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Decko Industries reported the following monthly data:
                                                 
Units produced                               68,000 units
Sales price                            $           49           per unit
Direct materials                  $           3.10       per unit
Direct labor                          $           4.10       per unit
Variable overhead             $           5.10       per unit
Fixed overhead                   $           235,600               in total
 
What is the company's contribution margin for this month if 66,000 units were sold?
 
$2,495,600
$2,422,200
$3,332,000
$3,234,000
$2,758,800
   
Hayes Inc. provided the following information for the current year:
                                 
Beginning inventory                                                       190        units
Units produced                                                                 840        units
Units sold                                                                            890        units
Selling price       $                                                             240        unit
Direct materials                $                                             44           unit
Direct labor        $                                                             25           unit
Variable manufacturing overhead            $             24           unit
Fixed manufacturing overhead $             34,440 yr
Variable selling/administrative costs      $             17           unit
Fixed selling/administrative costs            $             24,500 yr
 
What is the unit product cost for the year using variable costing?
 
$110
$134
$173
$93
   
Brush Industries reports the following information for May:
                                 
Sales                                                                      $             925,000                
Fixed cost of goods sold                                                105,000                
Variable cost of goods sold                                          255,000                
Fixed selling and administrative costs       105,000              
Variable selling and administrative costs                 130,000              
 
Calculate the operating income for May under absorption costing.
 
$670,000
$330,000
$540,000
$565,000
   
Reliance Corporation sold 5,200 units of its product at a price of $26 per unit. Total variable cost per unit is $18.00, consisting
of $17.20 in variable production cost and $0.80 in variable selling and administrative cost.
Compute the contribution margin for the company.
 
$93,600
$41,600
$89,440
$97,760
$135,200
   
During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $6 per unit,
Direct labor, $4 per unit, Variable overhead, $5 per unit, and Fixed overhead, $234,000. The company produced 26,000 units, and sold
18,000 units, leaving 8,000 units in inventory at year-end. Income calculated under variable costing is determined to be $350,000.
How much income is reported under absorption costing?
 
$422,000
$350,000
$584,000
$278,000
   
Alexis Co. reported the following information for May:
 
Part A    
Units sold                                                                            4,200    units
Selling price per unit      $                                             750         
Variable manufacturing cost per unit      490         
Sales commission per unit - Part A                           75            
 
What is the contribution margin for Part A?
 
$2,058,000
$1,092,000
$2,835,000
$777,000
   
During its first year of operations, the McCormick Company incurred the following manufacturing costs:
Direct materials, $7 per unit, Direct labor, $5 per unit, Variable overhead, $6 per unit, and Fixed overhead, $350,000.
The company produced 35,000 units, and sold 28,000 units, leaving 7,000 units in inventory at year-end.
What is the value of ending inventory under variable costing?
 
$350,000
$126,000
$70,000
$196,000
   
Kluber, Inc. had net income of $916,000 based on variable costing. Beginning and ending inventories were 56,600 units and 55,200 units,
respectively. Assume the fixed overhead per unit was $2.05 for both the beginning and ending inventory.
What is net income under absorption costing?
 
$913,130
$801,405
$916,000
$1,030,595
$910,260
   
Shore Company reports the following information regarding its production cost.
                                                 
Units produced                               45,000 units
Direct labor                        $            40                         per unit
Direct materials                $             41                         per unit
Variable overhead           $             297,000               in total
Fixed overhead                 $             111,920              in total
 
 
Compute product cost per unit under absorption costing.
 
