1.Under variable costing, fixed manufacturing overhead is: E.

No No No
A. expensed immediately when incurred.
B. never expensed. Answer: E LO: 1 Type: RC
C. applied directly to Finished-Goods Inventory.
D. applied directly to Work-in-Process Inventory. 8. Lone Star has computed the following unit costs for the
E. treated in the same manner as variable year just ended:
manufacturing overhead.
Direct material used $12
Answer: A LO: 1 Type: RC Direct labor 18
Variable manufacturing overhead 25
2. All of the following are inventoried under variable costing Fixed manufacturing overhead 29
except: Variable selling and administrative 10
A. direct materials. cost
B. direct labor. Fixed selling and administrative cost 17
C. variable manufacturing overhead.
D. fixed manufacturing overhead.
Under variable costing, each unit of the company's
E. items "C" and "D" above.
inventory would be carried at:
A. $35.
Answer: D LO: 1 Type: RC
B. $55.
C. $65.
3. All of the following are expensed under variable costing
D. $84.
except:
E. some other amount.
A. variable manufacturing overhead.
B. fixed manufacturing overhead.
Answer: B LO: 1 Type: A
C. variable selling and administrative costs.
D. fixed selling and administrative costs.
9. Prescott Corporation has computed the following unit costs
E. items "C" and "D" above.
for the year just ended:
Answer: A LO: 1 Type: RC
Direct material used $18
4. All of the following costs are inventoried under absorption Direct labor 27
costing except: Variable manufacturing overhead 30
A. direct materials. Fixed manufacturing overhead 32
B. direct labor. Variable selling and administrative 9
C. variable manufacturing overhead. cost
D. fixed manufacturing overhead. Fixed selling and administrative cost 17
E. fixed administrative salaries.
Under absorption costing, each unit of the company's
Answer: E LO: 1 Type: RC inventory would be carried at:
A. $75.
5. All of the following are inventoried under absorption B. $107.
costing except: C. $116.
A. direct labor. D. $133.
B. raw materials used in production. E. some other amount.
C. utilities cost consumed in manufacturing.
D. sales commissions. Answer: B LO: 1 Type: A
E. machine lubricant used in production.
10. Santa Fe Corporation has computed the following unit costs
Answer: D LO: 1 Type: N for the year just ended:

6. The underlying difference between absorption costing and Direct material used $25
variable costing lies in the treatment of: Direct labor 19
A. direct labor. Variable manufacturing overhead 35
B. variable manufacturing overhead. Fixed manufacturing overhead 40
C. fixed manufacturing overhead. Variable selling and administrative 17
D. variable selling and administrative expenses. cost
E. fixed selling and administrative expenses. Fixed selling and administrative cost 32

Answer: C LO: 1 Type: RC Which of the following choices correctly depicts the per-
unit cost of inventory under variable costing and absorption costing?
7. Which of the following costs would be treated differently Variable Absorption
under absorption costing and variable costing? Costing Costing
Variable Fixed A. $79 $119
Direct Manufacturing Administrative B. $79 $151
Labor Overhead Expenses C. $96 $119
A. Yes No Yes D. $96 $151
B. Yes Yes Yes E. Some other combination of figures not listed above.
C. No Yes No
D. No No Yes
Answer: A LO: 1 Type: A C. I and II.
D. II and III.
11. Delaware has computed the following unit costs for E. I, II, and III.
the year just ended:
Answer: E LO: 2, 3 Type: N
Variable manufacturing cost $85
Fixed manufacturing cost 20 15. Roberts, which began business at the start of the current
Variable selling and administrative 18 year, had the following data:
cost
Fixed selling and administrative cost 11 Planned and actual production: 40,000 units
Sales: 37,000 units at $15 per unit
Which of the following choices correctly depicts the per-unit cost of Production costs:
inventory under variable costing and absorption costing? Variable: $4 per unit
A. Variable, $85; absorption, $105. Fixed: $260,000
B. Variable, $85; absorption, $116. Selling and administrative costs:
C. Variable, $103; absorption, $105. Variable: $1 per unit
D. Variable, $103; absorption, $116. Fixed: $32,000
E. Some other combination of figures not listed above.
The gross margin that the company would disclose on an
absorption-costing income statement is:
Answer: A LO: 1 Type: A A. $97,500.
B. $147,000.
Use the following to answer questions 12-13: C. $166,500.
D. $370,000.
Indiana Company incurred the following costs during the past year E. some other amount.
when planned production and actual production each totaled 20,000
units: Answer: C LO: 2 Type: A

