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Exam 30: Cost-Revenue Analysis for Decision Making

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Question 31

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Differential cost analysis emphasizes evaluating alternatives by calculating the differences in relevant costs.

A) True
B) False

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Question 32

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Which of the following is not true of the direct costing procedure?

A) Variable selling expenses are deducted from the manufacturing margin.
B) The cost of goods sold, based solely on variable costs, is subtracted from net sales to arrive at the manufacturing margin.
C) Variable and fixed costs are considered part of the cost of goods manufactured.
D) Variable administrative expenses are deducted from the manufacturing margin.

E) All of the above
F) B) and C)

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Question 33

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In its first year of operations, a company has sales of $162,000, ending finished goods inventory of $9,000, variable manufacturing costs of $55,000, and fixed manufacturing costs of $32,000 for the year. The company pays 12% commission to its sales force and has fixed selling and administrative expenses of $25,000 annually. The company has no other variable expenses. Assuming the company uses direct costing, the contribution margin for the year is

Opportunity costs are earnings or potential benefits foregone because a certain course of action is taken.

In making a decision to replace a machine, which of the following would not be relevant?

If the finished goods inventory decreases during the period, the reported net income will be larger under variable costing than under absorption costing.

The excess of net sales over the cost of goods sold, based on variable costs only, is--------------- referred to as the .

Using the given information, determine the income under both the absorption and the direct (variable)costing methods for CRL Company this year. Explain the difference, if any.

Company A's inventory increased 525 units over the prior year end. Its variable manufacturing costs are $6 per unit and fixed costs for the period were $275,000. During the current year, Company A produced 12,500 units. Absorption costing net income will be:

Manufacturing margin less variable selling and administrative expenses equals marginal income.

Which of the following is NOT a step in the decision-making process?

It is appropriate to consider nonfinancial factors in the decision-making process.

Costmore Manufacturing has provided the following operating results for its first year operations: $\begin{array}{lr}\text { Beginning inventory of finished goods } & 0 \\\text { Units produced (no work in process) } & 22,000 \\\text { Units sold } & 18,000 \\\text { Units in ending inventory of finished goods } & 4,000\\\text { Sales price }&\$55\text { per unit }\\\text { Variable manufacturing costs }&\$25\text { per unit }\\\text { manufactured Variable selling and }\text { administrative expenses }&\$ 7 \text { per unit }\\\text { sold Fixed manufacturing }\text { costs for the year } & \$ 110,000 \\\text { Fixed selling and administrative expenses for the year } & \$ 124,000\end{array}$ - Using direct costing, the manufacturing margin is:

GAAP requires the use of the absorption costing method for financial reporting.

The data given below pertains to the operations of the Newton Products Corporation for the year ended December 31, 2019 Based on the information given prepare an income statement for the year using the direct costing approach. Assume that the beginning finished goods inventory had a cost of $25 per unit.

Costmore Manufacturing has provided the following operating results for its first year operations: $\begin{array}{lr}\text { Beginning inventory of finished goods } & 0 \\\text { Units produced (no work in process) } & 22,000 \\\text { Units sold } & 18,000 \\\text { Units in ending inventory of finished goods } & 4,000\\\text { Sales price }&\$55\text { per unit }\\\text { Variable manufacturing costs }&\$25\text { per unit }\\\text { manufactured Variable selling and }\text { administrative expenses }&\$ 7 \text { per unit }\\\text { sold Fixed manufacturing }\text { costs for the year } & \$ 110,000 \\\text { Fixed selling and administrative expenses for the year } & \$ 124,000\end{array}$ - Using the absorption costing method, cost of goods manufactured for the year is:

The direct costing procedure is sometimes referred to as variable costing.

Timkon Manufacturing has provided the following operating results for its recent operations: $\begin{array}{lr}\text { Beginning inventory of finished goods } & 4,500 \\\text { Units produced (no work in process) } & 10,000 \\\text { Units sold } & 12,500 \\\text { Units in ending inventory of finished goods } & 2,000\\\text { Sales price }&\$ 50 \text { per unit }\\\text { Variable manufacturing costs }&\$ 20 \text { per unit }\\\text { manufactured Variable selling expenses }&\$ 2 \text { per unit sold }\\\text { Variable administrative expenses } & \$ 1 \text { per unit sold Fixed manufacturing } \\\text { costs for the year } & \$ 100,000 \\\text { Fixed selling expenses for the year } & \$ 52,000 \\\text { Fixed administrative expenses for the year } & \$ 84,000\end{array}$ - Assuming beginning inventory cost per unit is not different than ending inventory cost, the value of the ending inventory under absorption costing is:

The difference in cost between two alternatives is called a(n)------------cost.

The sum of unit variable and fixed costs is used as a basis for determining whether to accept or reject a special order.