$40.00
$88.00
$90.09
$41.00
$81.00
   
Given the following data, calculate product cost per unit under absorption costing.
                                                 
Direct labor                                        $             17           per unit
Direct materials                                $             11           per unit
 
Overhead                                             
Total variable overhead                $             30,000  
Total fixed overhead                       $             100,000                
Expected units to be produced 50,000 units
 
$30.00 per unit
$31.00 per unit
$28.60 per unit
$30.60 per unit
$28.00 per unit
   
Hayes Inc. provided the following information for the current year:
 
Beginning inventory                                       240                        units
Units produced                                                 890                        units
Units sold                                                            939                        units
Selling price                                                       $290                      unit
Direct materials                                                $49                        unit
Direct labor                                                        $30                        unit
Variable manufacturing overhead            $29                        unit
Fixed manufacturing overhead $40,940               yr
Variable selling/administrative costs  $22 unit
Fixed selling/administrative costs            $29,500               yr
 
What is the unit product cost for the year using absorption costing?
 
$108
$152
$154
$130
   
During its first year of operations, the McCormick Company incurred the following manufacturing costs:
Direct materials, $7 per unit, Direct labor, $5 per unit, Variable overhead, $6 per unit, and Fixed overhead, $279,000.
The company produced 31,000 units, and sold 20,500 units, leaving 10,500 units in inventory at year-end.
What is the value of ending inventory under absorption costing?
 
$94,500
$283,500
$279,000
$189,000
   
Front Company had net income of $83,500 based on variable costing. Beginning and ending inventories were 1,900 units and 3,400 units,
respectively. Assume the fixed overhead per unit was $8.45 for both the beginning and ending inventory.
What is net income under absorption costing?
 
$38,715
$128,285
$96,175
$70,825
$84,450
   
Alexis Co. reported the following information for May:
 
Part A    
Units sold                                                                            6,000    units
Selling price per unit      $                                             900         
Variable manufacturing cost per unit      570         
Sales commission per unit - Part A                           90            
 
What is the manufacturing margin for Part A?
 
$1,440,000
$4,860,000
$3,420,000
$1,980,000
   
Urban Company reports the following information regarding its production cost:
                                                 
Units produced                                 34,000 units
Direct labor        $                             27           per unit
Direct materials                $             32           per unit
Variable overhead           $             234,000               in total
Fixed overhead                 $             124,000               in total
 
Compute production cost per unit under variable costing.
 
$27.00
$59.00
$65.88
$62.65
$32.00
   
Jeter Corporation had net income of $224,000 based on variable costing. Beginning and ending inventories were 7,200 units
and 12,400 units, respectively. Assume the fixed overhead per unit was $7 for both the beginning and ending inventory.
What is net income under absorption costing?
 
$260,400
$296,800
$310,800
$361,200
$224,000
   
Brush Industries reports the following information for May:
                                                 
Sales                                                                     $             970,000                
Fixed cost of goods sold                                                114,000                
Variable cost of goods sold                                          264,000                
Fixed selling and administrative costs       114,000              
Variable selling and administrative costs                 139,000              
 
Calculate the gross margin for May under absorption costing.
 
$592,000
$706,000
$367,000
$595,000
   
Sea Company reports the following information regarding its production cost:

Units produced                                 43,000 units
Direct labor                                      $ 39.50 per unit
Direct materials                               $ 30.25 per unit
Variable overhead                          $ 19.25 per unit
Fixed overhead                                $ 161,250 in total

Compute production cost per unit under absorption costing.
 
$92.75
$86.00
$67.00
$37.00
$30.00
   
Chance, Inc. sold 3,100 units of its product at a price of $77 per unit. Total variable cost per unit is $55, consisting of $35 in variable
production cost and $20 in variable selling and administrative cost.
Compute the manufacturing margin for the company under variable costing.
 
$130,200
($102,300)
$238,700
$108,500
$170,500
   
Geneva Co. reports the following information for July:
                                                 
Sales                                      $771,000              
Variable costs                      232,000                
Fixed costs                           107,000                
 
Calculate the contribution margin for July.
 
$539,000
$432,000
$664,000
$771,000
   
A shift from high-margin sales to low-margin sales

may decrease net income, even though there is an increase in total units sold.
will always decrease net income.
will always increase net income.
will always increase units sold.
   
