Multiple Choice Questions

1. Murdock’s Munchies has the following cost information:

Variable S&A costs .........$2.00 per unit

Direct materials ............$7.50 per unit

Variable overhead ...........$2.25 per unit

Direct labor ............$1.25 per unit

Fixed S&A costs ...........$50,000

Fixed overhead ...........$75,000

If 25,000 units are produced and sold at a price of $20, what is the net income under variable costing and absorption costing, respectively?

a. $0; $0

b. $125,000; $50,000

c. $50,000; $50,000

d. $125,000; $125,000

2. Which of the following statements is correct?

a. When an equal number of units are produced and sold, net income is significantly higher under absorption costing than variable costing.

b. When an equal number of units are produced and sold, net income is higher under variable costing than absorption costing.

c. When an equal number of units are produced and sold, net income is marginally higher under absorption costing than variable costing.

d. When an equal number of units are produced and sold, net income under absorption costing is the same as net income under variable costing.

3. Under variable costing, which of the following is not considered a product cost?

a. Direct materials

b. Direct labor

c. Fixed manufacturing overhead

d. Variable manufacturing overhead

4. Under absorption costing, which of the following is not considered a product cost?

a. Direct labor

b. Fixed manufacturing overhead

c. Variable manufacturing overhead

d. Administrative costs

5. The primary difference between variable and absorption costing is the treatment of:

a. Fixed selling and administrative costs

b. Variable selling and administrative costs

c. Fixed manufacturing overhead

d. Variable manufacturing overhead

6. Which of the following descriptions would not be found on an income statement prepared using variable costing?

a. Sales

b. Fixed costs

c. Cost of goods sold

d. Net income

7. Assuming that the number of units sold and produced are the same, which of the following statements is true when comparing net income using absorption and variable costing?

a. Absorption costing will yield a higher net income.

b. Variable costing will yield a higher net income.

c. Net income will be the same under both methods.

d. Sales revenue will be less using absorption costing.

8. Assuming that the number of units produced is less than the number of units sold, which of the following statements is true when comparing net income using absorption and variable costing?

a. Absorption costing will yield a higher net income.

b. Variable costing will yield a higher net income.

c. Net income will be the same under both methods.

d. The sales price per unit will be less using absorption costing.

9. Tyson manufacturing has the following cost information available for 2009:

Direct materials ................$6.00 per unit

Direct labor .................$2.00 per unit

Variable manufacturing overhead .........$1.50 per unit

Variable selling and administrative costs ......$3.00 per unit

Fixed manufacturing overhead .........$40,000

Fixed selling and administrative costs .......$50,000

During 2009, Tyson produced 10,000 units out of which 9,100 were sold for $50 each.

What is the net income under variable costing?

a. $251,250

b. $254,850

c. $285,000

d. $291,250

10. Tyson manufacturing has the following cost information available for 2009:

Direct materials ..................$6.00 per unit

Direct labor ..................$2.00 per unit

Variable manufacturing overhead ..........$1.50 per unit

Variable selling and administrative costs .......$3.00 per unit

Fixed manufacturing overhead ..........$40,000

Fixed selling and administrative costs ........$50,000

During 2009, Tyson produced 10,000 units, out of which 9,100 were sold for $50 each.

What is the net income under absorption costing?

a. $251,250

b. $254,850

c. $285,000

d. $299,850