Direct materials used 16. McAfee, which began business at the start of the current
Direct labor year, had the following data:
Variable manufacturing overhead
Fixed manufacturing overhead
Planned and actual production: 40,000 units
Variable selling and administrative costs
Sales: 37,000 units at $15 per unit
Fixed selling and administrative costs
Production costs:
Variable: $4 per unit
12. If Indiana uses variable costing, the total inventoriable
Fixed: $260,000
costs for the year would be:
Selling and administrative costs:
A. $400,000.
Variable: $1 per unit
B. $460,000.
Fixed: $32,000
C. $560,000.
D. $620,000.
E. $660,000. The contribution margin that the company would disclose
on an absorption-costing income statement is:
Answer: C LO: 1 Type: A A. $0.
B. $147,000.
13. The per-unit inventoriable cost under absorption costing is: C. $166,500.
A. $9.50. D. $370,000.
B. $25.00. E. some other amount.
C. $28.00.
D. $33.00. Answer: A LO: 2 Type: A
E. $40.50.

Answer: D LO: 1 Type: A 17. Chicago began business at the start of the current year. The
company planned to produce 25,000 units, and actual production
14. Consider the following comments about absorption- and conformed to expectations. Sales totaled 22,000 units at $30 each.
variable-costing income statements: Costs incurred were:

I. A variable-costing income statement discloses a Fixed manufacturing overhead $150,000

firm's contribution margin. Fixed selling and administrative cost 100,000
II. Cost of goods sold on an absorption-costing Variable manufacturing cost per unit 8
income statement includes fixed costs.
III. The amount of variable selling and administrative Variable selling and administrative cost per unit 2
cost is the same on absorption- and variable-costing
income statements. If there were no variances, the company's absorption-
costing net income would be:
Which of the above statements is (are) true? A. $190,000.
A. I only. B. $202,000.
B. II only. C. $208,000.
 D. $220,000. Lobos absorption costing income statement would reveal a gross
E. some other amount. margin of $330,000.
Lobos absorption-costing income statement would reveal a gross
Answer: C LO: 2 Type: A margin of $145,000.

18. Norton, which began business at the start of the current Answer: B LO: 2, 3 Type: A
year, had the following data:
Use the following to answer questions 21-22:
Planned and actual production: 40,000 units
Franz began business at the start of this year and had the following
Sales: 37,000 units at $15 per unit
costs: variable manufacturing cost per unit, $9; fixed manufacturing
Production costs: costs, $60,000; variable selling and administrative costs per unit, $2;
Variable: $4 per unit and fixed selling and administrative costs, $220,000. The company
Fixed: $260,000 sells its units for $45 each. Additional data follow.

Selling and administrative costs: Planned production in units 10,000

Variable: $1 per unit Actual production in units 10,000
Fixed: $32,000 Number of units sold 8,500
There were no variances.

The contribution margin that the company would disclose 21. The net income (loss) under absorption costing is:
on a variable-costing income statement is: A. $(7,500).
A. $97,500. B. $9,000.
B. $147,000. C. $15,000.
C. $166,500. D. $18,000.
D. $370,000. E. some other amount.
E. some other amount.
Answer: D LO: 2 Type: A
Answer: D LO: 3 Type: A
22. The net income (loss) under variable costing is:
19. Madison began business at the start of the current year. A. $(7,500).
The company planned to produce 30,000 units, and actual production B. $9,000.
conformed to expectations. Sales totaled 28,000 units at $32 each. C. $15,000.
Costs incurred were: D. $18,000.
E. some other amount.
Fixed manufacturing overhead
Fixed selling and administrative cost Answer: B LO: 3 Type: A
Variable manufacturing cost per unit 23. Income reported under absorption costing and variable
Variable selling and administrative cost per unit costing is:
A. always the same.
If there were no variances, the company's variable-costing B. typically different.
net income would be: C. always higher under absorption costing.
A. $270,000. D. always higher under variable costing.
B. $292,000. E. always the same or higher under absorption
C. $308,000. costing.
D. $532,000.
E. some other amount. Answer: B LO: 4 Type: RC