A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution
margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three
machine hours to make. If there are 3,000 machine hours available to manufacture a product, income will be

$6,000 more if Product A is made.
$6,000 less if Product B is made.
$6,000 less if Product A is made.
the same if either product is made.
   
Brooks Corporation can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin
of $120 and takes two machine hours to make and Fancy has a unit contribution margin of $150 and takes three machine hours to
make. There are 2,400 machine hours available to manufacture a product. What should Brooks do?

Make Fancy which creates $30 more profit per unit than Plain does.
Make Plain which creates $10 more profit per machine hour than Fancy does.
Make Plain because more units can be made and sold than Fancy.
The same total profits exist regardless of which product is made.
Make Plain which creates $10 more profit per machine hour than Fancy does.
   
Curtis Corporation's contribution margin is $20 per unit for Product A and $24 for Product B. Product A requires 2 machine hours
and Product B requires 4 machine hours. How much is the contribution margin per unit of limited resource for each product?
       A                     B

$10.00 $6.00
$10.00 $6.66
$8.00    $6.00
$8.00                    $6.66
   
Cost structure

refers to the relative proportion of fixed versus variable costs that a company incurs.
generally has little impact on profitability.
cannot be significantly changed by companies.
refers to the relative proportion of operating versus nonoperating costs that a company incurs.
   
Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed costs of $750,000.
Mercantile's degree of operating leverage is

1.22.
1.47.
1.20.
6.00.
   
For external reporting, income statements are generally prepared using _____ costing, while _____ costing is used for
internal decision making purposes.
 
Absorption; Variable
   
Variable costing income statements are based upon a ______ format.
 
contribution margin
   
Under variable costing the cost of a unit of inventory does not contain ______.
 
fixed manufacturing overhead
   
Absorption costing treats fixed manufacturing overhead as a ______ cost.
 
product
   
Fixed manufacturing overhead costs are expensed as units are sold as part of cost of goods sold under _____ costing,
and expensed in full with period costs under _____ costing.
 
absorption; variable
   
The two general costing approaches used by manufacturing companies to prepare income statements are _____ costing and _____ costing.
 
absorption; variable
   
Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor.
Variable manufacturing overhead cost is $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 cost per month is $15,000.
The unit product cost of each frame using variable costing is $_____.
 
$68
 
19 + 40 + 9 = 68
   
The difference between reported net income on variable costing and absorption costing income statements is based on how ______.
 
fixed overhead is accounted for
   
Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates
costs between product and period.
 
variable, absorption
   
Variable costing treats fixed manufacturing overhead as a(n) ____ cost.
 
period
   
Product costs under absorption costing include ______.
 
variable manufacturing overhead
direct materials
fixed manufacturing overhead
direct labor
   
Absorption and variable costing net income are usually different due to the accounting for ______.
 
fixed manufacturing overhead
   
Absorption costing and variable costing always result in the same net operating income each year.
 
False
   
Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor.
Variable manufacturing overhead 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 is ______ per unit.
 
$47
 
22 + 18 + 7 = 47
   
Net income computed under ______ costing may not agree with the results of CVP analysis.
 
absorption
   
A variable costing income statement ______.
 
focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs
calculates contribution margin while the absorption costing income statement calculates gross margin
   
The number of units produced does not affect net operating income when using ____costing.
 
variable
   
Variable costing treats ______ manufacturing costs as product costs.
 
only variable
   
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ in total as the
number of units produced increases.
 
increase
   
When a segment is eliminated, a ______.
 
traceable fixed cost will disappear
common fixed cost will remain unchanged
   
Differences in net operating income between absorption costing and variable costing is due to the ______.
 
timing of when fixed manufacturing overhead is expensed
   
Assigning common fixed costs to segments impacts ______.
 
segment margin only
   
Using variable costing and the contribution approach for internal decision making ______.
 
supports decision making
enables CVP analysis
facilitates explaining changes in net income
   
Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line
in each store. The property tax for the store is a(n) _____ fixed cost for the store, and a(n) _____ fixed cost for each product line sold in the store.
 
