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Kenzi Kayaking, a manufacturer of kayaks, began operations this year.
During this first year, the company produced 1,000 kayaks and sold 750. at a price of $1,000 each. At this first year-end,
the company reported the following income statement information using absorption costing.
 

Sales (750 × $1,000)	$750,000
Cost of goods sold (750 × $425)	318,750
Gross margin	431,250
Selling and administrative expenses	240,000
Net income	$191,250

 
Additional Information
 
Product cost per kayak totals $425, which consists of $325 in variable production cost and $100 in fixed production cost—
the latter amount is based on $100,000 of fixed production costs allocated to the 1,000 kayaks produced.
The $240,000 in selling and administrative expense consists of $85,000 that is variable and $155,000 that is fixed.
1. Prepare an income statement for the current year under variable costing.
Rey Company’s single product sells at a price of $227 per unit. Data for its single product for its first year of operations follow.

Direct materials	$31 per unit
Direct labor	$39 per unit
Overhead costs
Variable overhead	$13 per unit
Fixed overhead per year	$420,000 per year
Selling and administrative expenses
Variable	$29 per unit
Fixed	$222,000 per year
Units produced and sold	28,000 units

1. Prepare an income statement for the year using absorption costing

2. Prepare an income statement for the year using variable costing.
 
Cool Sky reports the following costing data on its product for its first year of operations.
During this first year, the company produced 46,000 units and sold 38,000 units at a price of $130 per unit.
 

Manufacturing costs
Direct materials per unit	$54
Direct labor per unit	$20
Variable overhead per unit	$6
Fixed overhead for the year	$506,000
Selling and administrative costs
Variable selling and administrative cost per unit	$11
Fixed selling and administrative cost per year	$115,000

1a. Assume the company uses absorption costing. Determine its product cost per unit.
 
Which of the following costing methods charges all manufacturing costs to its products?
 
Direct costing
ABC costing
Variable costing
Absorption costing
   
Which of the following statements is true regarding absorption costing?
 
It is not the traditional costing approach.
It is not permitted to be used for financial reporting.
It is not permitted to be used for tax reporting.
It assigns all manufacturing costs to products.
It requires only variable costs to be treated as product costs.
  Using absorption costing, which of the following manufacturing costs are assigned to products?
 
Direct materials and direct labor.
Direct labor and variable manufacturing overhead.
Fixed manufacturing overhead, direct materials, and direct labor.
Variable manufacturing overhead, direct materials, and direct labor.
Variable manufacturing overhead, direct materials, direct labor, and fixed manufacturing overhead.
   
Income __________ when there is zero beginning inventory and all inventory units produced are sold.
 
Will be lower under variable costing than absorption costing
Will be the same under both variable and absorption costing
Will be higher under variable costing than absorption costing
Will be higher than gross margin under variable costing
   
Comfy Cozy Chairs makes and sells rockers. The production of each rocker requires $45 of direct materials and $37 of direct labor.
Variable manufacturing overhead amounts to $8 per unit, and fixed manufacturing overhead totals $58,000.
Variable selling and administrative costs amount to $15 per unit, and fixed selling and administrative costs total $102 ,000.
During the period, 2, 000 rockers were produced and 1,640 were sold. What is the unit product cost using absorption costing?
 
$119 per unit
 
45 + 37 + 8 + (58,000 / 2,000) = 119
   
Geneva Company manufactures dolls that are sold to various customers.
The company works at full capacity for half the year to meet peak demand, and operates at 80% capacity for the other half of the year.
The following information is provided:
 

Units produced and sold	600,000		units
Selling price	$35	/	unit
Variable manufacturing costs	$20	/	unit
Fixed manufacturing costs	$1,200,000	/	yr.
Variable selling and administrative costs	$6	/	unit
Fixed selling and administrative costs	$950,000	/	yr.

 
Geneva receives a purchase order to make 5,000 dolls as a one-time event.
The good news is that this order is during a period when Geneva does have excess capacity.
What is the lowest selling price Geneva should accept for this purchase order?
 
$35.00
$26.00
$29.50
$23.50
   
Swisher, Incorporated reports the following annual cost data for its single product:
 

Normal production level	30,000	units
Direct materials	$6.40	per unit
Direct labor	$3.93	per unit
Variable overhead	$5.80	per unit
Fixed overhead	$150,000	in total

 
This product is normally sold for $48 per unit. If Swisher increases its production to 50,000 units, while sales remain at the
current 30,000 unit level, by how much would the company’s income increase or decrease under variable costing?
 
$60,000 decrease
$90,000 decrease
There is no change in income
$90,000 increase
$60,000 increase
   
Given the following information, calculate the unit product cost under absorption costing.
 
Direct materials:                                               $50/unit
Direct labor:                                                      $75/unit
Variable manufacturing overhead:           $27/unit
Fixed manufacturing overhead:                 $30,000
Units produced:                                                10,000
Units sold:                                                           6,000
 
$155
 
($50 + $75 +$27 +($30,000/10,000) = $155 per unit)
   
Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor.
Variable manufacturing cost is $7 per unit and fixed manufacturing overhead cost is $19,000 in total.
Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200.
Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing $_____.
 
$47
 
22 + 18 +7 = 47
  Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit cost of $112 and a unit selling price of $190.
If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be:
 
$94,304
 
842 x 112 = 94,304
   
Granny's Touch manufacturers and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and
administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290.
An income statement prepared using variable costing shows $____ as the total fixed expenses.
 
$28,990
 
19,700 + 9,290 = 28,990
   
Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor.
Variable manufacturing overhead cost $9 per frame produced, and variable selling and administrative expense is $13 per frame sold.
The company produces 5,000 units each month and total fixed manufacturing overhead per month is $15,000.
The unit product cost of each frame using variable costing is:
 
68
 
Unit product cost=$19 + $40 + $9 = $68
   
SPS Products has two divisions - Catalog Sales and Online Sales. For the last quarter Catalog sales segment margin was ($5,000).
Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000.
If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by:
 
a. $9,000
b. $6,000
c. $5,000
d. $11,000
 
(100,000 x .10 x 60,000 / 100,000) + 5,000 = 11,000
   
JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable fixed
expense of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%.
The company also has $30,000 of common fixed expenses. The break-even point in dollar sales for the Retail segment equals:
 
$175,000
 
70,000 / .40 = 175,000

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