Answer: B LO: 3 Type: A 24. Gomez's inventory increased during the year. On the basis
of this information, income reported under absorption costing:
20. The following data relate to Lobo Corporation for the year just A. will be the same as that reported under variable
ended: costing.
B. will be higher than that reported under variable
Sales revenue costing.
Cost of goods sold: C. will be lower than that reported under variable
Variable portion costing.
Fixed portion D. will differ from that reported under variable
Variable selling and administrative cost costing, the direction of which cannot be determined from the
Fixed selling and administrative cost information given.
E. will be less than that reported in the previous
Which of the following statements is correct? period.
A. Lobos variable-costing income statement would reveal a gross
margin of $270,000. Answer: B LO: 4 Type: N
B. Lobos variable costing income statement would
reveal a contribution margin of $330,000. 25. Which of the following conditions would cause absorption-
C. Lobos absorption-costing income statement would costing net income to be lower than variable-costing net income?
reveal a contribution margin of $330,000. A. Units sold exceeded units produced.
B. Units sold equaled units produced.
C. Units sold were less than units produced.
 D. Sales prices decreased. Answer: B LO: 4 Type: A
E. Selling expenses increased.
30. Canyon reported $106,000 of net income for the year by
Answer: A LO: 4 Type: N using variable costing. The company had no beginning inventory,
planned and actual production of 50,000 units, and sales of 47,000
26. Which of the following situations would cause variable- units. Standard variable manufacturing costs were $15 per unit, and
costing net income to be lower than absorption-costing net income? total budgeted fixed manufacturing overhead was $150,000. If there
A. Units sold equaled 39,000 and units produced were no variances, net income under absorption costing would be:
equaled 42,000. A. $52,000.
B. Units sold and units produced were both 42,000. B. $97,000.
C. Units sold equaled 55,000 and units produced C. $106,000.
equaled 49,000. D. $115,000.
D. Sales prices decreased by $7 per unit during the E. $160,000.
accounting period.
E. Selling expenses increased by 10% during the Answer: D LO: 4 Type: A
accounting period. 31. Consider the following statements about absorption costing
and variable costing:
Answer: A LO: 4 Type: N
I. Variable costing is consistent with contribution
27. Consider the following statements about absorption- and reporting and cost-volume-profit analysis.
variable-costing net income: II. Absorption costing must be used for external
I. Yearly income reported under absorption costing financial reporting.
will differ from income reported under variable III. A number of companies use both absorption
costing if production and sales volumes differ. costing and variable costing.
II. Long-run, total income reported under absorption
costing will often be close to that reported under Which of the above statements is (are) true?
variable costing. A. I only.
III. Differences in income under absorption and B. II only.
variable costing can often be reconciled by C. III only.
multiplying the change in inventory (in units) by the D. I and II.
variable manufacturing overhead cost per unit. E. I, II, and III.