Traceable; Common
   
Financial statement users need to be aware of changes in inventory levels when using _____ costing.
 
absorption
   
Segment contribution margin equals segment revenue minus _____ the expenses for the segment.
 
variable
   
Decision-making problems that could occur when using absorption costing include inappropriate ______ decisions, and decisions
made to ______ products that are, in fact, profitable.
 
pricing; drop
   
When calculating the profit impact of discontinuing a segment, consider _____.
 
the segment's traceable fixed costs
the segment's contribution margin
   
An example of a traceable fixed cost for General Motors' Corvette Division is the ______.
 
depreciation cost on the equipment used to manufacture the Corvettes
   
Only costs that would disappear over time if a segment disappeared
should be treated as fixed costs.
 
traceable
   
Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who
oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each
product manufactured in the plant. The salary of each plant manager is a ______ for the individual product lines made in the plant.
 
traceable fixed cost to the plant and a common fixed cost
   
JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable
fixed expenses 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
   
Segmented income statements ______.
 
may be prepared for activities at many levels in a company
   
SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the 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 ______.
 
$11,000
 
100,000 × .10 × 60,000 ÷ 100,000 + $5,000 = 11,000.
   
A traceable fixed cost ______.
 
is incurred because of the existence of the segment
   
Segment break-even calculations include ______ fixed expenses.
 
only traceable
   
Hinge Manufacturing's cost of goods sold is $420,000 variable and $240,000 fixeThe company's selling and administrative expenses
are $300,000 variable and $360,000 fixeIf the company's sales is $1,480,000, what is its contribution margin?
 
$160,000
$760,000
$820,000
$880,000
   
For Sanborn Co., sales is $1,000,000, fixed expenses are $300,000, and the contribution margin per unit is $48. What is the break-even point?
 
$2,083,334 sales dollars
$625,000 sales dollars
20,834 units
6,250 units
   
For Franklin, Inc., sales is $1,500,000, fixed expenses are $450,000, and the contribution margin ratio is 36%. What are the total variable expenses?
 
$288,000
$540,000
$960,000
$1,500,000
$960,000
   
In 2013, Teller Company sold 3,000 units at $400 each. Variable expenses were $280 per unit, and fixed expenses were $160,000.
What was Teller's 2013 net income?
 
$200,000
$360,000
$840,000
$1,200,000
   
In 2012, Teller Company sold 3,000 units at $400 each. Variable expenses were $280 per unit, and fixed expenses were $180,000.
The same selling price, variable expenses, and fixed expenses are expected for 2013. What is Teller's break-even point in sales dollars for 2013?
 
$600,000
$1,800,000
$1,200,000
$1,714,286
   
The required sales in units to achieve a target net income is
 
(sales + target net income) divided by contribution margin per unit.
(sales + target net income) divided by contribution margin ratio.
(fixed cost + target net income) divided by contribution margin per unit.
(fixed cost + target net income) divided by contribution margin ratio.
   
Cost-volume-profit analysis is the study of the effects of
 
changes in costs and volume on a company's profit.
cost, volume, and profit on the cash budget
cost, volume, and profit on various ratios.
changes in costs and volume on a company's profitability ratios.
   
The CVP income statement classifies costs
 
as variable or fixed and computes contribution margin.
by function and computes a contribution margin.
as variable or fixed and computes gross margin.
by function and computes a gross margin.
   
Moonwalker's CVP income statement included sales of 4,000 units, a selling price of $100, variable expenses of $60 per unit,
and fixed expenses of $88,000. Contribution margin is
 
$400,000.
$240,000.
$160,000.
$72,000.
   
