Crowdly

Indicate whether the following sentences are TRUE or FALSE:

In comparing the absorption and variable cost methods, when inventory increases over the period, variable net income will exceed absorption net income

In comparing the absorption and variable cost methods, only the absorption costing method may be used for external financial reporting

In comparing the absorption and variable cost methods, variable costing charges fixed manufacturing costs to the period they are incurred

In comparing the absorption and variable cost methods, the Admin fixed expenses are not included in inventory in either method

In comparing the absorption and variable cost methods, when actual production is larger than the budgeted level of production, absorption net income will exceed variable net income

In comparing the absorption and variable cost methods, the Marketing variable expenses are included in inventory in either method

Comment on the following article, extracted from the textbook (Horngren, 16th edition, page 368).

While this is an open-book exam, direct copying of content from the textbook or class notes will not earn points. Answers should demonstrate your understanding and application of the concepts.

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Which of the following factors is considered to have influenced the development of activity-based costing?

Increase in direct costs as a proportion of total product costs

Increase in overhead costs as a proportion of total product costs

None of the other options is correct

Increasing uniformity of products with sophisticated production technologies

A very high proportion of high-volume products

Cost of electricity that can be traced to individual products

Which of the following is a manufacturing overhead cost?

Labor cost that can be traced to individual products

Cost of materials that can be traced to individual products

None of the other options is correct

Depreciation cost of the manufacturing plant

Company X has the following estimated costs for

the next year:

Direct materials: $16109
Direct labor: $40000
Salary of production supervisor: $38000
Rent on factory equipment: $18893
Sales commission: $86000
Advertising expenses: $18000

It is estimated

that 53000 machine hours and 8000 direct labor hours will be worked during

the next year. What will be the predetermined overhead rate if the company applies

manufacturing overhead cost to jobs on the basis of direct labor hours?

Company X produces and sells two products: product P and product S. The selling prices are $60 for Product P and $100 for Product S sells for. The variable cost are as follows:

	Product P	Product S
Variable manufacturing cost cost as percentage of selling price	34%	35%
Variable selling and administrative cost as percentage of selling price	6%	5%

Expected sales in units next year are: 4000 for Product P and 1000 for Product S. Fixed costs are budgeted at $188240 per year.

The yearly break even point in sales is:

Company X sells a single product for $40 per

unit. Fixed costs are $120830 and variable

costs

equal 75% of sales. If fixed costs increase by $12713, Company X will have to

increase

sales by how much just to earn

profits equal to those earned before costs increased?

Company X is analyzing its fixed and variable costs within its current relevant range. As its cost driver activity changes within the relevant range, which of the following statements is/are correct?

A) As the cost driver level increases, total fixed cost remains unchanged.

B) As the cost driver level increases, unit fixed cost increases.

C) As the cost driver level decreases, unit variable cost decreases.

A, B, and C are correct

A only is correct

A and B only are correct

None of the others

B and C only are correct

What was the change in inventory over the year?

Company X reports the following data for the current year:

Net profit (variable costing basis) = $52123
Net profit (absorption costing) = $53323
Fixed manufacturing overhead costs per unit were the same in both the prior and current year ($1.20 per unit)

Inventory decreased 1000 units

Inventory increased 1200 units

None of the others

Inventory was unchanged in the period

Inventory increased 1000 units