Ch. 6 Accounting

Under absorption costing, it is possible to defer a portion of the fixed manufacturing overhead costs of the current period to future periods through the inventory account.

True

Under conventional absorption costing, the fixed costs associated with idle production capacity are not included as part of the product cost.

True

The costs assigned to units in inventory are typically lower under variable costing than under absorption costing.

True

Under absorption costing, fixed manufacturing overhead is treated as a product cost.

True

Sharron Inc., which produces a single product, has provided the following data for its most recent month of operations: Number of units produced 3,000 Variable costs per unit: Direct materials $91 Direct labor $13 Variable manufacturing overhead $7 Variable selling and administrative expense $6 Fixed costs: Fixed manufacturing overhead $237,000 Fixed selling and administrative expense $165,000 There were no beginning or ending inventories. The variable costing unit product cost was: A. $111 per unit B. $190 per unit C. $117 per unit D. $110 per unit Direct materials $91 Direct labor 13 Variable manufacturing overhead 7 Variable costing unit product cost $111

A. $111.00

When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will: A. tend to fluctuate in the same direction as fluctuations in the number of units produced. B. tend to remain constant. C. tend to fluctuate in the opposite direction as fluctuations in the number of units produced. D. fluctuate without any relation to the number of units produced.

A. tend to fluctuate in the same direction as fluctuations in the number of units produced.

Yuvil Corporation produces a single product. At the end of the company's first year of operations, 1,000 units of inventory remained on hand. Its variable manufacturing overhead cost is $45 per unit and its fixed manufacturing overhead cost is $10 per unit. Yuvil's absorption costing net operating income would be higher than its variable costing net operating income by: A. $0 B. $10,000 C. $35,000 D. $45,000 Because beginning inventory was zero and 1,000 units were in ending inventory, fixed manufacturing overhead was deferred inventory. Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($10 per unit × 1,000 units) - $0 = $10,000. Because $10,000 of manufacturing overhead was deferred in inventory, absorption costing net operating income was $10,000 higher than variable costing net operating income.

B. $10,000

George Corporation has no beginning inventory and manufactures a single product. If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will: A. be equal to the net operating income under variable costing. B. be greater than the net operating income under variable costing. C. be equal to the net operating income under variable costing plus total fixed manufacturing costs. D. be equal to the net operating income under variable costing less total fixed manufacturing costs.

B. be greater than the net operating income under variable

If a cost is a common cost of the segments on a segmented income statement, the cost should: A. be allocated to the segments on the basis of segment sales. B. not be allocated to the segments. C. excluded from the income statement. D. treated as a product cost rather than as a period cost.

B. not be allocated to the segments.

A national retail company has segmented its income statement by sales territories. If each sales territory statement is further segmented by individual stores, which of the following will most likely occur? A. some common fixed expenses in the sales territory segmented statement will become traceable fixed expenses in the individual store segmented statement. B. some traceable fixed expenses in the sales territory segmented statement will become common fixed expenses in the individual store segmented statement. C. the sum total of the individual stores' segment margins in each sales territory will be equal to the segment margin for the sales territory. D. the sum total of the sales territory segment margins will equal the total net operating income for the entire company.

B. some traceable fixed expenses in the sales territory segmented statement will become common fixed expenses in the individual store segmented statement.

The principal difference between variable costing and absorption costing centers on: A. whether variable manufacturing costs should be included in product costs. B. whether fixed manufacturing costs should be included in product costs. C. whether fixed manufacturing costs and fixed selling and administrative costs should be included in product costs. D. whether selling and administrative costs should be included in product costs.

B. whether fixed manufacturing costs should be included in product costs.

Under variable costing, fixed manufacturing overhead is: A. carried in a liability account. B. carried in an asset account. C. ignored. D. expensed as a period cost.

D. Expensed as a period cost.

Under variable costing, which of the following is not expensed in its entirety in the period in which it is incurred? A. fixed manufacturing overhead cost B. fixed selling and administrative expense C. variable selling and administrative expense D. variable manufacturing overhead cost

D. Variable manufacturing overhead cost

Under absorption costing, fixed manufacturing overhead cost is not included in product cost.

False

Under variable costing, variable production costs are not treated as product costs.

False

Under variable costing, fixed manufacturing overhead cost is not treated as a product cost.

True

Under variable costing, product costs consist of direct materials, direct labor, and variable manufacturing overhead.

True