Moonwalker's CVP income statement included sales of 4,000 units, a selling price of $100, variable expenses of $60 per unit,
and fixed expenses of $88,000. Net income is
 
$400,000.
$160,000.
$152,000.
$72,000.
   
For Wickham Co., sales is $2,000,000, fixed expenses are $600,000, and the contribution margin ratio is 36%.
What is required sales in dollars to earn a target net income of $400,000?
 
$1,111,111
$1,666,666
$2,777,778
$5,555,556
   
The margin of safety ratio is
 
expected sales divided by break-even sales.
expected sales less break-even sales.
margin of safety in dollars divided by expected sales.
margin of safety in dollars divided by break-even sales.
   
Margin of safety in dollars is
 
expected sales divided by break-even sales.
expected sales less break-even sales.
actual sales less expected sales.
expected sales less actual sales.
   
In 2012, Hagar Corp. sold 3,000 units at $500 each. Variable expenses were $350 per unit, and fixed expenses were $455,000.
The same variable expenses per unit and fixed expenses are expected for 2013.
If Hagar cuts selling price by 4%, what is Hagar's break-even point in units for 2013?
 
3,033
3,159
3,360
3,500
   
Sales mix is
 
the relative percentage in which a company sells its multiple products.
the trend of sales over recent periods.
the mix of variable and fixed expenses in relation to sales.
a measure of leverage used by the company.
   
In a sales mix situation, at any level of units sold, net income will be higher if
 
more higher contribution margin units are sold than lower contribution margin units.
more lower contribution margin units are sold than higher contribution margin units.
more fixed expenses are incurred.
weighted-average unit contribution margin decreases.
   
Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus).
Q-Chip has variable costs per unit of $60 and a selling price of $100. Q-Chip Plus has variable costs per unit of $70
and a selling price of $130. Ramirez's fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point?
 
3,000
3,522
5,000
7,000
   
Roosevelt Corporation has a weighted-average unit contribution margin of $40 for its two products, Standard and Supreme.
Expected sales for Roosevelt are 40,000 Standard and 60,000 Supreme. Fixed expenses are $1,800,000.
At the expected sales level, Roosevelt's net income will be
 
$(200,000).
$ - 0 -.
$2,200,000.
$4,000,000.
   
Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear.
Swanson incurs $4,440,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.
The weighted-average contribution margin ratio is
 
37%.
40%.
43%.
50%.
   
A shift from low-margin sales to high-margin sales
 
may increase net income, even though there is a decline in total units sold.
will always increase net income.
will always decrease net income.
will always decrease units sold.
   
In a CVP income statement, cost of goods sold is generally
 
completely a variable cost.
completely a fixed cost.
neither a variable cost nor a fixed cost.
partly a variable cost and partly a fixed cost.
   
n a CVP income statement, a selling expense is generally
 
completely a variable cost.
completely a fixed cost.
neither a variable cost nor a fixed cost.
partly a variable cost and partly a fixed cost.
   
Jeter Corporation had net income of $222,000 based on variable costing.
Beginning and ending inventories were 7,000 units and 12,000 units, respectively. Assume the fixed overhead per unit was
$6 for both the beginning and ending inventory. What is net income under absorption costing?
 
$252,000
   
Sea Company reports the following information regarding its production cost.
 
Units produced                                 48,000 units
Direct labor                        $             41 per unit
Direct materials                $             34 per unit
Variable overhead           $             23 per unit
Fixed overhead                 $             111,000 in total
 
Compute the product cost per unit under variable costing.
 
$98.00
   
Given the following data, calculate product cost per unit under absorption costing.
 
Direct labor                         $             27 per unit
Direct materials                 $             21 per unit
 
Overhead
Total variable overhead $ 40,000
Total fixed overhead                        $ 110,000
 
Expected units to be produced 60,000 units
 
$50.50 per unit
   
Decko Industries reported the following monthly data:
 
Units produced                                 55,000 units
Sales price                          $             36 per unit
Direct materials                $             1.80 per unit
Direct labor                        $             2.80 per unit
Variable overhead           $             3.80 per unit
Fixed overhead                 $             234,300 in total
 
What is the company's contribution margin for this month if 53,000 units were sold?
 
