1. Absorption costing treats all manufacturing costs as product costs. true 2. How would the following costs be classified (product or period) under variable costing at a retail clothing store? Cost of purchasing clothing=product Sales commissions=product 3. A reason why absorption costing income statements are sometimes difficult for the manager to interpret is that: they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories 4. Kiefer Company, which has only one product, has provided the following data concerning its most recent month of operations: INCLUDEPICTURE "http://mh3.brownstone.net/web/NoMaAcFo000/Public_Html/ch06/r29-1.png" \* MERGEFORMATINET The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. What is the net operating income for the month under absorption costing? $29,200 5. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: INCLUDEPICTURE "http://mh3.brownstone.net/web/NoMaAcFo000/Public_Html/ch06/q36-1.png" \* MERGEFORMATINET What is the total period cost for the month under the absorption costing approach? $56,700 6. Sipho Corporation manufactures a variety of products. Last year, the company's variable costing net operating income was $85,600. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $18,500. What was the absorption costing net operating income last year? $67,100 7. Dearne Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $70 Units in beginning inventory 0 Units produced 6,200 Units sold 4,400 Units in ending inventory 1,800 Variable costs per unit: Direct materials $16 Direct labor $15 Variable manufacturing overhead $2 Variable selling and administrative $5 Fixed costs: Fixed manufacturing overhead $40,600 Fixed selling and administrative $73,900 What is the total period cost for the month under the variable costing approach? $136,500 8. Caruso Inc., which produces a single product, has provided the following data for its most recent month of operations: Number of units produced 3,500 Variable costs per unit: Direct materials $49 Direct labor $64 Variable manufacturing overhead $3 Variable selling and administrative expense $7 Fixed costs: Fixed manufacturing overhead $219,000 Fixed selling and administrative expense $312,000 There were no beginning or ending inventories. The unit product cost under variable costing was: $116 8. Norenberg Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years: Variable costing net operating income, last year $80,100 Variable costing net operating income, this year $104,100 Increase in ending inventory, last year 590 units Decrease in ending inventory, this year 1,300 units Fixed manufacturing overhead cost per unit $9 What was the absorption costing net operating income this year? $115,800 10. Blake Corporation, which produces a single product, has provided the following absorption costing income statement for the month of June: Blake Corporation Income Statement For the month ended June 30 Sales (9,700 units) $320,100 Cost of goods sold: Beginning inventory $ 9,800 Add cost of goods manufactured 101,900 Goods available for sale 111,700 Less ending Inventory 20,900 Cost of goods sold 90,800 Gross margin 229,300 Selling and administrative expenses: Fixed $ 65,000 Variable 19,400 84,400 Net operating income $ 144,900 During June, the company's variable production costs were $10 per unit and its fixed manufacturing overhead totaled $55,000. A total of 8,500 units were produced during June and the company had 1,100 units in the beginning inventory. The company uses the LIFO method to value inventories. The break-even point in units for the month under variable costing would be (rounded): 5714 units
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