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Jakes Lanterns produced and sold 15,000 lanterns in its first year. Anticipating a significant increase in sales, Jakes produced 24,000 lanterns in its second year and sold 21,500 lanterns. The lanterns sold for $13 each with a variable overhead cost of $5.75 per unit and allocated fixed overhead costs of $2.50 per unit. Selling, general, and administrative (SG&A) cost totals were $54,000 for variable costs and $18,250 for fixed costs.
Jakes' operating profit for its second year of operations using variable costing will be closest to:
B. $23,625
Bethany Company has just completed the first month of producing a new product but has not yet shipped any of this product. The product incurred variable manufacturing costs of $5,000,000, fixed manufacturing costs of $2,000,000, variable marketing costs of $1,000,000, and fixed marketing costs of $3,000,000.
If Bethany uses the variable cost method to value inventory, the inventory value of the new product would be
A. $5,000,000.
During Year 1, a start-up company produced 1,000 units and sold 800 units. Variable manufacturing costs are $90 per unit; variable selling and administrative costs are $10 per unit; fixed manufacturing costs are $20 per unit; and fixed selling and administrative costs are $5 per unit. How much higher will net income be if the company uses absorption costing rather than variable costing?
C. $ 4,000
Which one of the following considers the impact of fixed overhead costs?
A. Full absorption costing
If a manufacturing company uses variable costing to cost inventories, which of the following costs are considered inventoriable costs?
A. Only raw material, direct labor, and variable manufacturing overhead costs.
Which of the following statements is not true regarding use of variable and absorption costing for performance measurement?
D. The Internal Revenue Service allows either absorption or variable costing as long as the method is not changed from year to year, while U.S. GAAP only allows absorption costing.
In comparing the absorption and variable cost methods, each of the following statements is true except:
D. When inventory increases over the period, variable net income will exceed absorption net income.
Which of the following correctly shows the treatment of (1) factory insurance, (2) direct labor, and (3) finished goods shipping costs under absorption costing and variable costing?
A. Absorption Costing
Product Cost- (1,2)
Period Cost- (3)
Variable Costing
Product cost (2)
Period Cost (1, 3)
How would depreciation of production equipment be classified in a manufacturing organization using the absorption approach?
D. Fixed production cost
Assuming that a management accountant wants to maximize reported net income, which of the following costing methods would show the greatest net income when the company increases its ending inventory?
D. Absorption costing