$1,462,800
   
Sea Company reports the following information regarding its production costs:
 
Units produced 61,000 units
Direct labor $ 54 per unit
Direct materials $ 47 per unit
Variable overhead $ 36 per unit
Fixed overhead $ 152,500 in total
 
Compute the product cost per unit under absorption costing.
 
$139.50
   
Geneva Co. reports the following information for July:
 
Sales                                      $ 765,000
Variable costs                    230,000
Fixed costs                          105,000
 
Calculate the contribution margin for July.
 
$535,000
   
Brush Industries reports the following information for May:
 
Sales                                                                      $         910,000
Fixed cost of goods sold                                             102,000
Variable cost of goods sold                                        252,000
Fixed selling and administrative costs                     102,000
Variable selling and administrative costs                127,000
 
Calculate the operating income for May under absorption costing.
 
$327,000
   
Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year.
 
Units produced this year 35,000 units
Units sold this year 21,000 units
Direct materials $ 19 per unit
Direct labor $ 21 per unit
Variable overhead $ 105,000 in total
Fixed overhead $ 175,000 in total
 
Given Advanced Company's data, compute cost of finished goods in inventory under absorption costing.
 
$672,000
   
Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year.
 
Units produced this year                                              35,000 units
Units sold this year                                                         21,000 units
Direct materials                                                $             19 per unit
Direct labor                                                        $             21 per unit
Variable overhead                                           $             105,000 in total
Fixed overhead                                                 $            175,000 in total
 
Given Advanced Company's data, compute cost of finished goods in inventory under variable costing.
 
$602,000
   
Advanced Company reports the following information for the current year.
All beginning inventory amounts equaled $0 this year.
 
Units produced this year                                              35,000 units
Units sold this year                                                         21,000 units
Direct materials                                                $             19 per unit
Direct labor                                                        $             21 per unit
Variable overhead                                           $             105,000 in total
Fixed overhead                                                 $             175,000 in total
 
Given Advanced Company's data, and the knowledge that the product is sold for $71 per unit and operating expenses are $300,000,
compute the net income under absorption costing
 
$183,000
   
Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year.
 
Units produced this year                              35,000 units
Units sold this year                                         21,000 units
Direct materials                                $             19 per unit
Direct labor                                        $             21 per unit
Variable overhead                           $             105,000 in total
Fixed overhead                                 $             175,000 in total
 
Given Advanced Company's data, and the knowledge that the product is sold for $71 per unit and operating expenses are $300,000,
compute the net income under variable costing.
 
$113,000
   
Red and White Company reported the following monthly data:
 
Units produced                                 2,300 units
Sales price                          $             28 per unit
Direct materials                $             3 per unit
Direct labor                        $             4 per unit
Variable overhead           $             5 per unit
Fixed overhead                 $             8,280 in total
 
What is Red and White's contribution margin for this month if 1,010 units were sold?
 
$16,160
   
Red and White Company reported the following monthly data:
 
Units produced                                 2,300 units
Sales price                          $             28 per unit
Direct materials                $             3 per unit
Direct labor                        $             4 per unit
Variable overhead           $             5 per unit
Fixed overhead                 $             8,280 in total
 
What is Red and White's net income under absorption costing if 1,010 units are sold and selling and administrative expenses are $12,000?
 
$524
   
Which of the following statements is not true?
 
Operating leverage refers to the extent to which a company's net income reacts to a given change in sales.
Companies that have higher fixed costs relative to variable costs have higher operating leverage.
When a company's sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly.
When a company's sales revenue is decreasing, high operating leverage is good because it means that profits will decrease
at a slower pace than revenues decrease.
   
