Question
1) Indiana Company incurred the following costs during the past year when planned production and actual production each totaled 20,000 units:
Direct material used $280,000
Direct labor $120,000
Variable manufacturing overhead $160,000
Fixed manufacturing overhead $100,000
Variable selling and administrative costs $60,000
Fixed selling and administrative costs $90,000
If Indiana uses variable costing, the total inventorial costs for the year would be:
a. $400,000.
b. $460,000
c. $560,000.
d. $620,000.
e. $660,000.
2) Garage Specialty Corporation manufactures joint products P and Q. During a recent period, joint costs amounted to $80,000 in the production of 20,000 gallons of P and 60,000 gallons of Q. Garage can sell P and Q at split-off for $2.20 per gallon and $2.60 per gallon, respectively. Alternatively, both products can be processed beyond the split-off point, as follows:
i. P Q
Separable processing costs $15,000 $35,000
Sales price (per gallon) if processed beyond split-off $3 $4
The joint cost allocated to Q under the relative-sales-value method would be:
b. $40,000
$62,400.
$64,000.
$65,600.
Some other amount.
3) When allocating joint costs, Weinberg calculates the final sales value of the various products manufactured and subtracts appropriate separable costs. The company is using the:
a. Gross margin at split-off method.
Reciprocal-accounting method.
relative-sales-value method.
physical-units method.
net-realizable-value method.
4) Which of the following statements pertain to both variable costing and absorption costing?
a. The income statement discloses the amount of gross margin generated during the reporting period.
Fixed selling and administrative expenses are treated in the same manner as fixed manufacturing overhead.
Both variable and absorption costing can be used for external financial reporting.
Variable selling costs are written-off as expenses of the accounting period.
Fixed manufacturing overhead is attached to each unit produced.
5) The point in a joint production process where each individual product becomes separately identifiable is commonly called the:
a. decision point.
separation point.
individual product point.
split-off point.
joint product point.
6) Herbster manufactures A, B, and C, all of which are joint products, and D, which is classified as a by-product. If joint manufacturing costs amount to $450,000 and the company is using a popular accounting method, the firm will:
a. allocate $450,000 among A, B, and C.
allocate $450,000 among A, B, C, and D.
increase $450,000 by the net realizable value of D and then allocate the total among A, B, and C.
decrease $450,000 by the net realizable value of D and then allocate the total among A, B, and C.
7) Martina, Inc. has two service departments (Human Resources and Building Maintenance) and two production departments (Machining and Assembly). The company allocates Building Maintenance cost on the basis of square footage and believes that Building Maintenance provides more service than Human Resources. The square footage occupied by each department follows.
Human Resources 6,000
Building Maintenance 13,000
Machining 18,000
Assembly 26,000
Assuming use of the direct method, over how many square feet would the Building Maintenance cost be allocated (i.e., spread)?
19,000.
44,000.
50,000.
63,000.
8) Consider the following comments about absorption- and variable-costing income statements:
I. A variable-costing income statement discloses a firm’s contribution margin.
II. Cost of goods sold on an absorption-costing income statement includes fixed costs.
III. The amount of variable selling and administrative cost is the same on absorption- and variable-costing income statements.
Which of the above statements is (are) true?
b. I only.
II only.
I and II.
II and III.
I, II, and III.
9) Under variable costing, fixed manufacturing overhead is:
treated in the same manner as variable manufacturing overhead.
expensed immediately when incurred.
applied directly to Finished-Goods Inventory.
applied directly to Work-in-Process Inventory.
never expensed.
10) Which of the following product-costing systems is/are required for tax purposes?
a. Absorption costing.
Variable costing.
Throughput costing.
Either absorption or variable costing.
Either absorption, variable costing, or throughput costing.
11) Lone Star has computed the following unit costs for the year just ended:
Direct material used $12
Direct labor $18
Variable manufacturing overhead $25
Fixed manufacturing overhead $29
Variable selling and administrative cost $10
Fixed selling and administrative cost $17
Under variable costing, each unit of the company’s inventory would be carried at:
$35.
$55.
$65.
$84.
some other amount.
12) Rocky Mountain Company produces two products (X and Y) from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Joint manufacturing costs for the year were $60,000. Sales values and costs were as follows:
I. If Processed Further
Product Units Made Sales Value at Split-Off Sales Value Separable Costs
X 9,000 $40,000 $78,000 $10,500
Y 6,000 80,000 90,000 7,500
If the joint production costs are allocated based on the physical-units method, the amount of joint cost assigned to product X would be:
$20,000.
$24,000.
$30,000.
$36,000.
$40,000.
13) Which of the following methods recognizes some (but not all) of the services that occur between service departments?
a. Direct method.
Step-down method.
Indirect method.
Reciprocal method.
Dual-cost allocation method.
14) Lone Star has computed the following unit costs for the year just ended:
Direct material used $12
Direct labor $18
Variable manufacturing overhead $25
Fixed manufacturing overhead $29
Variable selling and administrative cost $10
Fixed selling and administrative cost $17
Under absorption costing, each unit of the company’s inventory would be carried at:
$65.
$84.
some other amount.
$55.
$35.
15) The joint-cost allocation method that recognizes the revenues at split-off but does not consider any further processing costs is the:
relative-sales-value method.
net-realizable-value method.
physical-units method.
reciprocal-accounting method.
gross margin at split-off method.
16) Martina, Inc. has two service departments (Human Resources and Building Maintenance) and two production departments (Machining and Assembly). The company allocates Building Maintenance cost on the basis of square footage and believes that Building Maintenance provides more service than Human Resources. The square footage occupied by each department follows.
Human Resources 6,000
Building Maintenance 13,000
Machining 18,000
Assembly 26,000
Assuming use of the step-down method, over how many square feet would the Building Maintenance cost be allocated (i.e., spread)?
19,000.
44,000.
50,000.
63,000
More information is needed to judge.
17) Which of the following situations would cause variable-costing income to be lower than absorption-costing income?
Units sold equaled 39,000 and units produced equaled 42,000.
Sales prices decreased by $7 per unit during the accounting period.
Selling expenses increased by 10% during the accounting period.
Units sold equaled 55,000 and units produced equaled 49,000.
Units sold and units produced were both 42,000.
18) Indiana Company incurred the following costs during the past year when planned production and actual production each totaled 20,000 units:
Direct material used $280,000
Direct labor $120,000
Variable manufacturing overhead $160,000
Fixed manufacturing overhead $100,000
Variable selling and administrative costs $60,000
Fixed selling and administrative costs $90,000
Indiana’s per-unit inventoriable cost under variable costing is:
a. $9.50.
$25.00.
$28.00.
$33.00.
$40.50.
19) The process of allocating fixed and variable costs separately is called:
a. diverse allocation
reciprocal-cost allocation.
common-cost allocation.
dual-cost allocation.
the separate allocation procedure (SAP).
20) The underlying difference between absorption costing and variable costing lies in the treatment of:
a. direct labor.
variable manufacturing overhead.
fixed manufacturing overhead.
variable selling and administrative expenses.
fixed selling and administrative expenses.
