# Variable Cost and Contribution Margin

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• Published : April 24, 2011

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1. Cost of goods manufactured will usually include:
A. only direct labor and direct materials costs.
B. some costs incurred during the prior period as well as costs incurred during the current period. C. only costs incurred during the current period.
D. some period costs as well as some product costs.

2. During the month of August, direct labor cost totaled \$13,000 and direct labor cost was 20% of prime cost. If total manufacturing costs during August were \$88,000, the manufacturing overhead was:  A. \$52,000

B. \$75,000
C. \$65,000
D. \$23,000

0.20 x Prime cost = Direct labor
0.20 x Prime cost = \$13,000
Prime cost = \$65,000
Prime cost = Direct materials + Direct labor
\$65,000 = Direct materials + \$13,000
Direct materials = \$52,000

3. The Lyons Company's cost of goods manufactured was \$120,000 when its sales were \$360,000 and its gross margin was \$220,000. If the ending inventory of finished goods was \$30,000, the beginning inventory of finished goods must have been:  A. \$150,000

B. \$20,000
C. \$50,000
D. \$110,000
Cost of goods sold = Sales - Gross margin
Cost of goods sold = \$360,000 - \$220,000
Cost of goods sold = \$140,000

4. Last month a manufacturing company had the following operating results:

What was the cost of goods manufactured for the month?
A. \$350,000
B. \$385,000
C. \$323,000
D. \$377,000
Sales - Cost of goods sold = Gross margin
\$412,000 - Cost of goods sold = \$62,000
Cost of goods sold = \$350,000

5. The following inventory balances relate to Lequin Manufacturing Corporation at the beginning and end of the year:

Lequin's total manufacturing cost was \$543,000. What was Lequin's cost of goods sold?  A. \$545,000
B. \$569,000
C. \$517,000
D. \$567,000

Corcetti Company manufactures and sells prewashed denim jeans. Large rolls of denim cloth are purchased and are first washed in a giant washing machine. After the cloth is dried, it is cut up into jean pattern shapes and then sewn together. The completed jeans are sold to various retail chains.

Garrison - Chapter 002

6. Which of the following terms could be used to correctly describe the cost of the soap used to wash the denim cloth?

A. Choice C
B. Choice A
C. Choice B
D. Choice D

7. Which of the following terms could be used to correctly describe the cost of the thread used to sew the jeans together?

A. Choice B
B. Choice C
C. Choice D
D. Choice A

The following data pertain to Harriman Company's operations during July:

Garrison - Chapter 002

8. The beginning work in process inventory was:
A. \$4,000
B. \$10,000
C. \$1,000
D. \$14,000

* Calculate this item by working backwards as shown:
Beginning work in process inventory + \$40,000 + \$39,000 + \$20,000 - \$4,000 = \$105,000 Beginning work in process inventory
= \$105,000 - \$40,000 - \$39,000 - \$20,000 + \$4,000
= \$10,000

9. The ending finished goods inventory was:
A. \$17,000
B. \$7,000
C. \$2,000
D. \$12,000

**\$117,000 - \$110,000 = \$7,000 = Ending finished goods inventory

10. Dagnon Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was \$299,130. At the end of the year, actual direct labor-hours for the year were 17,400 hours, manufacturing overhead for the year was overapplied by \$13,850, and the actual manufacturing overhead was \$294,130. The predetermined overhead rate for the year must have been closest to:  A. \$16.90

B. \$17.19
C. \$18.22
D. \$17.70