Miller Manufacturing's degree of operating leverage is 1.5. Warren Corporation's degree of operating leverage is 6. Warren's earnings
would go up (or down) by ________ as much as Miller's with an equal increase (or decrease) in sales.
 
1/4
4.5 times
4 times
7.5 times
   
The margin of safety ratio
is computed as actual sales divided by break-even sales.
indicates what percent decline in sales could be sustained before the company would operate at a loss.
measures the ratio of fixed costs to variable costs.
is used to determine the break-even point.
   
Only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs when using
full costing.
absorption costing.
variable costing.
product costing.
   
When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using
operations costing.
absorption costing.
variable costing.
product costing.
   
Under absorption costing and variable costing, how are fixed manufacturing costs treated?
 
Product Cost Product Cost
Product Cost Period Cost
Period Cost Product Cost
Period Cost Period Cost
   
Under absorption costing and variable costing, how are variable manufacturing costs treated?
 
Product Cost Product Cost
Product Cost Period Cost
Period Cost Product Cost
Period Cost Period Cost
   
Under absorption costing and variable costing, how are direct labor costs treated?
 
Product Cost Product Cost
Product Cost Period Cost
Period Cost Product Cost
Period Cost Period Cost
   
Which cost is not charged to the product under variable costing?
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
   
Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory).
Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and
$30,000 selling and administrative expenses. The per unit manufacturing cost under absorption costing is
$8.
$9.
$13.
$14.
   
Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory).
Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and
$30,000 selling and administrative expenses. The per unit manufacturing cost under variable costing is
$8.
$9.
$13.
$14.
   
Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory).
Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and
$30,000 selling and administrative expenses. Ending inventory under variable costing is

$90,000.
$130,000.
$200,000.
$450,000.
   
Net income under absorption costing is gross profit less

cost of goods sold.
fixed manufacturing overhead and fixed selling and administrative expenses.
fixed manufacturing overhead and variable manufacturing overhead.
variable selling and administrative expenses and fixed selling and administrative expenses
   
Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are: manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000 manufacturing overhead, and $32,000 selling and administrative. There was no beginning inventory at 1/1/12. Production was 20 units per year in 2012 -2014.
Sales was 20 units in 2012, 16 units in 2013, and 24 units in 2014. Income under absorption costing for 2013 is

$6,400.
$11,200.
$12,800.
$17,600.
   
Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are: manufacturing, $4,800, and selling and administrative,
$100. Fixed costs are: $24,000 manufacturing overhead, and $32,000 selling and administrative. There was no beginning inventory
at 1/1/12. Production was 20 units per year in 2012 -2014. Sales was 20 units in 2012, 16 units in 2013, and 24 units in 2014.
Income under variable costing for 2013 is

$6,400.
$11,200.
$12,800.
$17,600.
   
When production exceeds sales,

ending inventory under variable costing will exceed ending inventory under absorption costing.
ending inventory under absorption costing will exceed ending inventory under variable costing.
ending inventory under absorption costing will be equal to ending inventory under variable costing.
ending inventory under absorption costing may exceed, be equal to, or be less than ending inventory under variable costing.
   
Expected sales for next year for the Beresford Company is 150,000 units. Curt Planters, manager of the Beresford Division,
is under pressure to improve the performance of the Division. As he plans for next year, he has to decide whether to produce 150,000
units or 180,000 units. The Beresford Company will have higher net income if Curt Planters decides to produce

180,000 units if income is measured under absorption costing.
180,000 units if income is measured under variable costing.
150,000 units if income is measured under absorption costing.
150,000 units if income is measured under variable costing.
   
Which of the following is a potential advantage of variable costing relative to absorption costing?

Net income is affected by changes in production levels.
The use of variable costing is consistent with cost-volume-profit analysis.
Net income computed under variable costing is not closely tied to changes in sales levels.
More than one of the above.

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