Which of the above statements is (are) true? Answer: E LO: 5, 6 Type: RC

A. I only.
B. II only. 32. Consider the following statements about absorption costing
C. III only. and variable costing:
D. I and II.
E. II and III. I. Variable costing is consistent with contribution
reporting and cost-volume-profit analysis.
Answer: D LO: 4 Type: RC II. Variable costing must be used for external
financial reporting.
28. Which of the following formulas can often reconcile the III. A number of companies use both absorption
difference between absorption- and variable-costing net income? costing and variable costing.
A. Change in inventory units x predetermined
variable-overhead rate per unit. Which of the above statements is (are) true?
B. Change in inventory units predetermined A. I only.
variable-overhead rate per unit. B. II only.
C. Change in inventory units x predetermined fixed- C. III only.
overhead rate per unit. D. I and II.
D. Change in inventory units predetermined fixed- E. I and III.
overhead rate per unit.
E. (Absorption-costing net income - variable-costing Answer: E LO: 5, 6 Type: RC
net income) x fixed-overhead rate per unit.
33. For external-reporting purposes, generally accepted
Answer: C LO: 4 Type: RC accounting principles require that net income be based on:
A. absorption costing.
29. Monex reported $65,000 of net income for the year by B. variable costing.
using absorption costing. The company had no beginning inventory, C. direct costing.
planned and actual production of 20,000 units, and sales of 18,000 D. semivariable costing.
units. Standard variable manufacturing costs were $20 per unit, and E. activity-based costing.
total budgeted fixed manufacturing overhead was $100,000. If there
were no variances, net income under variable costing would be: Answer: A LO: 6 Type: RC
A. $15,000.
B. $55,000. 34. Under throughput costing, the cost of a unit typically
C. $65,000. includes:
D. $75,000. A. selling costs.
E. $115,000. B. fixed manufacturing overhead.
C. the direct costs incurred whenever a unit is
manufactured. Answer: B LO: 9 Type: RC
D. administrative costs.
E. all of the above. EXERCISES

Answer: C LO: 7 Type: RC Characteristics of Absorption Costing and Variable Costing

35. Which of the following methods defines product cost as the Consider the statements that follow.
unit-level cost incurred each time a unit is manufactured?
A. Throughput costing. 1. Variable selling costs are expensed when incurred.
B. Indirect costing. 2. The income statement discloses a companys contribution margin.
C. Process costing. 3. Fixed manufacturing overhead is attached to each unit produced.
D. Absorption costing. 4. Direct labor becomes part of a units cost.
E. Back-flush costing. 5. Sales revenue minus cost of goods sold equals contribution
Answer: A LO: 7 Type: RC margin.
36. Orion's management recently committed to incurring direct 6. This method must be used for external financial reporting.
labor and all manufacturing overhead charges regardless of the 7. Fixed selling and administrative expenses are treated in the same
number of units produced. Under throughput costing, the company's manner as fixed manufacturing overhead.
cost of goods sold would include charges for: 8. This method is sometimes called full costing.
A. selling and administrative costs. 9. This method requires the calculation of a fixed manufacturing
B. direct materials. cost per unit.
C. direct labor and manufacturing overhead.
D. direct materials, direct labor, and manufacturing Required:
overhead. Determine which of the nine statements:
E. direct materials, direct labor, manufacturing Relate only to absorption costing.
overhead, and selling and administrative costs. Relate only to variable costing.
Relate to both absorption costing and variable costing.
Answer: B LO: 8 Type: N Relate to neither absorption costing nor variable costing.

37. Highline Company reported the following costs for the year LO: 1, 2, 3, 6 Type: RC, N
just ended:
Answer:
Throughput manufacturing costs A. 3, 6, 8, 9
Non-throughput manufacturing costs B. 2, 7
Selling and administrative costs C. 1, 4
D. 5
If Highline uses throughput costing and had sales revenues 41.Information taken from Grille Corporation's May accounting records
for the period of $950,000, which of the following choices correctly follows.
depicts the company's cost of goods sold and net income?
Cost of Net Direct materials used $
Goods Sold Income Direct labor
A. $180,000 $45,000 Variable manufacturing overhead
B. $180,000 $645,000 Fixed manufacturing overhead
C. $305,000 $45,000 Variable selling and administrative costs
D. $305,000 $645,000 Fixed selling and administrative costs
E. Some other combination of figures not listed above. Sales revenues

Answer: A LO: 8 Type: A Required:

A. Assuming the use of variable costing, compute the inventoriable costs
38. The fixed-overhead volume variance under variable for the month.
costing: B. Compute the month's inventoriable costs by using absorption costing.
A. coincides with the fixed manufacturing overhead C. Assume that anticipated and actual production totaled 20,000 units,
that was applied to production. and that 18,000 units were sold during May. Determine the amount
B. is deducted on the income statement. of fixed manufacturing overhead and fixed selling and administrative
C. does not exist. costs that would be expensed for the month under (1) variable costing
D. will equal the fixed-overhead budget variance. and (2) absorption costing.
E. must be unfavorable. D. Assume the same data as in requirement "C." Compute the
contribution margin that would be reported on a variable-costing
Answer: C LO: 9 Type: RC income statement.

