acc ch 6 reading
Brother Company uses variable costing. Their direct materials are $8, direct labor is $6 and total overhead is $5 of which $3 is variable. What is Brother Company's total unit cost?
$17
Commonwealth Company has the following unit costs: direct materials $2, direct labor $4, variable overhead $1, fixed overhead $3. Under the absorption costing method, what is the total unit cost?
10
Loudon Company has the following unit costs: direct materials $6, direct labor $3, variable overhead $2, fixed overhead $1. Under absorption costing, total unit cost is:
12
Hamilton Company has decided to use variable costing and has identified the following costs: direct materials $5, direct labor $10, variable overhead $3, fixed overhead $2. What is Hamilton Company's total unit cost?
18
If income under variable costing is $500,000, fixed overhead in ending FG inventory is $10,000 and fixed overhead in beginning FG inventory is $15,000 then income under absorption costing is:
495000
When units produced equals units sold, income under absorption costing will be (>,<,=) net income under variable costing.
=
Cost information from (neither, both) costing method(s) is helpful to management in setting prices.
both
An income statement which shows the excess of sales over variable costs is referred to as a
cm
An income statement which separately reports variable costs from fixed costs is known as a(n)
contribution format
Sales minus variable costs is called
contribution margin
Makum Company is using variable costing. Which of the items below would you see on Makum's income statement?
contribution margin net income variable expenses
Regardless of whether variable costing or absorption costing is used, if quantity produced differs from quantity sold, income will be (similar, different, indeterminable).
different
The main difference between absorption and variable costing is their treatment of
fixed overhead.
Under absorption costing, fixed overhead is allocated to products sold, so when production is greater than units sold, net income will be (greater, less) than income calculated under variable costing.
greater
When units produced are less than units sold, net income computed under variable costing will be
greater
Makum Company is using a traditional (absorption) costing system. Which of the items below would you see on Makum's income statement?
gross profit net income cost of goods sold
The formula to convert income from variable to absorption costing is:
income under variable costing plus fixed overhead in ending finished goods inventory minus fixed overhead in beginning finished goods inventory.
Managers should accept special orders if the special-order price
is greater than variable cost
When units produced are greater than units sold, variable costing net income will be_ than net income calculated under absorption costing.
less
If management incentives are tied to income under absorption costing, which of the following may occur (select all that apply):
possible obsolescence increased financing costs increased storage costs.
A contribution margin income statement shows:
sales-variable costs
When using absorption costing, all of the following are included in product costs (select all answers that are applicable):
variable overhead direct materials fixed overhead direct labor
Which costing method can be helpful to management in setting prices because it reflects full costs that sales must exceed for the company to be profitable?
Absorption costing
(absorption, variable) costing is acceptable for external reporting under U.S. GAAP.
Blank 1: Absorption
Differences in income between variable costing and absorption costing is due to
timing
Production planning is important because producing too much can lead to (excess, insufficient) inventory.
Blank 1: excess
Contribution margin is the excess of
Sales - Variable Costs
The costing system which is considered acceptable for external reporting under U.S. GAAP is
absorption costing
When using absorption costing when production is greater than sales, a portion of fixed overhead is allocated to:
ending inventory
When units produced equals units sold, income under variable costing as compared to net income under absorption costing will be
equal to
A system of rewarding managers by linking bonuses to income computed under absorption costing may result in:
excess inventory buildup
The key difference between absorption and variable costing is
fixed
over the __ run, selling prices must cover both fixed and variable costs.
long
True or false: When units produced are less than units sold, net income under absorption costing will be less than net income computed under variable costing.
true
The variable costing method includes all of the following costs (select all that apply):
variable overhead direct materials direct labor
format income statement reports variable costs separately from fixed costs.
Blank 1: contribution or contribution margin
When units produced are greater than units sold under variable costing, fixed overhead is an expense and results in (lower, higher) net income than under absorption costing.
lower
If management incentives are tied to income under absorption costing, which of the following may occur:
possible inventory obsolescence
Under the (absorption,variable) costing method only variable costs are assigned to products.
variable
Since service firms do not produce inventory, they should focus primarily on
variable costs.
Service firms should focus on _____ costs in managerial decisions.
variable