Garda\'s a company that sells fishing nets provides the following information ab
ID: 2453024 • Letter: G
Question
Garda's a company that sells fishing nets provides the following information about its product; Young Guns Company, which sells tents, has provided the following information: Evans Hoofing Company has estimated the following amounts for its next fiscal year: If the company spends an additional $30,000 on advertising, sales volume would increase by 2500 units. What effect will this decision have on the operating income of Evans? Operating income will inoease by $37,500. Operating income will increase by $7,500. Operating income will increase by $70,000 D) Operating income will decrease by $62500. Which of the following statements is true of absorption costing? It considers variable selling and administrative costs as product costs. It considers fixed selling and administrative costs as product costs. It considers variable manufacturing overhead cost as period costs. It considers fixed manufacturing overhead cost as product costs. Which of the following statements is true of variable costing? It considers fixed selling and administrative costs as period costs. It considers fixed manufacturing overhead as product costs. It considers variable manufacturing overhead as period costs. It considers variable selling and administrative costs as product costs.Explanation / Answer
(8) Option (B)
Contribution margin ratio = (Unit selling price - Unit variable cost) / Unit selling price x 100
= $(6 - 1.5) / $6 x 100 = 75%
(9) Option (B)
BEP (Units) = Fixed Cost / (Selling price - Unit variable cost)
= $12,600 / $(40 - 12) = 450
(10) Option (C)
Increase in revenue = 2,500 x $40 = $100,000
Increase in cost (Advertising) = $30,000
Increase in operating cost = Increase in revenue - Increase in cost (Advertising)
= $(100,000 - 30,000) = $70,000
(11) Option (D)
Absorption cost considers all fixed cost of production into the product cost.
(12) option (C)
Variable costing considers any fixed cost as period cost.
(13) Option (D)
Variable costing does not include variable selling expenses as product cost. These are treated as period costs.
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