LO: 1, 2, 3 Type: A
39. Which of the following differs between absorption costing
and variable costing? Answer:
A. The number of units produced. A. Direct materials used $150,000
B. The fixed-overhead volume variance. Direct labor 80,000
C. Sales revenues. Variable manufacturing overhead 30,000
D. The treatment of variable manufacturing Total $260,000
overhead.
E. Income tax rates. B. Direct materials used $150,000
Direct labor 80,000
 Variable manufacturing overhead 30,000
Fixed manufacturing overhead 100,000
Total $360,000

C. 1. Fixed manufacturing overhead: $100,000

Fixed selling and administrative costs: $60,000

2. Fixed manufacturing overhead: ($100,000 20,000

units) x 18,000 units = $90,000
Fixed selling and administrative costs: $60,000

D. Variable manufacturing costs: $150,000 + $80,000 +

$30,000 = $260,000
Variable manufacturing costs per unit: $260,000 20,000
units = $13
Contribution margin: $625,000 - [(18,000 x $13) +
$51,000] = $340,000

Miscellaneous Calculations: Variable and Absorption Costing

42. Sosa, Inc., began operations at the start of the current year,
having a production target of 60,000 units. Actual production
totaled 60,000 units, and the company sold 90% of its
manufacturing output at $55 per unit. The following costs
were incurred:

Manufacturing:
Direct materials used
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Selling and administrative:
Variable
Fixed

Required:
A. Assuming the use of variable costing, compute the cost of
Sosa's ending finished-goods inventory.
B. Compute the company's contribution margin. Would
Sosa disclose the contribution margin on a variable-
costing income statement or an absorption-costing
income statement?
C. Assuming the use of absorption costing, how much fixed
selling and administrative cost would Sosa include in the
ending finished-goods inventory?
D. Compute the company's gross margin.

LO: 1, 2, 3 Type: RC, A

A Variable production costs total $1,080,000 ($300,000 + $420,000 + $360,000), or $18 per unit ($1,080,000 60,000 units). Since 6,000 units
. remain in inventory [0 + 60,000 - (60,000 x 90%)], the ending finished goods totals $108,000 (6,000 x $18).

B Sales revenue (60,000 units x 90% x $55) $2,970,000

.
Less: Variable cost of goods sold
(60,000 units x 90% x $18) $972,000
Variable selling and administrative 120,000 1,092,000
Contribution margin $1,878,000

The contribution margin is disclosed on a variable-costing income statement.

C None. All fixed selling and administrative cost is treated as a period cost and expensed against revenue.
.
D The cost of a unit would increase by $10 ($600,000 60,000 units) because of the addition of fixed manufacturing overhead. Thus:
.
Sales revenue $2,970,000
Cost of goods sold (60,000 units x 90% x $28) 1,512,000
Gross margin $1,458,000
Absorption, Variable, and Throughput Costing
Absorption- and Variable-Costing Income Calculations

43. The following data relate to Venture Company, a new

corporation, during a period when the firm produced and sold
100,000 units and 90,000 units, respectively:

Direct materials used

Direct labor
Fixed manufacturing overhead
Variable manufacturing overhead
Fixed selling and administrative expenses
Variable selling and administrative expenses

The company met its original planned production target of

100,000 units. There were no variances during the period, and
the firm's selling price is $15 per unit.

Required:
A. What is the cost of Venture's end-of-period finished-
goods inventory under the variable-costing method?
B. Calculate the company's variable-costing net income.
C. Calculate the company's absorption-costing net income.

