Costing Problem Dorazio Corporation

Q1) Data concerning Dorazio Corporation’s single product appear below:

Fixed expenses are $87,000 per month. The company is currently selling 1,000 units per month. Management is considering using a new component that would increase the unit variable cost by $28. Since the new component would increase the features of the company’s product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company’s monthly net operating income of this change?

a) increase of $5,600
b) increase of $33,600
c) decrease of $5,600
d) decrease of $33,600

Q2)A reason why absorption costing income statements are sometimes difficult for the manager to interpret is that:

A)they omit variable expenses entirely in computing net operating income.
B) they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.
C)they include all fixed manufacturing overhead on the income statement each year as a period cost.
D)they ignore inventory levels in computing income charges.

Q3) A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the total period cost for the month under the absorption costing approach?

A) $56,700
B) $65,500
C) $8,800
D) $37,800

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