Question

In: Accounting

1. Operating profit computed under absorption costing will be: Select one: a. higher than operating profit...

1.

Operating profit computed under absorption costing will be:

Select one:

a. higher than operating profit under variable costing when units produced are less than units sold.

b. higher than operating profit under variable costing in all cases.

c. higher than operating profit under variable costing when units produced are greater than units sold.

d. equal to operating

2.

The average unit cost at a monthly volume of 9,000 units is GH¢ 3, and the average unit cost at a monthly volume of 22,500 units is GH¢ 2.10. What are the total monthly costs if 15,000 units are produced?

Select one:

a. GH¢ 36,000.

b. GH¢ 35,000.

c. GH¢ 44,000.

d. GH¢ 36,600.

3.

ABC Company wishes to make a profit of GH¢150,000. It has fixed costs of GH¢75,000 with a contribution margin ratio of 75% and a selling price of GH¢10 per unit. How many units would the Company need to sell in order to achieve the required level of profit?

Select one:

a. 30,000 units.

b. 10,000 units.

c. 15,000 units.

d. 22,500 units

4.

Under variable costing, product costs consist of

Select one:

a. variable production costs.

b. variable production and selling costs.

c. variable and fixed production costs.

d. variable selling costs.

Solutions

Expert Solution

Q.1 Correct Option C
Operating profit computed under absorption costing will be higher than operating profit under variable costing when units produced are greater than units sold because manufacturing fixed overhead allocated to units which are not sold are not deducted in absorption costing while total of the manufacturing overhead is deducted in variable costing and nothing deferred in ending inventory.
Q.2 Correct Option A : GH¢ 36,000.
Units Sold Total Cost
High LEVEL 22500 47250
Low Level 9000 27000
Change 13500 20250
Change per unit (Variable cost) = Change in total cost / Change in Units Sold
=(20250/13500)
1.5 per unit
Fixed Cost calculation
Variable Cost + Fixed cost = Total cost
   1.5 * 9000 + Fixed Cost = 27000
Fixed Cost = 13500
Cost for 15000 Units
Variable cost 22500
Add: Fixed cost 13500
Total cost 36000
Q.3 Correct Option A 30,000 units.
Target Units = (Fixed cost + Target Profit )/Contribution margin per unit
     =(150000 + 75000) /7.5
30000 Units
Q.4 Correct Option a. variable production costs.
Note : Variable costing does not take fixed cost as production cost

ekkarill92 answered 2 years ago
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