Chapter 21 HW Review

Business Segment

An identifiable part of the company for which financial information is available is called​ a(n)

Variable costing

Emphasizes the contribution margin format of an income statement

Product

The primary difference between variable costing and absorption costing is in absorption​ costing, fixed manufacturing overhead is a __________ cost.

Variable

The product costing method that assigns only variable manufacturing costs to products is called​ _______ costing.

True

True/False Absorption costing includes fixed manufacturing overhead as a product cost.

True

True/False Companies are required to use absorption costing for financial reporting purposes because GAAP requires its use in the preparation of financial statements for external users.

True

True/False 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.

False

True/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.

False

True/False Management should use variable costing rather than absorption costing when determining product costs for​ long-term planning on sales prices.

True

True/False 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.

False

True/False Selling and administrative expenses are included as product costs in absorption​ costing, but not in variable costing.

False

True/False Under variable​ costing, the units in beginning inventory have manufacturing fixed costs assigned to them.

True

True/False When analyzing contribution​ margin, variable costing is preferred to absorption costing because fixed costs do not affect the contribution margin.

False

True/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.

Fixed manufacturing overhead costs are included in Finished Goods Inventory for absorption​ costing, but not for variable costing

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

There was an increase in the​ product's variable costs

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?

Because with capacity limits in the​ short-term, products with the highest contribution margin should be produced

Why is variable costing considered more appropriate for​ short-term production planning​ decisions?