Accounting Chapter 21 Bullen
Variable costing A. Includes fixed manufacturing overhead as a product cost B. Highlights gross profit on the income statement C. Emphasizes the contribution margin format of an income statement D. Uses Cost of Goods Sold to calculate contribution margin
C. Emphasizes the contribution margin format of an income statement
The product costing method that assigns only variable manufacturing costs to products is called _______ costing. A. Fixed B. Absorption C. Variable D. Period
C. Variable
An identifiable part of the company for which financial information is available is called a(n) A. Business Segment B. Business Division C. Financial Operation D. Accounting Segment
A. Business Segment
Which of the following would not be a reason why the total contribution margin of Business Segment A would be higher than Business Segment B? (check all thatapply) A. The total fixed costs of Business Segment A are lower than Business Segment B B. The total fixed costs of Business Segment A are higher than Business Segment B C. The total variable costs of Business Segment A are lower than Business Segment B D. The total revenue of Business Segment A is higher than Business Segment B
A. The total fixed costs of Business Segment A are lower than Business Segment B B. The total fixed costs of Business Segment A are higher than Business Segment B
Which of the following would be a reason why a company's contribution margin ratio for a product would decrease from one period to the next? A. There was an increase in the product's variable costs B. There was an increase in the product's sales price C. There was a decrease in the product's fixed manufacturing costs D. There was an increase in the product's fixed manufacturing costs
A. There was an increase in the product's variable costs
Why is variable costing considered more appropriate for short-term production planning decisions? A. Because lower level managers have full control over most fixed costs B. Because with capacity limits in the short-term, products with the highest contribution margin should be produced C. Because variable costing uses a traditional income statement approach which is more beneficial to lower level managers for short-term decision making D. Because with capacity limits in the short-term, products with the lowest fixed costs should be produced
B. Because with capacity limits in the short-term, products with the highest contribution margin should be produced
When the production of units exceeds the sales of units during a period, the Finished Goods Inventory balance will be higher under absorption costing compared to variable costing because A. Selling and administrative costs are included in Finished Goods Inventory under absorption costing B. Fixed manufacturing overhead costs are included in Finished Goods Inventory for absorption costing, but not for variable costing C. Variable manufacturing overhead costs are included in Finished Goods Inventory for absorption costing, but not for variable costing D. None of the above
B. Fixed manufacturing overhead costs are included in Finished Goods Inventory for absorption costing, but not for variable costing
The primary difference between variable costing and absorption costing is A. in variable costing, fixed manufacturing overhead is a product cost. B. in absorption costing, fixed manufacturing overhead is a product cost. C. in variable costing, variable selling and administrative costs are product costs. D. in absorption costing, fixed selling and administrative costs are product costs.
B. in absorption costing, fixed manufacturing overhead is a product cost.
When a business has two or more business segments, what is meant by the term"common costs"? A. Costs that apply only to one business segment B. Costs that vary depending on the level of activity in a business segment C. Costs a company incurs that supports more than one business segment D. Costs that are relevant to determining the contribution margin of each business segment
C. Costs a company incurs that supports more than one business segment
Winters, Inc. is preparing financial statements to be distributed to investors and creditors. The company should prepare the income statement using A. variable costing because it is better for planning purposes. B. variable costing because it follows GAAP. C. absorption costing because it is better for controlling purposes. D. absorption costing because it follows GAAP.
D. absorption costing because it follows GAAP.
Because a service company does not sell any inventory, service companies only have fixed costs. True False
False
Management prefers to use absorption costing for planning and control decisions because it is less likely for production supervisors to manipulate production levels to earn incentive bonuses based on operating income for a period. True False
False
Management should use variable costing rather than absorption costing when determining product costs for long-term planning on sales prices. True False
False
Selling and administrative expenses are included as product costs in absorption costing, but not in variable costing. True False
False
Under variable costing, the units in beginning inventory have manufacturing fixed costs assigned to them. True False
False
When the production of units exceeds the sales of units during a period, operating income will be higher under variable costing than absorption costing. True False
False
Absorption costing includes fixed manufacturing overhead as a product cost. True False
True
Lower level managers should use variable costing rather than absorption costing for cost control decisions because lower level managers usually do not have control over most fixed costs. True False
True
Operating income will be the same between variable costing and absorption costing when the production of units equals the sales of units during a period. True False
True
When analyzing contribution margin, variable costing is preferred to absorption costing because fixed costs do not affect the contribution margin. True False
True
