2. 1. Information from Peter Company’s records for the year ended
December 31, 20x3, is available as follows:
Net sales 1,400,000
Cost of goods manufactured
Variable 630,000
Fixed 315,000
Operating expenses
Variable 98,000
Fixed 140,000
Units manufactured 70,000
Units sold 60,000
Finished goods inventory
January 1, 2013 None
Question: Under the
absorption costing
method, Peter’s net
profit for 20x3 would
be …
A. 217,000
B. 307,000
C. 352,000
D. 374,000
3. 2. The following information is available for Nhecy Corp’s product line
Selling price per unit 15
Variable manufacturing costs per unit
production
8
Total annual fixed manufacturing cost 25,000
Variable administrative costs per unit of
production
3
Total annual fixed selling and administrative
expenses
15,000
There was no inventory at the beginning of the year. During the
year 12,500 units were produced and 10,000 units were sold. The total
fixed costs charged against the current year’s income, assuming Nhecy
uses absorption costing is
4. 3. The following information is available for Nhecy Corp’s product line
Selling price per unit 15
Variable manufacturing costs per unit
production
8
Total annual fixed manufacturing cost 25,000
Variable administrative costs per unit of
production
3
Total annual fixed selling and administrative
expenses
15,000
There was no inventory at the beginning of the year. During the
year 12,500 units were produced and 10,000 units were sold. The total
fixed costs charged against the current year’s income, assuming Nhecy
uses absorption costing is
5. 4. Of the 6,000 units produced by the Sta. Teresita Company during
September, 5000 units were sold at 45 per unit.
Material 40,000
Direct Labor 50,000
Factory Overhead:
Fixed 30,000
Variable 36,000
Selling and administrative expenses, all fixed, totaled 60,000
The net operating income for September under absorption costing was
6. 5. The following information is available for Nhecy Corp.’s product line
Selling price per unit 15
Variable manufacturing costs per unit of
production
8
Total annual fixed manufacturing costs 25,000
Variable administrative costs per unit of
production
3
Total annual fixed selling and administrative
expenses
15,000
There was no inventory at the beginning of the year, During the year 12,500
units were produced and 10,000 units were sold. The net profit, assuming
Nhecy uses direct costing would be?
7. 6. Gerlie Company began its operation on 1/1/23 and produces a single
product that sells for 10 per unit, 100000 units were produced and 80,000
units were sold.
Fixed cost Variable costs
Raw Material 2.00 per unit
produced
Direct labor 1.25 per unit
produced
Factory Overhead 120,000 .75 per unit
produced
Selling and administrative
expenses
70,000 1 per unit sold
What would be Gerlie’s net income for 2013 under variable (direct) costing
method?
8. 7. The following information is available for Nhecy Corp.’s product line
Selling price per unit 15
Variable manufacturing costs per unit of
production
8
Total annual fixed manufacturing costs 25,000
Variable administrative costs per unit of
production
3
Total annual fixed selling and administrative
expenses
15,000
There was no inventory at the beginning of the year, During the year 12,500
units were produced and 10,000 units were sold. The ending inventory,
assuming Nhecy used direct costing would be?
9. 8. Gerlie Company began its operation on 1/1/23 and produces a single
product that sells for 7 per unit. 100,000 units were produced and 80,000
units were sold.
Fixed cost Variable costs
Raw Material 1.50 per unit
produced
Direct labor 1.00 per unit
produced
Factory Overhead 150,000 .50 per unit
produced
Selling and administrative
expenses
80,000 .50 per unit sold
What is the unit cost under absorption costing ?
10. 9. Alma, Inc, , manufactured 700 units of Product A, a new product during
the year. Product A’s variable and fixed manufacturing costs per unit were 6
and 2 respectively. The inventory of Product A on December 31 consisted of
100 units. There was no inventory on January 1. What would be the change
in peso amount of inventory on Dec. 31 if the direct costing method was
used instead of the absorption costing method?
a. 800 decrease c. 0
b. 200 decrease d. 200 increase
11. 10. Gerlie Company began its operation on 1/1/23 and produces a single
product that sells for 7 per unit, 100000 units were produced and 80,000
units were sold.
Fixed cost Variable costs
Raw Material 1.50 per unit
produced
Direct labor 1.00 per unit
produced
Factory Overhead 150,000 .50 per unit
produced
Selling and administrative
expenses
80,000 .50 per unit sold
What is the net profit for 2023 under direct costing?
12. 11. Gerlie Company began its operation on 1/1/23 and produces a single
product that sells for 7 per unit, 100000 units were produced and 80,000
units were sold.
Fixed cost Variable costs
Raw Material 2.00 per unit
produced
Direct labor 1.25 per unit
produced
Factory Overhead 120,000 .75 per unit
produced
Selling and administrative
expenses
70,000 1 per unit sold
What is the finished goods inventory under the absorption costing
method?
13. 12. The following information is available for Nhecy Corp.’s product line
Selling price per unit 15
Variable manufacturing costs per unit of
production
8
Total annual fixed manufacturing costs 25,000
Variable administrative costs per unit of
production
3
Total annual fixed selling and administrative
expenses
15,000
There was no inventory at the beginning of the year, During the year 12,500
units were produced and 10,000 units were sold. The ending inventory,
assuming Nhecy uses absorption costing would be …
14. 13. Gabby produced 10,000 units of product F with costs as follows:
Material 40,000
Direct Labor 22,000
Factory Overhead:
Fixed 13,000
Variable 10,000
What is the unit cost of product F for 1/31/23 using direct costing method?
