced 32,500 units

Assume the actual costs were as budgeted.

a. Find contribution margin per unit.

b. Compute the ending inventory under standard variable costing.

c. Compute the income under standard variable costing.

Assume standard absorption costing using normal capacity as the basis for computing the
standard fixed cost per unit. Compute

d. Standard gross profit per unit.

e. Ending inventory.

f. Volume variance.

g. Income.
2. Lund Company sells a single product for $25. It had no beginning inventories. Operating data
follow.

Sales, 55,000 units $1,375,000

Normal capacity 60,000 units
Production costs:
Variable per unit $13
Fixed production $300,000
Selling and administrative expenses:
Variable per unit sold $2
Fixed selling $40,000
Number of units produced 66,000 units

Assume the actual costs were as budgeted.

a. Compute income under standard variable costing.

b. Compute income under standard absorption costing.

3. Maiden Rock Company sells a single product for $25. It had no beginning inventories.
Operating data follow.

Sales, 20,000 units $500,000

Normal capacity 30,000 units
Production costs:
Variable per unit $13
Fixed production $150,000
Selling and administrative expenses:
Variable per unit sold $2
Fixed selling $20,000
Number of units produced 32,500 units

Assume the actual costs were as budgeted.

a. Find Maiden Rocks income under standard variable costing.

b. Find Maiden Rocks income under standard absorption costing.

4. Genco Inc. makes a single product that sells for $50. The standard variable manufacturing
cost is $32.50 and the standard fixed manufacturing cost is $7.50, based on producing 20,000
units. During the year Genco produced 22,000 units and sold 21,000 units. Actual fixed
manufacturing costs were $157,000; actual variable manufacturing costs were $735,000. Selling
and administrative expenses, all fixed, were $75,000. There were no beginning inventories.

a. Prepare a standard absorption costing income statement.

 b. Prepare a standard variable costing income statement.

5. Brahms Corp. has the following data:

Normal capacity 25,000

Practical capacity 30,000
Budgeted production 20,000
Actual production 22,000
Actual sales ($25 per unit) 21,000
Standard variable production cost per unit $15
Budgeted fixed production costs $120,000

There were no variable cost variances for the year. Fixed costs incurred were equal to the
budgeted amount. There were no beginning inventories and no selling or administrative
expenses.

a. Compute the absorption costing income if fixed costs per unit are determined using
normal capacity.

b. Compute the absorption costing income if fixed costs per unit are determined using
practical capacity.

c. Compute the absorption costing income if fixed costs per unit are determined using
budgeted production.

d. Compute the variable costing income.

6. Cumberland Company sells a single product for $30. It had no beginning inventories.
Operating data follow.

Sales, 12,000 units $360,000

Normal capacity 20,000 units
Production costs:
Variable per unit $15
Fixed production $75,000
Selling and administrative expenses:
Variable per unit sold $5
Fixed selling $25,000
Number of units produced 13,000 units

Assume the actual costs were as budgeted.

a. Find contribution margin per unit.

b. Compute the ending inventory under standard variable costing.

 c. Compute the income under standard variable costing.

Assume standard absorption costing using normal capacity as the basis for computing the
standard fixed cost per unit. Compute

d. Standard gross profit per unit.

e. Ending inventory.

f. Volume variance.

g. Income.

7. Acme Company sells a single product for $30. It had no beginning inventories. Operating
data follow.

Sales, 12,000 units $360,000

Normal capacity 15,000 units
Production costs:
Variable per unit $17
Fixed production $75,000
Selling and administrative expenses:
Variable per unit sold $5
Fixed selling $25,000
Number of units produced 13,500 units

Assume the actual costs were as budgeted.

a. Compute income under standard variable costing.

b. Compute income under standard absorption costing.

8. Carlson Company sells a single product for $30. It had no beginning inventories. Operating
data follow.

Sales, 12,500 units $375,000

Normal capacity 15,000 units
Production costs:
Variable per unit $17
Fixed production $75,000
Selling and administrative expenses:
Variable per unit sold $5
Fixed selling $25,000
Number of units produced 13,000 units
 Assume the actual costs were as budgeted.

a. Find Carlsons income under standard variable costing.

b. Find Carlsons income under standard absorption costing.

9. Bach Inc. makes a single product that sells for $40. The standard variable manufacturing
cost is $22 and the standard fixed manufacturing cost is $8, based on producing 30,000 units.
During the year Bach produced 28,000 units and sold 26,000 units. Actual fixed manufacturing
costs were $235,000; actual variable manufacturing costs were $595,000. Selling and
administrative expenses were $95,000. There were no beginning inventories.

a. Prepare a standard absorption costing income statement.

b. Prepare a standard variable costing income statement.

10. Hayden Corp. has the following data:

Normal capacity 40,000

Practical capacity 45,000
Budgeted production 30,000
Actual production 35,000
Actual sales ($20 per unit) 32,000
Standard variable production cost per unit $12
Budgeted fixed production costs $135,000

There were no variable cost variances for the year. Fixed costs incurred were equal to the
budgeted amount. There were no beginning inventories and no selling or administrative
expenses.

a. Compute the absorption costing income if fixed costs per unit are determined using
normal capacity.

b. Compute the absorption costing income if fixed costs per unit are determined using
practical capacity.
c. Compute the absorption costing income if fixed costs per unit are determined using
budgeted production.

d. Compute the variable costing income.