1.

At a break-even point of 5,000 units sold, variable expenses were P10,000 and fixed expenses
were P60,000. The profit from the 5,001st unit would be?

ANSWER: 12

2. ILoveAccounting Corporation has the following standard costs associated with the manufacture
and sale of one of its products:

Direct material $3.00 per unit

Direct labor 2.50 per unit
Variable manufacturing overhead 1.80 per unit
Fixed manufacturing overhead 4.00 per unit (based on an estimate
of 50,000 units per year)
Variable selling expenses .25 per unit
Fixed SG&A expense $75,000 per year

During 2001, its first year of operations, ILoveAccounting manufactured 51,000 units and sold 48,000.
The selling price per unit was $25. All costs were equal to standard.

Based on variable costing, the income before income taxes for the year was

ANSWER: 562,600

3. I. If a company raises its target peso profit, its required total contribution margin increases.

II. BAHA-DA INC. sells three products: A, B and C. Product A's unit contribution margin is higher
than Product B's which is higher than Products C's. An increase in the overall market demand for
Product B will most likely to increase the company's overall break-even point

ANSWER: TRUE, TRUE

4. Allocated costs are

ANSWER: generally common. And irrelevant

5. In a recent period, Marvel Co. incurred $20,000 of fixed manufacturing overhead and deducted
$30,000 of fixed manufacturing overhead. Marvel Co. must be using

ANSWER: Absorption Costing

 6. Simple Corp. produces a single product. The following cost structure applied to its first year of
operations, 2001:

Variable costs:

SG&A 2 per unit

Production 4 per unit

Fixed costs (total cost incurred for the year):

SG&A 14,000

Production 20,000

Assume for this question only that Simple Corp. manufactured and sold 5,000 units in 2001. At this level
of activity it had an income of $30,000 using variable costing. What was the sales price per unit? (with at
least 2 decimal points)

ANSWER: 18.8

7. KeepDreaming Corporation has computed the following unit costs for the year just ended

Direct material used $25

Direct labor 19

Variable manufacturing overhead 35

Fixed manufacturing overhead 40

Variable selling and administrative cost 17

Fixed selling and administrative cost 32

Which of the following choices correctly depicts the per-unit cost of inventory under variable
costing and absorption costing?

ANSWER: C. 79 and 119

8. I. Selling and administrative costs are product costs under both absorption and variable costing.

II. When units sold exceed units produced, income under absorption costing is lower than
income under variable costing.

III. The use of direct costing facilitates cost-volume-profit analysis.

ANSWER: FALSE, TRUE, TRUE

 9. U-R 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:

ANSWER: 55

10. I. If the capacity level chosen to calculate the budgeted fixed overhead cost rate is more than
the actual production, an unfavorable production-volume variance will result.

II. The production-volume variance is affected by the choice of capacity concept used to
determine the denominator level.

III.The higher the denominator level the higher the budgeted fixed manufacturing cost rate per
unit.

ANSWER: TRUE, TRUE, FALSE

11. How will a favorable volume variance affect net income under each of the following methods?
ANSWER: Absorption Costing- increase, Variable Costing- no effect

12. ILoveAccounting Corporation has the following standard costs associated with the manufacture
and sale of one of its products:

Direct material $3.00 per unit

Direct labor 2.50 per unit
Variable manufacturing overhead 1.80 per unit
Fixed manufacturing overhead 4.00 per unit (based on an estimate
of 50,000 units per year)
Variable selling expenses .25 per unit
Fixed SG&A expense $75,000 per year
During 2001, its first year of operations, ILoveAccounting manufactured 51,000 units and sold 48,000.
The selling price per unit was $25. All costs were equal to standard.

The volume variance under absorption costing is

ANSWER: 4,000 F

13. Advocates of variable costing argue that:

ANSWER: fixed production costs should be charged to the period in which they are incurred.

14. I. The inventory value shown on the balance sheet is generally lower under absorption costing
than under variable costing.

II. When viewed over the long term, accumulated net operating income will be the same for
variable and absorption costing if there are still ending inventories at the end of the term.

III. Under variable costing, inventoriable product costs consist of direct materials, direct labor,
variable manufacturing overhead and variable selling and administration expenses.

ANSWER: FALSE, FALSE, FALSE

15. Simple Corp. produces a single product. The following cost structure applied to its first year of
operations, 2001:

Variable costs:

SG&A $2 per unit

Production $4 per unit

Fixed costs (total cost incurred for the year):

SG&A $14,000

Production $20,000

Assume for this question only that Simple Corp. produced 5,000 units and sold 4,500 units in 2001. If
Simple uses absorption costing, it would deduct period costs of

ANSWER: 23,000

16. I. When reconciling variable costing and absorption costing net operating income, fixed
manufacturing overhead costs deferred in inventory under absorption costing should be
 deducted from absorption costing net operating income to arrive at the variable costing net
operating income.

II. When the number of units in inventories decrease between the beginning and end of the
period, absorption costing net operating income will typically be lower than variable costing net
operating income.

