Question: Variable Costing and Absorption Costing Questions 1 8. Production Costs Nonproduction Costs Direct materials cost $4 per unit Variable S&A expenses $2 per unit Direct

Variable Costing and Absorption Costing Questions 1 8.

Production Costs Nonproduction Costs

Direct materials cost $4 per unit Variable S&A expenses $2 per unit

Direct labor cost $8 per unit Fixed S&A expenses $200,000 per year

Variable overhead cost $3 per unit

Fixed overhead cost $600,000 per year

Sales price/unit $40

Units Produced Units Sold Units in Ending Inventory

2009 60,000 60,000 0

2010 60,000 45,000 15,000

2011 60,000 75,000 0

UNITS PRODUCED EXCEED UNITS SOLD

ICEAGE COMPANY

Income Statement (Absorption Costing)

For Year Ended December 31, 2010

Sales

Cost of goods sold

Gross margin

S&A expenses

Net income

ICEAGE COMPANY

Income Statement (Variable Costing)

For Year Ended December 31, 2010

Sales

Variable expenses

Variable production costs

Variable S&A expenses

Contribution margin

Fixed expenses

Fixed overhead

Fixed S&A expenses

Net income

Variable Costing and Absorption Costing

UNITS PRODUCED ARE LESS THAN UNITS SOLD

ICEAGE COMPANY

Income Statement (Absorption Costing)

For Year Ended December 31, 2011

Sales

Cost of goods sold

Gross margin

S&A expenses

Net income

ICEAGE COMPANY

Income Statement (Variable Costing)

For Year Ended December 31, 2011

Sales

Variable expenses

Variable production costs

Variable S&A expenses

Contribution margin

Fixed expenses

Fixed overhead

Fixed S&A expenses

Net income

1 What is gross margin if 45,000 units are sold?

A. $650,000

B. $675,000

C. $700,000

D. $725,000

2 What is net income under absorption costing if 45,000 units are sold?

A. $375,000

B. $380,000

C. $385,000

D. $390,000

3 What is contribution margin if 45,000 units are sold?

A. $1,035,000

B. $1,040,000

C. $1,045,000

D. $1,050,000

4 What is net income under variable costing if 45,000 units are sold?

A. $190,000

B. $205,000

C. $220,000

D. $235,000

5 What is gross margin if 75,000 units are sold?

A. $1,123,000

B. $1,125,000

C. $1,230,000

D. $1,345,000

6 What is net income under absorption costing if 75,000 units are sold?

A. $775,000

B. $785,000

C. $790,000

D. $800,000

7 What is contribution margin if 75,000 units are sold?

A. $1,725,000

B. $1,850,000

C. $1,930,000

D. $1,963,000

8 What is net income under variable costing if 75,000 units are sold?

A. $873,000

B. $905,000

C. $925,000

D. $935,000

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