LO: 1, 2, 3 Type: A

Answer:

8 Hilton, Managerial Accounting, Seventh Edition

Absorption, Variable, and Throughput Costing
A. Ending finished-goods inventory (units): 0 + 100,000 - 90,000 = 10,000
Inventoriable costs under variable costing:

Direct materials used $400,000

Direct labor 200,000
Variable manufacturing overhead 120,000
Total $720,000

Variable cost per unit produced: $720,000 100,000 units = $7.20 per unit
Ending inventory: 10,000 units x $7.20 = $72,000

B. Sales revenue (90,000 units x $15) $1,350,000

Less: Variable costs [(90,000 units x $7.20) + $45,000] 693,000
Contribution margin $ 657,000
Less: Fixed costs ($250,000 + $300,000) 550,000
Net income $ 107,000

C. Predetermined fixed overhead rate: $250,000 100,000 units = $2.50

Absorption cost per unit: $7.20 + $2.50 = $9.70

Sales revenue (90,000 units x $15) $1,350,000

Less: Cost of goods sold (90,000 units x $9.70) 873,000
Gross margin $ 477,000
Less: Operating costs ($300,000 + $45,000) 345,000
Net income $ 132,000
Absorption- and Variable-Costing Inventory/Income Calculations Net income $2,145,000

44. The following data relate to Hunter, Inc., a new company: D Sales revenue (170,000 units x $8,160,000
. $48)
Planned and actual production 200,000 units Less: Cost of goods sold [170,000 3,774,000
Sales at $48 per unit 170,000 units units x ($18.00 + $4.20)]
Manufacturing costs: Gross margin $4,386,000
Variable $18 per unit Less: Operating costs [(170,000 2,115,000
Fixed $840,000 units x $7) + $925,000]
Selling and administrative costs: Net income $2,271,000
Variable $7 per unit
Fixed $925,000
45. Kim, Inc., began business at the start of the current year and
maintains its accounting records on an absorption-cost basis. The
There were no variances during the period. following selected information appeared on the company's
income statement and end-of-year balance sheet:
Required:
A. Determine the number of units in the ending finished-
goods inventory. Income-statement data:
B. Calculate the cost of the ending finished-goods inventory Sales revenues (35,000 units x $22) $770,000
under (1) variable costing and (2) absorption costing. Gross margin 210,000
C. Determine the company's variable-costing net income. Total sales and administrative 160,000
D. Determine the company's absorption-costing net income. expenses
Balance-sheet data:
LO: 1, 2, 3 Type: A Ending finished-goods inventory 192,000
(12,000 units)
Answer:
A Ending finished-goods inventory: 0 + 200,000 -
. 170,000 = 30,000 units Kim achieved its planned production level for the year. The
company's fixed manufacturing overhead totaled $141,000,
B Variable costing: 30,000 units x $18 and the firm paid a 10% commission based on gross sales
. = $540,000 dollars to its sales force.
Absorption costing:
Predetermined fixed overhead rate: $840,000 Required:
200,000 units = $4.20; A. How many units did Kim plan to produce during the year.
30,000 units x ($18.00 + $4.20) = $666,000 B. How much fixed manufacturing overhead did the
company apply to each unit produced?
C Sales revenue (170,000 units x $8,160,000 C. Compute Kim's cost of goods sold.
. $48) D. How much variable cost did the company attach to each
Less: Variable costs [170,000 units 4,250,000 unit manufactured?
x ($18 + $7)]
Contribution margin $3,910,000 LO: 1, 2, 3 Type: A, N
Less: Fixed costs ($840,000 + 1,765,000
$925,000) Answer:

9 Hilton, Managerial Accounting, Seventh Edition

 Absorption, Variable, and Throughput Costing
A. Sales (35,000 units) + ending finished-goods inventory (12,000 units)
= production (47,000 units). Note: There is no beginning finished-
goods inventory.