15. 14. Selected information concerning the operations of Elma,
Company for the year ended Dec. 31, 20x3, is available as follows:
Units produced 10,000
Units sold 9,000
Direct materials used 40,000
Direct labor incurred 20,000
Fixed factory overhead 25,000
Variable factory overhead 12,000
Fixed, selling, and administrative expenses 30,000
Variable, selling, and administrative expenses 4,500
Finished goods inventory
January 1, 20x3 None
What would Elma’s finished goods inventory at Dec. 31, 2023, under
variable costing?
16. 15. Selected information concerning the operations of Elma,
Company for the year ended Dec. 31, 20x3, is available as follows:
Units produced 10,000
Units sold 9,000
Direct materials used 40,000
Direct labor incurred 20,000
Fixed factory overhead 25,000
Variable factory overhead 12,000
Fixed, selling, and administrative expenses 30,000
Variable, selling, and administrative expenses 4,500
Finished goods inventory
January 1, 20x3 None
Which costing method, absorption or variable costing, would show a
higher profit for 20x3 and by what amount?
17. 16. Information from
Peter Company’s records
for the year ended
December 31, 20x3, is
available as follows:
What would be Peter’s
finished goods inventory
at December 31, 20x3,
under the variable (direct
costing) method?
Net Sales 1,400,000
Cost of goods
manufactured
Variable 630,000
Fixed 315,000
Operating
Expenses
Variable 98,000
Fixed 140,000
Units
manufactured
70,000
Units sold 60,000
Finished goods
inventory
January 1, 2013 None
18. 17. Brooks Corporation began operations on January 1, 20x3, and
produces a single product that sells for 9 per unit. A hundred
thousand units were produced and 90,000 units were sold in 20x3.
Manufacturing costs and selling and administrative expenses for
20x3 were as follows:
FIXED COSTS VARIABLE COSTS
Raw Materials 1.75 per unit
produced
Direct labor 1.25 per unit
produced
Factory Overhead 100,000 .50 per unit
Selling and
Administrative
70,000 .60 per unit sold
19. 18. Selected information concerning the operations of Elna, Company for the year ended Dec. 31, 20x3, is
available as follows:
Units produced 10,000
Units sold 9,000
Direct Materials used 40,000
Direct labor incurred 20,000
Fixed factory overhead 25,000
Variable factory overhead 12,000
Fixed selling and administrative 30,000
Variable selling and administrative expenses 4,500
January 1, 20x3 None
Which costing method, absorption or variable costing, would show a higher profit for 20x3 and by what
amount? Compare, compute, and explain.
20. THEORIES
1. What will be the difference in net earnings computed using direct
costing as opposed to absorption costing if the ending inventory increase
with respect to the beginning inventory in terms of units?
A. There will be no difference in net earnings
B. Net earnings computed using direct costing will be higher
C. The difference in net earnings cannot be determined from the
information given
D. Net earnings computed using direct costing will be lower
21. THEORIES
2. The basic assumption made in direct costing system with respect to
fixed cost is that fixed costs are
A. income
B. revenue
C. product cost
D. period cost
22. THEORIES
3. What is the basic difference between direct costing and absorption
costing?
A. Direct costing always produces less taxable income that absorption
B. Direct costing recognizes fixed costs a period cost and absorption
costing recognizes fixed costs as product cost
C. Direct costing cannot use standards, whereas standards may be used
with absorption costing.
D. Direct costing may be used only in the situation where production is
essentially homogenous but absorption costing may be used under any
manufacturing condition.
23. THEORIES
4. Variable costing would exceed net income computed using absorption
costing if
A. units sold exceed units produced
B. units sold are less than units produced
C. units sold equal units produced
D. the unit fixed cost is zero
24. THEORIES
5. The net income reported under absorption costing will exceed net
income reported under direct costing for a period if:
a. Production equals sales for the period
b. Production exceed sales for the period
c. Sales exceed production for the period
d. The variable overhead exceed the fixed overhead
25. THEORIES
6. Which of the following must be known about a production process in
order to institute a direct costing system?
a. The variable and fixed components of all costs related to production
b. The controllable and uncontrollable components of all costs related to
production
c. Standard production rates and times for all elements of productions
d. Contributions margin and breakeven point for all goods in production
26. THEORIES
7. What factor, related to manufacturing costs, causes the difference in net
profit computed using absorption costing and net profit computed under
direct costing?
a. Absorption costing considers all costs in the determination of net
earnings, whereas direct costing considers only direct costs
b. Absorption costing allocates fixed costs between cost of goods sold and
inventories and direct costing considers all fixed costs to be period cost
c. Absorption costing inventories all fixed costs for the period in ending
finished goods inventory, but direct costing expense all fixed cost.
27. THEORIES
8. Net income reported under variable costing will exceed net income
reported under absorption costing for the period if
a. Production equals sales for the period
b. Production is greater than sales for the period
c. Sales is greater than production for the period
d. The variable costs exceeds the fixed cost
28. THEORIES
9. The direct costing method includes in inventory
a. Direct material cost, direct labor cost, but not all factory overhead cost
b. Direct material cost, direct labor cost, and variable and factory
overhead cost
c. Prime cost but not conversion cost
d. Prime cost and all conversion cost
29. THEORIES
10. When using direct costing system, the contribution margin discloses the
excess of
a. Revenue over fixed cost
b. Projected revenues over breakeven point
c. Revenue over variable cost
d. Variable costs over fixed costs
30. THEORIES
11. Which of the accounting terminology is commonly referred to as direct
costing?
a. Absorption costing
b. Prime costing
c. Variable costing
d. Relevant costing