III. Volume variance will only occur if the capacity used in computing predetermined overhead
rate is higher than the actual production.

ANSWER: TRUE, TRUE, FALSE

17. The following information is available for X Co. for its first year of operations:

Sales in units 5,000

Production in units 8,000

Manufacturing costs:

Direct labor $3 per unit

Direct material 5 per unit

Variable overhead 1 per unit

Fixed overhead $100,000

Net income (absorption method) $30,000

Sales price per unit $40

Based on variable costing, what would X Co. show as the value of its ending inventory?(No need for
decimals)

ANSWER: 27,000

18. ILoveAccounting Corporation has the following standard costs associated with the manufacture
and sale of one of its products:

Direct material $3.00 per unit

Direct labor 2.50 per unit

Variable manufacturing overhead 1.80 per unit

Fixed manufacturing overhead 4.00 per unit (based on an estimate

 of 50,000 units per year)

Variable selling expenses .25 per unit

Fixed SG&A expense $75,000 per year

During 2001, its first year of operations, ILoveAccounting manufactured 51,000 units and sold 48,000.
The selling price per unit was $25. All costs were equal to standard.

Under variable costing, the standard production cost per unit for 2001 was

ANSWER: 7.30

19. A company had an income of P50,000 using direct costing for a given month. Beginning and
ending inventories for the month are 12,000 units and 18,000 units, respectively. Ignoring
income tax, if the fixed overhead application rate was P2 per unit, what was the income using
absorption costing?

ANSWER: 62,000

20. The following data relate to Lumalavan Corporation for the year just ended:

Sales revenue $750,000

Cost of goods sold:

Variable portion 370,000

Fixed portion 110,000

Variable selling and administrative cost 50,000

Fixed selling and administrative cost 75,000

Which of the following statements is correct?

ANSWER: variable costing income statement would reveal a contribution margin of $330,000.

21. If a firm produces more units than it sells, absorption costing, relative to variable costing, will
result in

ANSWER: higher income and assets

 22. Se-ri Corporation produces a single product. The following cost structure applied to its first year
of operations:

Variable costs:

SG&A P2 per unit

Production P4 per unit

Fixed costs (total cost incurred for the year):

SG&A P14,000

Production P20,000

Assume for this question only that during the current year Se-ri Corporation manufactured 5,000 units
and sold 3,800. There was no beginning or ending work-in-process inventory. How much larger or
smaller would Se-ri Corporation's income be if it uses absorption rather than variable costing? (Amount
then larger or smaller, ex. 5,200 smaller)

ANSWER: 4,800 larger

23. The salary or wage that you could be earning while you are taking this test is
ANSWER: An opportunity cost

24. Unabsorbed fixed overhead costs in an absorption costing system are

ANSWER: fixed manufacturing costs not allocated to units produced.

25. Under variable costing, fixed manufacturing overhead is:

ANSWER: expensed immediately when incurred.

26. I. Under absorption costing, the profit for a period is affected by changes in inventory.

II. If production equals sales for the period, absorption costing and variable costing will produce
the same net operating income under FIFO.

III. Under absorption costing, inventoriable product costs consist of direct materials, direct
labor, variable manufacturing overhead, and fixed manufacturing overhead.
ANSWER: TRUE, TRUE, TRUE
 27. Under absorption costing, if sales remain constant from period 1 to period 2, the company will
report a larger income in period 2 when
ANSWER: period 2 production exceeds period 1 production.

28. The following information has been extracted from the financial records of KALMAKALANG
Corporation for its first year of operations:

Units produced 10,000

Units sold 7,000

Variable costs per unit:

Direct material $8

Direct labor 9

Manufacturing overhead 3

SG&A 4

Fixed costs:

Manufacturing overhead $70,000

SG&A 30,000

Based on absorption costing, KALMAKALANG Corporation's income in its first year of operations will be

ANSWER: $21,000 higher than it would be under variable costing.

29. I. Variable costing is the approach used for external reporting under generally accepted
accounting principles.

II. Manufacturing cost per unit will be lower under variable costing than under absorption
costing.

III. When units produced exceed units sold, income under absorption costing is lower than
income under variable costing.

ANSWER: FALSE, TRUE, FALSE

30. Under absorption costing, fixed manufacturing overhead costs:

ANSWER: are deferred in inventory when production exceeds sales.
 31. Heinrich Corporation incurred fixed manufacturing costs of P6,000 during 20X5. Other
information for 20X5 includes:

The budgeted denominator level is 1,000 units.

Units produced total 750 units.

Units sold total 600 units.

Beginning inventory was zero.

The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted
denominator level. Manufacturing variances are closed to cost of goods sold. Operating income using
absorption costing will be ________ than operating income if using variable costing.

ANSWER: 900 higher

32. The kind of cost that can be ignored in short-term decision making is
ANSWER: a sunk cost

33. Under absorption costing, fixed manufacturing overhead could be found in all of the
following except the
ANSWER: Period Cost

34. Under variable costing, fixed manufacturing overhead is

ANSWER: immediately expensed as a period cost.