B. Since planned and actual production figures are the same, Kim
applied $3 to each unit ($141,000 47,000 units).

C. Sales revenue $770,000

Gross margin 210,000
Cost of goods sold $560,000

D. Kim attached $13 to each unit. This figure can be derived by

analyzing cost of goods sold:

Cost of goods sold $560,000

Fixed cost in cost of goods sold (35,000 units x $3) 105,000
Variable cost of goods sold $455,000

$455,000 35,000 units = $13

The same $13 figure can be obtained by studying the ending finished-
good inventory:

Ending finished-goods inventory $192,000

Fixed cost (12,000 units x $3) 36,000
Variable cost $156,000

$156,000 12,000 units = $13

C. In Case C, how many units were in the ending finished-goods

inventory?
Reconciliation of Absorption- and Variable-Costing Income
LO: 4 Type: A
47. Beachcraft Corporation has fixed manufacturing cost of $12 per
unit. Consider the three independent cases that follow. Answer:
A. Absorption- and variable costing income will be the same
Case A: Absorption- and variable costing net income amount when inventory levels are unchanged. Thus,
each totaled $240,000 in a period when sales totaled 18,000 units.
the firm produced 18,000 units.
B. The difference between absorption-costing income and
Case B: Absorption-costing net income totaled variable-costing income is $84,000 (7,000 units x $12).
$320,000 in a period when finished-goods Given that inventories are rising, variable-costing net
inventory levels rose by 7,000 units. income will amount to $236,000 ($320,000 - $84,000).

Case C: Absorption-costing net income and variable- C. The $30,000 difference in income ($250,000 - $220,000)
costing net income respectively totaled is explained by the change in inventory units, multiplied
$220,000 and $250,000 in a period when by the fixed overhead per unit. Thus, the inventory
the beginning finished-goods inventory changed by 2,500 units ($30,000 $12). Given that
was 14,000 units. absorption income is less than income computed by the
variable-costing method, inventory levels must have
Required: decreased, resulting in an ending inventory level of
A. In Case A, how many units were sold during the period? 11,500 units (14,000 - 2,500).
B. In Case B, how much income would Beachcraft report under
variable costing?
Selling and administrative costs (total)
Throughput Costing, Absorption Costing, Variable Costing
The company classifies direct materials as a throughput cost.
48. Coastal Corporation, which uses throughput costing, began
operations at the start of the current year. Planned and actual
production equaled 20,000 units, and sales totaled 17,500 units Required:
at $95 per unit. Cost data for the year were as follows: A. Compute the company's total cost for the year.
B. How much of this cost would be held in year-end
inventory under (1) absorption costing, (2) variable
Direct materials (per unit) costing, and (3) throughput costing?
Conversion cost: C. How much of the company's total cost for the year would
Direct labor appear on the period's income statement under (1)
Variable manufacturing overhead absorption costing, (2) variable costing, and (3)
Fixed manufacturing overhead throughput costing?
10 Hilton, Managerial Accounting, Seventh Edition
 Absorption, Variable, and Throughput Costing
D. Compute the year's throughput-costing net income.

LO: 1, 2, 3, 7 Type: A, N

Answer:
A Direct materials (20,000 units x $ 360,000
. $18)
Direct labor 160,000
Variable manufacturing overhead 280,000
Fixed manufacturing overhead 340,000
Selling and administrative costs 430,000
Total $1,570,000

B The year-end inventory of 2,500 units (20,000 - 17,500) is costed

. as follows:
Absorption Variable Throughput
Costing Costing Costing
Direct materials $ 360,000 $360,000 $360,000
Direct labor 160,000 160,000
Variable manufacturing overhead 280,000 280,000
Fixed manufacturing overhead 340,000
Total product cost $1,140,000 $800,000 $360,000
Cost per unit (Total 20,000 $57 $40 $18
units)
Year-end inventory (2,500 units x
cost per unit) $142,500 $100,000 $45,000

11 Hilton, Managerial Accounting, Seventh Edition

Absorption, Variable, and Throughput Costing
C The total costs would be allocated between the current
. period's income statement and the year-end inventory on
the balance sheet. Thus:

Absorption costing: $1,570,000 - $142,500 = $1,427,500

Variable costing: $1,570,000 - $100,000 = $1,470,000
Throughput costing: $1,570,000 - $45,000 = $1,525,000

D Throughput income: Sales revenue (17,500 units x $95) -

. $1,525,000 = $137,500

Throughput Costing

49. Krell Corporation, which uses throughput costing, began

operations at the start of the current year (20x1). Planned and
actual production equaled 40,000 units, and sales totaled
35,000 units at $80 per unit. Cost data for 20x1 were as
follows:

Direct materials (per unit) $ 20

Conversion cost:
Direct labor 215,000
Variable manufacturing overhead 340,000
Fixed manufacturing overhead 528,000
Selling and administrative costs:
Variable (per unit) 8
Fixed 220,000

The company classifies direct materials as a throughput cost.

Required:
A. What is meant by the term "throughput costing"?
B. Compute the cost of the company's year-end inventory.
C. Prepare Krell's income statement for the year.

LO: 1, 7 Type: RC, A

Answer:

12 Hilton, Managerial Accounting, Seventh Edition

 Absorption, Variable, and Throughput Costing
A. Throughput costing is a technique that assigns only the unit-
level spending amounts for direct costs as the cost of products
or services. In this case, direct materials is the only item that
qualifies as a throughput cost.

B. Ending inventory: 0 + 40,000 units - 35,000 units = 5,000

units; 5,000 units x $20 = $100,000

C. Krell Corporation
Throughput-Costing Income Statement
For the Year Ended December 31, 20x1

Sales revenue (35,000 units x $80) $2,800,000

Less: Cost of goods sold (35,000 units x $20) 700,000
Gross margin $2,100,000
Less: Operating costs
Direct labor $ 215,000
Variable manufacturing overhead 340,000
Fixed manufacturing overhead 528,000
Variable selling and administrative costs (35,000 units x $8) 280,000
Fixed selling and administrative costs 220,000
Total operating costs $1,583,000
Net income $ 517,000

Variable- and Absorption-Costing Income Statements, Volume Variance

50. Outdoors Company manufactures sleeping bags that sell for $30 each. The variable standard costs of production are $19.50. Budgeted fixed
manufacturing overhead is $100,000, and budgeted production is 10,000 sleeping bags. The company actually manufactured 12,500 bags, of which
11,000 were sold. There were no variances during the year except for the fixed-overhead volume variance. Variable selling and administrative
costs are $0.50 per sleeping bag sold; fixed selling and administrative costs are $5,000.

Required:
A. Calculate the standard product cost per sleeping bag under absorption costing and variable costing.
B. Compute the fixed-overhead volume variance.
C. Prepare income statements for the year by using absorption costing and variable costing.

LO: 2, 3, 9 Type: A

Answer:
A. The absorption cost is $29.50 [$19.50 + ($100,000 10,000 units)], and the variable cost is $19.50.

B. Volume variance = budgeted fixed overhead - fixed overhead applied

= $100,000 - (12,500 units x $10)
= $(25,000) or $25,000F

C. Outdoors Company
Absorption-Costing Income Statement
For the Year Ended December 31, 20xx

Sales revenue (11,000 units x $30) $330,000

Less: Cost of goods sold (11,000 units x $29.50) 324,500
Gross margin (at standard) $ 5,500
Add: Fixed-overhead volume variance 25,000
Gross margin (at actual) $ 30,500
Less: Operating expenses [(11,000 units x $0.50) + $5,000] 10,500
Net income $ 20,000

Outdoors Company
Variable-Costing Income Statement
For the Year Ended December 31, 20xx

Sales revenue (11,000 units x $30) $330,000

Less: Var. cost of goods sold (11,000 units x $19.50) $214,500
Var. operating expenses (11,000 units x $0.50) 5,500 220,000
Contribution margin $110,000
Less: Fixed costs ($100,000 + $5,000) 105,000
Net income $ 5,000

13 Hilton, Managerial Accounting, Seventh Edition